State Rep. Daniel Biss of Evanston says he’ll hold a town hall meeing later this month to discuss two pension reform bills he’s introduced in the state legislature.
One proposal, House Bill 6149, would set up a new type of plan, known as a cash balance plan, for future public employees.
Biss says that like current state pensions, a cash balance plan is a type of defined benefit plan. But its benefits are tied closely to contributions and investment returns, the risk is shared between the state and the employee, and costs are predictable. (More details about the proposal and questions frequently asked about it are available online.)
Biss says the state has demonstrated a clear inability to properly manage traditional defined benefit plans. “we consistently underfund them, we repeatedly fall victim to actuarial error, and we create loopholes that can be and frequently are abused in ways that are both offensive and expensive.”
But, he adds, switching to a 401(k)-type defined contribution system would create a huge cash flow problem for the pension funds and would leave public employees, most of whom will not receive Social Security, without any guaranteed retirement security.
“A cash balance plan splits the difference in that it provides a guaranteed minimum benefit for every employee but has predictable and manageable cost and is not susceptible to abuse,” Biss claims.
The second bill, House Bill 6150, would create a benefit buyout program for current employees, giving them an option to forgo future benefits in exchange for an immediate cash payout.
Current employees could choose to increase their retirement age, or choose to forgo future automatic increases in their pensions. Actuaries would then calculate the savings to the state and the employee would get an immediate check for one-third the savings.
The idea behind this plan is that research shows that some employees value immediate compensation more than they value deferred compensation. HB6150 would give them the option to take a portion of that compensation while saving the state an enormous amount of money.
“These bills do not by themselves solve our state’s pension challenges — nor does it make sense to pretend that as a freshman legislator I’ll be able to single-handedly close the book on one of the most substantively, politically, and legally challenging issues we face,” Biss says.
But he said with many policy proposals on the table, he believes his bills “represent a genuine and valuable addition to the discussion.”
The town hall meeting will be held at 7 p.m. on Monday, April 30, at the Glenview Police Station, 2500 East Lake Ave.
Daniel proposes an end to pensions!!
I like that Daniel proposes an end to pensions.
I talked to 4 teachers (2 retired) and they all agree their benefits are ridiculously over compensated for retirement benefits.
My 2 retiree’s elaborate about keeping the economy afloat. Every two years they buy a new car. Uncle Sam sends them a check for more money than they can spend, receiving 280% payout on their contributions. While the (mean) tax payers picks up their new life style.
I talked to four people on fixed income retirement, they are not so lucky. Their Advisors told them they should expect 6 to 10 percent returns. They paid into thier 401K but and never received the public pension privy! Because they pay for the pensions issues, they skip meals and hope their car will make it through the next Midas checkup
.
Thank you Daniel, end the Pensions Today!!
The best pension solution? Vote out ALL Democrats!!
These plans are bogus – nothing more than window dressing.
They do NOT remedy our unsustainable government union pension system, set to dissolve in about seven years.
There already has been pension reform for future pensioners. And few pensioners would opt for a buyout, knowing the lavish pension retirement they think they deserve.
Most government union employees can retire in their early-mid fifties, earning an annual pay of 50-75 percent of their final salary for the rest of their lives. To top it off, union pensioners receive an automatic 3 percent pay raise each year in retirement and they pay little to nothing for their healthcare.
Just ask yourself, what do Biss' two plans do in the case of our last police and fire chiefs, who recently retired in their early fifties with an annual six figure pension and both of whom were just hired in the same capacity, making a six-figure salary, and getting credit to receive another pension in 10 years?
Answer – NOTHING.
Biss is a Democrat, and Democrats receive 90 percent of all union campaign donations. Why do you think unions exclusively support Democrats? Two years ago union members protested in Springfield, demanding a TAX HIKE. Shortly afterward, Democrats raised our income taxes 67 percent!
The only way to reform the CURRENT pension system is to vote for ANYONE BUT A DEMOCRAT!!!
I think you misread
According to this proposal, I believe, pensionser would be required to switch to the new plan — BUT of those that wish to then increase their retirement age or reduce their future benefits, can receive an immediate cash bonus of one-third of the calculated savings.
Good ideas from Biss- but more focus needed on current debt
I like this cash balance plan. It makes financial sense. I also like the benefit buyout program, as it gives public employees who are investment saavy with an alternative to the state managing their money. However, if the state lets employees pull out of their retirement money, will the state be willing to draw a hard line if people spend all the money and have nothing left to live off? I hope that if this passes that Biss and co. make 100% sure that people understand the risks of this option.
However, these two bills don't address that the current pension system is essentially bankrupt.
Last year, the TRS fund sold off 1/3 of it's portfolio to pay current teacher pensions(and that was after the 60% tax increase). If this course continues, soon there won't even be money left to pay back the principle investment money taken from teacher's paychecks.
If Quinn just pushes all this pension debt to individual cities, how many cities will be able to pay off this debt? Will teachers working for low income districts receive nothing while teachers from high income districts receive all the promised money?
