Quinn pension plan: Pay more, retire later

Gov. Quinn

By Andrew Thomason
SPRINGFIELD — Gov. Pat Quinn's pension reforms give public employees two choices: get on board with his reforms or face a smaller pension and no state help for retiree health care.
Quinn detailed his proposal to fix Illinois' ailing public pension system, which will consume 15 percent of the state's operating budget this year, up from 6 percent in the fiscal 2008 operating budget.
"We cannot let that continue to grow and grow and grow," Quinn said Friday at a Chicago news conference, later adding that "this is not a time for timidity, this is a time for fortitude."
Beyond eating up more of the budget each year, the state's public pension system is facing a $83 billion shortfall.
Quinn's plan would have current employees:

  • Pay 3 percent more into their pensions;
  • Reduce future retirees' cost of living adjustments;
  • Raise the retirement age from 65 to 67 for all current employees.

His plan would not affect current retirees.
Employees could forgo these options, but at a cost. Anyone opting out of Quinn's plan wouldn't have future pay increases count toward their calculated pensions, and wouldn't receive any state subsidies for retiree health care. Quinn said 90 percent of current retirees receive some state subsidies for health care.
Illinois is set to spend $950 million on retiree health care next fiscal year, according to an April 9 report from the Illinois Policy Institute, a right-of-center think tank.
"You can't have both. You cannot have the current retirement plan and have the state of Illinois subsidize your health care," Quinn said.
The public unions covered by public pensions came out swinging after Quinn's announcement.
"We strongly disagree with the proposals made today. Considering that the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible" Illinois AFL-CIO President Michael Carrigan said in a statement.
Carrigan's response, which was made on behalf of a coalition of Illinois public unions called "We are One Illinois," did not offer a counter-solution or proposal to Quinn's plan.
Quinn's plan also includes pushing more of the costs of teacher pensions onto school districts, and having universities paying more for their employee's tuition. During his Friday news conference, however, Quinn did not set a schedule for when this would happen, or how much he wanted school districts and universities to pick up.
State House Republican Leader Tom Cross, R-Oswego, has been pushing legislation to rein in the cost of public pensions for the past two years. He said Quinn's plan has some "really good aspects," except for shifting pension costs to school districts and universities.
"That, in my mind, is a property tax increase," Cross said.
Unlike Cross, state Senate President John Cullerton's office said the Chicago Democrat supports Quinn's plan, including eventually shifting pension responsibilities to school districts and universities.
"Universities, community colleges and school districts should assume the responsibility for normal pension costs of their employees. Cullerton would support a proposal to phase in this plan in a way that gives districts time to consider how to assume that responsibility appropriately," Rikeesha Phelon, Cullerton's spokeswoman, said.
Quinn's proposals must make their way through the meat grinder of the Legislature before they can be signed into the law, which is enough to cause a hint of concern for some.
"The governor's announcement today demonstrates important movement toward solving our pension problems, but the devil is always in the details," said Ty Fahner, president of the fiscal watchdog and pension reform advocacy group, the Civic Committee of the Commercial Club of Chicago.
The worry in everyone's mind when talking about any pension changes is a clause in the state constitution that calls public pension "an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."
Cross warned Friday that the state must be prepared for a legal fight.
"I think at the end of the day, regardless of what we do, it is going to end up in the court," Cross said.
Judging from the public union's response, Cross' prediction would be fulfilled.
"Forcing public servants to choose between two sharply diminished pension plans is no choice at all. It is a clearly illegal attempt to solve the problem," Carrigan said.
Related document
Governor's pension plan news release
Details of the pension proposal (from CapitolFax.com)

Comments

Pension Reform

I agree that turning the pension [and other benefits] back to the local schools and city government.
But the State should also remove the State laws including Constitutional that forced/allowed local schools and governments to offer/feel required to offer.
Local schools and government should be able [and I hope will] convert to Defined Contribution for new AND existing employees and even ‘claw-back’ benefits that were promised that had no economic justification---and especially when given by special deals, special legislation, bad/illegal legislation.
While schools/government such as Evanston have entered into bad contracts for benefits, the State is complicit if not responsible for permitting/requiring bad contracts.

