Tuesday, November 14, 2017

The So-Called Illinois “Pension Crisis”

“…While Illinois has very real challenges, it is not for the reason anti-pension actors claim… Illinois receives a lot of criticism because of the sheer size of its unfunded pension liability. According to some estimatesIllinois’ total unfunded public pension liability may add up to $251 billion. That is a significant amount of money, but an unfunded liability that large doesn’t happen overnight.

“The poor state of Illinois’ public pension plans is the direct result of decades of gross mismanagement by the state government.

“Public pension plans work when they are properly funded. As [the National Public Pension Coalition] discussed in a report last yearmaking the full pension payment each and every year is the single most important thing a state can do to properly manage its pension system.

“Unfortunately, in Illinois, the state has not fully funded its pension payments in almost eight decades.

“Let that sink in for a minute. For seventy-eight years – the length of the average American life expectancy – Illinois has ignored its obligations to public employees and taxpayers and avoided its responsibility to fully fund its pension promises.

“Illinois’ budgetary and financial problems go beyond public pensions though. The income tax collected by the state is flat and lacks a progressive structure. The state could be collecting millions of dollars more in revenue each year if it adopted a more progressive tax code.

“Voters approved a measure in 2014 calling on the state legislature to collect a 3 percent tax on incomes above $1 million to fund education. Unfortunately, the state legislature failed to pass the millionaires tax. Furthermore, many corporations in Illinois avoid paying their fair share – or paying any tax at all. Illinois’ pension problems are a symptom of, not the cause of, its large financial troubles.

“It is not the nature of defined benefit pensions themselves that are causing Illinois’ problems. Wisconsin, the state’s northern neighbor, has a fully funded public pension system. New York, another large state with multiple public pension plans, has very well-funded pension systems.

“Even within Illinois, the Illinois Municipal Retirement Fund (IMRF) is well-funded. IMRF provides retirement security to employees of towns, villages, park districts, and counties across the state. The participating employers in IMRF are required by law to make their full pension payments each year. For this reason, the IMRF weathered the recession and remains well-funded.

“Illinois does face real challenges with its public pension systems, challenges that will take years to resolve. There is no magical solution to fix the state’s problems. Anyone who says that closing the pension plans and putting new employees in 401(k)-style plans will solve the state’s problems is wrong…

“Illinois’ pension problems are the direct result of years of mismanagement and deliberate underfunding by governors and legislators of both parties. Resolving these problems will take the commitment of lawmakers from both parties to fully fund the state’s pension obligations every year.

“Don’t let the pension critics fool you. When they hold up Illinois as an example and say, ‘see, pensions don’t work’ – don’t believe them. Pensions work when they are properly managed and properly funded.

“Across the nation and even within Illinois, there are examples of well-funded public pension plans. The problem with the other pension plans in Illinois is that they were deliberately underfunded by an irresponsible state government for decades. This is why it is critical that supporters of public pensions remain vigilant to protect pensions from irresponsible politicians and misleading anti-pension critics” (The Pension Crisis Is a Myth, Part Three).


Many Illinois citizens are aware that state legislators have not fully funded the public pension systems throughout the years; that instead of paying into the pension systems, they have used that money to pay for other services. Thus, without having to pay for services, state legislators have created an enormous pension debt (or unfunded liability) for the public pension systems in Illinois. The pension debt is, indeed, exorbitant.

Approximately one-third of the total pension payment each year is for “normal costs” to the system; the other two-thirds of the payment is the interest owed on the debt the state incurred for not fully funding the pension systems.

“The greatest cause of the state’s unfunded liability has been borrowing against the pension systems. This borrowing meant that the state’s contributions were not sufficient to pay for both benefits earned by current employees and interest on the pre-existing unfunded liability. Without sufficient contributions, an unfunded liability annually grows by a retirement system’s investment rate assumption (which ranges from seven percent to eight percent among Illinois’ five state systems).

“The state’s annual contribution to the retirement systems for debt service can be thought of as having two components: one part goes to pay down principal and the other is for interest on the principal. This is similar to paying down a credit card bill or home/car loan.

“The significant debt owed to the pension systems is the core cause of the systems’ cumulative unfunded liability—a situation that did not arise overnight. In fact, Illinois lawmakers essentially borrowed against the pension systems for several decades by under funding what was owed, and instead diverted the revenue that should have gone towards pensions to fund the delivery of current services—like Healthcare, Education, and Public Safety” (Center for Tax and Budget Accountability).

The public pension systems were not and are still not the cause of the state’s budget deficits. The state’s budget deficits were triggered by past policymakers’ corruption, arrogance and irresponsibility (and currently by Bruce Rauner, et al.).  The state's pension debt and revenue problems should be the focus. Moreover, to break a constitutionally-guaranteed contract with the state’s public servants has been and will continue to be a flagrant disregard of the State and U.S. Constitutions, and it will also not address the State’s increasing unfunded liability and revenue problems.  

1 comment:

  1. The significant issue of so-called “pension reform” is its attack on public employees’ rights to constitutionally-guaranteed, earned compensation and the legislators’ obligation to safeguard those promises. Any unconscionable constitutional challenge of those rights and earned benefits generates a serious threat to their secure sense of worth as citizens and creates the unfair possibility for an economic disadvantage for a particular group of people and their families. This can never be legally or morally justified.

    Public employees are promised certain retirement compensation. It is earned; it is not a gratuity. They expect and plan their lives based upon these promises. “The very idea that [the state can] hold [public employees’ lives], or the means of [their] living, or any material right essential to the enjoyment of life, at the mere will of another ‘has been thought’ intolerable in any country where freedom prevails” (Locke, Two Treatises of Government).

    State “governments must respect ‘vested rights’ in property and contract…” (Tribe, American Constitutional Law). We should be able to assume most legislators in Illinois understand this concept of justice and that lawfulness demands that people keep their "covenants" with one another. Regarding any pension reform, no justice is accomplished when subordinating or diminishing public employees’ rights and benefits that were earned because of past legislators’ negligence, irresponsibility, and corruption.

    All citizens of the State of Illinois have legal justification for their rights. As stated, the foundation of their rights is the State and U.S. Constitutions that directly support any claims against them. State contracts are protected by the federal government. Understandably, the 5th and 14th amendments of the United States Constitution protect due process of law. The legal basis for protection of past-and-future public pension rights are established in both constitutions.