THe state promised unrealistic returns, and the state should be the one fixing this problem now- not pushing it to cities.
I'd like to see some hard core proposals on how the state plans to either make good on current pensions in the long run, massively reduce the pension debts to manageable levels (like 30-40 cents on the $1), or declare bankrupcy and start anew.
The teacher unions and other unions have to understand that if nothing changes, they(me too, I"m in the teacher union) risk losing everything as there is just not enough money.
Biss pension town hall
See also: "Rep. Biss Holds Town Hall Meeting on Pensions" by John Laesch, at The Progressive Fox blog. http://www.progressivefox.com/?p=3348
Yes, end pensions now!
And, to make it better, teachers don't get social security! That way hey can work until they die, or else be homeless. It serves them right for working for big government and educating our rotten kids.
If they don't like it, they should have taken a real job, like being a banker or lawyer.
Pension obligation at realistic rate
Has the Evanston pension obligation [schools and government—and anyone else the Council 'gifted' into it] been calculated at the more reasonable expected 3-4% rate or even 5% rate rather than the 'Deus Ex Machina' assumptions the city has been using ?
The public should be told what the realistic obligation is.
Pension obligations
Why not use a realistic 4% to 6% and then send the Mayor and Council to Stockton, CA to study the bankruptcy process…
Evanston bankruptcy—oops that was a story about Stockton
Huffington Post: “In recent years, thousands of new homes mushroomed in Stockton, part of a suburban housing boom that attracted buyers from the San Francisco Bay area and beyond. When the economy crashed and the construction bubble burst, Stockton was battered by foreclosures and lost income from property taxes and other fees. Multi-year labor contracts for city workers with escalating costs and generous retirement plans added to the burden. And expensive city investments – a promenade, a sports arena and a hotel – failed to produce an economic boon.”
Sounds like where Evanston is headed.
As a variation on the old saying goes: “A wine bar here, a theater there, a $2 million parking lot there, un-ending pension deals, failure to trim budgets/city employees, a TIF for every cause, etc., and pretty soon you are talking real money [and bankruptcy].”
Maybe if the Evanston City Council is so good at promising they will pull us out of the "hole" at some distant date, Stockton should hire them to solve its problems first. I'm sure they would love to have a rabbit pulled out of a hat.
The ONE BILLION DOLLAR question WALLY?
Last night I suggested at City Council the City of Evanston is moving to Bankruptcy , I pointed to a recent Wall Street Journal Article, stating that Accounting standards for governments were changing and they would be required to show REAL pension costs. I suggest that now the city was most likely over the 1 Billon Dollar debt level.
Wally responsed ( typically they do not respond to citizens) stating we were not at the Billion dollar level, then I ask back so what level are we at? Wally did not answer – we currently are at 888 million in debt, if the accounting standards are changing – and given almost 300 million of the debt is pension , its like this will well go up 30% or more pushing us close or over 1 Billion dollars.
One citizen last night also asked the question, about a tax increase, which I asked Wally several meeting ago, him and the Mayor looked at one another and then he gave a rambling answer with no answer, last years effective tax increase was 8% – given the pace of spending here it is very likely we will be at this level again if not higher and still in a huge mess.
Pension mirage
I agree that the public should be fully informed with respect to our pension "debt" (unfunded pension liabilities) and true pension "expense" – i.e. what does it really cost to provide the defined benefit pension plans that we are offering our public employees.
However, the current pension structure doesn't provide incentives for our public officials to appropriately and prudently recognize these costs. Why? One primary objective of a public official is to get re-elected. If you promise and give away benefits, you get votes. If you understate costs, and spend money on public projects, like roads, parks, and education, you get votes.
If you tell voters the truth and cut back on programs you lose votes.
Hence our current system. Who loses? Our kids and grandkids. They will be stuck with a big pension debt, and be required to pay more out of future taxes to pay off the promises made today. As i mentioned previously, we are going to leave our kids a big I.O.U. in their piggy bank instead of leaving them better off with a couple of nickels and dimes. Is this what we really want to do?
To fully understand the pension situation, you need to remember that as a taxpayer in Evanston, we are liable for City Pensions (Fire, Police and Illinois Municipal Retirement Fund – IMRF – for all city workers excluding public safety) Cook County Pensions, and State of Illinois Pensions. Ignore Federal pensions and entitlement programs for now.
Here is the link to the latest Fire Pension Fund Actuary Report:
http://www.cityofevanston.org/assets/Evanston%20Fire%20Report%202011–final.pdf
Page 10 shows that there are only $54mm of assets for a $119mm pension liability. Meaning that our pension "debt" just for the Fire fund is about $65mm and that's based on current assumptions. Page 18 shows that the assumed rate of return is 7.00%. This return assumption is likely going to be VERY difficult to reach over the next 10+ years since the current 10 year bond is only yielding 1.6% Normalized financial returns given Federal Reserve policy will likely be significantly below historical rates of return. Recall the Fed just stated that they will keep their low interest rate policy in effect "at least through late 2014."