Pension

Educators entered into a contractual relationship with the State of Illinois.   In TRS members put in about 9.5 percent.  We had no choice this investment.  in return were told what we would get for certain amount of years of service at different ages.  Taking that away is like getting a fifteen year mortage and making payments on it and then being told near the end that the bank had not done as well on your money as they had hoped so they want you to have a thirty year mortage intead- after all lot of people do.  So it is not acceptable to raise the age for current employees by taking away their current plan however if you offered many employees the choice to have their contributions to invest they would do it to have their fate in their own hands.  It is not teacher contributions or pension payments that created this issue it is high salaries of administrators and a small group of people getting bonuses that are now threatening to destroy the security of a profession and putting our state at risk or attracting the best teachers.
Did you know Illinois teachers don't get Social security  in most cases even if we have earned a benefit and we dont get spousal benefits either?
Did you think about whether this is a job you can do for 45 years and needing to stay in one place since if you move you are given a starting salary and also subject to being laid off first in any layoff despite your performance?
Education is a unique profession and while changes are needed they must be phased in a way that  offers fair choices andrespects the service of long term employees who are also taxpayeers and committed to the future of this state, 

Social Security

I'm confused - why would teachers get Social Security if you don't contribute to it (assuming your entire career has been a teacher and not in another field where you paid into it)?
If I was a teacher and concerned about having enough income in retirement I would opt for an IRA.
Education is a unique profession which had been dominated by Unions who obviously aren't too smart since we're in this pension mess. The pension problem is just like a Bernie Madoff ponzi scheme and the wheels are now falling off. Apparently unrealistic calculations don't turn out too well in the end.

Pension reform

I am a teacher, and my mother who has been a teacher for 35 years is set to retire next year.
Teachers have two choices when it comes to government-mandated retirement savings 1. COntribute to TRS(teacher retirment system) or 2. Have the equivalent money taken for social security.   WIth close to 10% of your salary taken out for one of these options, it is not simple to just take an IRA in lieu of TRS.. Although, many teachers can and do take out IRAs on top of these government-managed retirement investments.
It's not a matter of the unions not being smart, or the unions having caused this mess, in isolation.Everyone who cast a vote played a role in the mess, and a mess it is.  
Here is a bloomberg article that describe in detail the situation:   http://www.bloomberg.com/news/2012-04-09/illinois-is-pension-basket-case...
   In short, tHe unions negotiated a deal with  politicians who promised 8.5% return on  money taken from teacher paychecks, compounded yearly.  However, the state of Illinois sold bonds to cover only 5% returns.  They figured they would make the other 3.5% in the market. Two problems with this- 1. Not all the bond money was put back into the pension system 2. The investors didn't make the additional 3.5% compounded interest in the markets.  On many years, they actually lost money.  
   The politicians should never have promised 8.5% returns.  It was the politically easy thing to do when times were good, but it was the wrong decision.
What is needed is a hard dose of reality.  ONly 2/3 of the pension portfolio is even left, since last year 1/3 was sold off to pay current pensioners.
  As I see it, there are now two choices:
1.Declare bankruptcy or tell pensioners that they will get 1/3 of the promised returns. 
2. Make tiny little changes for current pensioners and some changes for future pensions and hope that we can borrow with more "build american bonds" to kick the can down the road a little longer, at least until the current politicians are set to retire.
3. HOpe the federal reserve will have another round of quantitative easing and with this money buy state bonds.
RIght now, our legislature is choosing route #2 or #3. 
If I was in charge, I would do #1.  It's an extremely harsh medicine to swallow, but at least teachers will get  money tht has value.  By waiting around and doing #2, teachers risk losing everything as the politicians sell off more and more of the TRS portfolio.  If #3 is enacted, everyone will get the amount of dollars they are promised but the dollars will buy less than they do now, essentially #1 in a round-about way.
You just can't change the numbers.  The money is not there, and increasing taxes isn't working (See bloomberg for this info).

State responsible / Social Security

The pension system is designed to replace social security for the teachers/ state employees/etc.
Social security works in that the employee pays in as does the EMPLOYER.
As part of the state's responsibility to educate the state pupils, The state took on the portion of what would be contributed to social security by the employer. They don't always pay it.  (What would happen if a company didn't pay it's social security tax?)
It is this contribution that has been the source of problems. The shortfall is that the state has not been paying in to the pension for so long the investment income from the teacher paychecks cannot cover the difference.
If the state defaults on the pension, the employees have neither a pension that they have been paying into all their career, as well as no social security (even WalMart greeters have this paid for as employees). 
It is the state which has been Irresponsible.

impossible to pay what we owe

Think of the problem like this-
My mom is supposed to be retiring in a few years with approximately $90,000 a year pension.  HOwever, in the town she works for in Illinois, the mean salary is roughly $30,000 per working adult in before taxed money.
The state of Illinois has the money to cover 36% of the promised return, as reported in Bloomberg.
What are you going to do? Have 3 or full time working adults taxed at 100% to pay off just one pensioner?
What about the other pensioners and services of government?
If you want to talk ethics, how is it ethical to bankrupt everyone else so that a few can have promised pensions that were impossible to meet from the start.  An 8.5% risk-free return was an impossible promise.
The numbers don't add up.    As I said,  this affects my own family too- but the right thing to do is to call a spade a spade.  There is not enough money to pay the promised pensions.  Illinois should go bankrupt and start again with realistic promises. I believe no Illinois politician will make this hard choice because the teacher unions will not accept this reality, so the state of Illinois is in for a wild ride.
 
 
 

401(k) [Defined Contribution] or 0 to 33% later ?

i would think the government and school workers would WANT to have the pension converted to a 401(k)---at least that will mean there will be something there when they retire [or forced to retire] and they can take it to their next job.
As it is the pension money will not be there---either taken out already by those who retired earlier, fund earnings below what is expected/needed or the city/state just plain not having the money.  You hear that the state consitution and maybe other documents 'assure' they will be paid---but they are just paper documents.  If there are no funds, taxpayers demand a drastic cut, or to be overly dramatic all the people leave the city/state, do you think the 'magic money' will still appear ?
The workers should recognize that there is a bad situation and get what they can instead of holding on to some dream of a magic bailout.
 

Would you accept a 60% pay cut without a protest?

I agree with you. 
However,  how would you react if you were told you would be 60% less than promised?
I understand why teachers are mad.  Heck, do you think I'm happy about this or would advocate for taking 30 cents on the dollar if there was any other way?  Heck no! 
The problem is that most people simply don't realize how bad the situation actually is.   Many of those who have seen the numbers are in denial-  Those who realize that there's a problem are mad...
Class stages of going through a crisis:
Denial- no problem, we're going to get our $.  The people will find a way.
Anger- You are going to pay us because it's the ethical thing to do
Bargaining- well, we might not get all the promises, but we should get most of them.
Despair-  How will I live!  I can't do it! 
Acceptance-  This is the situation, this is what I'm going to get.  I need to plan accordingly.
 
   If anyone has another logical way to find 60% more money quickly, let me know.  I'd gladly turn over my personal money for you to become my investment advisor.
 

Teachers do not pay into social security

I think we need to dispel this myth once more, clearly:  Teachers do not pay into social security and do not have this option in the state of Illinois.  Teachers cannot move their money from TRS into an IRA or anywhere else.  TRS is the ONLY option legally available to teachers. 
To understand this crisis and who is at fault, simply equate TRS with Social Security:  a company cannot default on its contribution to a worker's social security benefits, but our state opted NOT to give public school teachers the option of social security because the state realized that it could not pay its fair share, and could not risk being held accountable by the federal government.  As a result, teachers have paid in the fair contribution, but the state has not.  In other states, teachers do pay into social security and there is no pension.
The solution to this problem is not to bankrupt current retirees and future retirees by eliminating 2/3 of their retirement savings, as "Jen" proposes.  Not only is this suggestion unethical, but it is patently illegal at the federal level here in the United States. 

YOu can move your money from TRS to social security instead

As a teacher, you do have the option of pulling your money from TRS and going with social security instead. It requires some paperwork and there may be penalties, but you can do it. . IF you don't believe me, go talk to your chief financial officer in your school district.  YOu can not, however, choose to opt out of both.
Unethical or not, only 1/3 of the money is there.   Raising the taxes 60% has not even made a dent in the problem. 
YOu may get your full promised pensions, but the only way this will happen is if the fed prints money and gives it to the states directly or indirectly through purchasing Illinois bonds. .
Either way, you get 1/3 of the value of the money. My guess is that this scenario is most likely, as people will not accept the sour news and politicans are too weak to tell the truth.  You putting my name in quotes makes that quite evident.
Social security is not in any better shape, but the big difference being the federal government is printing money to pay off the debs, but Illinois can not print money.
Personally, I don't plan on relying on my TRS money to retire, and my mother has been putting away and additional 50% of her paycheck for years  to save for retirement on top of TRS contributions.  If you have not done so, I'm sorry for you.
 I wish there was better news.  The titanic is sinking.