In addition, there are investment restrictions for both police and fire funds which limits Equity exposure to a maximum of 45% and the Fixed Income investments are primarily in U.S. government bonds.
Generating 7.0% annualized, compounded returns will be VERY DIFFICULT in the future. So what does this mean? The current unfunded liability of $65mm (or pension debt) will likely INCREASE. Else future contributions into the Fire fund will have to increase. And that's in addition to a growing contribution of money that will be required to be contributed into the fund. Just look at page 22 for the growing amount of payments that are expected to be made to pensioners over the next 30 years.
What happens to these numbers if we use 6.0% or 5.0% instead of 7.0%? City Council and taxpayers should know this information TODAY to avoid bigger problems in the future.
Fire fighters and other public employees deserve to have a stable pension fund in order to feel confident that they will receive their pension checks in the future.
Here is a link to the Police Pension Fund:
http://www.cityofevanston.org/assets/Evanston%20Police%20Report%202011-final.pdf
Similar to the Fire Pension Fund, the Police Pension fund is also woefully underfunded. Page 10 shows only $71mm of assets for a $156mm liability or an unfunded pension liability of $85mm. The Police Fund is also assuming a 7.0% rate of return.
In total, just for Fire and Police pension funds, Evanston taxpayers are liable for $150mm of Pension Debt.
Now lets look at the Illinois Municipal Retirement Fund (IMRF)
http://www.imrf.org/portal/index.php?option=com_fjrelated&view=fjrelated&layout=blog&id=101&Itemid=30
While the IMRF has been one of the better run pension plans in all of Illinois they are facing growing issues. While their stated goal is to be 100% funded, this ratio has dropped to about 80% for 12/31/2011. However, the real funded ratio is 77% when all their investment losses are recognized. Government accounting allows for some "creative accounting." For some reason their 2011 reports aren't readily available on their website, but this link provides the pertinent information for 12/31/2011:
http://www.imrf.org/pubs/annual_reports/2011_popular.pdf
The significance of shortfalls at the IMRF suggest that the City of Evanston, along with all other cities in Illinois will likely be required to contribute more money into the IMRF to increase their funding ratio. Both District 65 and 202 also pay into the IMRF for some of their employees and will also be likely required to contribute more. These increased contributions will require higher taxes or reductions from current programs.
The other issue to consider is that the IMRF is assuming a 7.5% annual investment return. While they don't have the investment restrictions like Evanston Police and Fire Funds, generating a 7.5% annualized compounded return, i.e. doubling their money in under 10 years, is going to be difficult to accomplish.
Again, our public officials should be thinking about what happens if a 7.0%, 6.5% or 6.0% are realized. What does this do to the "Pension Debt" at IMRF? what additional funding contributions will be required from the City of Evanston, District 65 and District 202?
We should plan for more difficult scenarios and "hope" for the best.
Our current assumptions suggest a very optimistic outlook, one that appears less and less likely.
Cook County is another financial obligation for Evanston taxpayers:
http://www.openpensions.org/wp-content/uploads/2011-Cook-County-Actuary-Report-Combined.pdf
The Cook County Pension fund is only 57.5% funded, leaving Cook County taxpayers with $5.8 Billion of Pension Debt. Cook County also assumes a 7.5% investment return.
So what's the situation with the Cook County Pension Fund? Bridget Gainer, a Cook County Commissioner, published a report earlier this year which states that the fund will be INSOLVENT by 2038 – meaning they won't have money in the pension fund to pay retirees. Even though Cook County contributed money into the pension fund each and every year, they are facing a dire situation because of early retirement incentives, people are living longer than assumed, and realized investments returns are lower than assumed. Read the full report for more details:
http://www.openpensions.org/wp-content/uploads/Gainer-Truth-In-Numbers.pdf
Cook County's pension situation also suggests that Evanston taxpayers are going to have to pay more money into that pension fund. Again, these numbers are based on a 7.5% return assumption. What happens if the actual future returns are only 7.0% or 6.5% or 6.0%?
State of Illinois Pension funds represent another obligation. I'll examine the various State Funds in more detail at a later date, but suffice to say that the currently reported $83-85 Billion of unfunded pension liabilities or "State Pension Debt" woefully understates the severity of the problem. The primary reason is that several state funds are assuming a 7.75% return assumption and the biggest fund, the Teachers Retirement System (TRS), is assuming an 8.5% return assumption. The reported unfunded liability for TRS is $44 Billion, but that's based on the 8.5% return assumption. At 7.75% the "pension debt" increases from $44 Billion to over $50 Billion. But the 7.75% is still too high. What do these numbers look like at 6.0%, 6.5%, 7.0%?
These are questions that teachers, taxpayers, and legislators should be asking. Our children and grandchildren aren't informed and educated enough to be asking these questions at this time. Mature adults in leadership positions should be asking the diffult questions and taking the appropriate actions today, to enable our youth to have a better future tomorrow.