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Lawmakers, faced with a Wednesday deadline to pass some kind of pension reform, could not find support for an overhaul of benefits and payments. Nor did lawmakers even try to pass Gov. Pat Quinn proposal to have an unelected commission handle Illinois’ nearly $100 billion pension debt.

By Benjamin Yount

SPRINGFIELD  —  In the end, Illinois got nothing.

Lawmakers, faced with a Wednesday deadline to pass some kind of pension reform, could not find support for an overhaul of benefits and payments. Nor did lawmakers even try to pass Gov. Pat Quinn proposal to have an unelected commission handle Illinois’ nearly $100 billion pension debt.

“This is basically a recognition … that we need a new mechanism or structure to deal with this issue,” Quinn said at a late Tuesday committee hearing.

Quinn’s commission idea got a cold reception from lawmakers who question whether it would work, or whether it is even allowed under Illinois’ Constitution.

State Rep. Eliane Nekritz, the Northbrook Democrat who tried for months to shepherd pension reform through the Legislature, would only say the governor tried.

“There are clearly members who would prefer not to vote on pension reform,” Nekrtiz said. “This is an alternative to that.”

Nekrtiz had worked for months on legislation that would have frozen cost-of-living adjustments for retired public employees for six years, then tweak COLAs to apply only to the first $25,000 of a workers’ pension and made workers wait until age 67 to receive a 3-percent COLA hike.

The Nekrtiz plan was seen as the best chance for pension reform in years, but he could not convince recalcitrant lawmakers, and there was no vote.

State Rep. Dan Brady, a Bloomington Republican who represents a number of current and retired university workers, is waiting for a comprehensive reform package.
“I think it’s in the best interest of everyone that relies on a pension that we go back to the drawing board,” Brady said.

Going back to the drawing board likely means Illinois will have to wait until late May, when the spring legislative session ends, to see a vote on pension reform.

Quinn pleaded with lawmakers to do “something” on pensions “to show the bond houses we are serious.”

Illinois could face another credit downgrade. Standard and Poor’s downgraded the state in August, because of the inaction on pensions.

Illinois’ five pension systems are the worst funded in the nation, with a deficit anywhere between $96 billion and $130 billion.

Quinn said that deficit grows by $17 million a day, or $100 million a week.

But Illinois’ public employee unions, which have fought all pension reform proposals for years, said the answer is simply to find more taxpayer money to fully fund the plans.

Cinda Klickna, president of the Illinois Education Association, said Tuesday said that until lawmakers agree to raise taxes or fees, Illinois’ pension problems are not going anywhere.

“You have legislators who know that there needs to be a revenue increase,” Klickna said. “And you have other legislators who don’t want to engage in that conversation.”

A new Illinois General Assembly will be sworn in at noon on Wednesday and will face the same pension deficit and gridlock as the outgoing legislature.

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10 Comments

  1. You need to play by the rules even when punting

    The argument that the legislature punted the decision on pensions would imply that there was even an honest effort to abide by the rules and play fairly with the "opponents", i.e., the state workers, university and school employees and teachers and anyone else covered by these plans, as well as the "paying fans", i.e., the taxpayers. Sadly, the legislature the created the problem by its many years of unwillingness to fund the pension plans, the equivalent of changing the rules of the game or, in football terms, keeping the ball for hundreds of downs and never letting anyone else touch the ball (actually, they simply used them oney to fund pork-barrel projects, pander to the taxpayers by keeping taxes low, etc..

    Now, in a panic mode that seems not to panic anyone in Springfiled since their pensions are safe and they can always be appointed by the governor to another office if they lose, we have crisis that is blared over the airwaves and in headlines. Rather than own up to past transgressions and years of popular spending and unlawful non-funding, the state employees are asked to accept the greater part of the burden even, as others have pointed out, they paid their legal portion of the pension funds in the expectation of getting a pension as promised and as written into the Constitution.

    So what we have now are employees with, posssibly a generous pension system that also includes a COLA for which, ironically they paid an extra 1/2% to fund with each paycheck. Crucially, and a point that many seem to ignore is that many of these employees will never receive any social security benefits at all and that, whatever pension they get from the state is all they can ever expect. Had they, as do Evanston workers, also been paying into Social Security along with their pension contributions, they could, most probably, afford to accept a reduction in the pension, but most cannot. Even many of those who are covered by social Security will never see their full Social Security payouts because the US government reduces that payment under the, ironically named  "windfall elimination provision" that can reduce their Social Security by as much as 40% .

    What might have been fair, rather than Quinn's last ditch effort to make it appear he had any plan in mind or even the more recent Biss, et al scheme is to consider that employees could survive with a reduced COLA equivalent to the Social Security system of calculation, that they might even accept higher payments per month although they now pay in 8% versus 6.4% for those of you that pay your FICA (and this only after our two-year tax reduction has been repealed), but why should school districts that push the cost onto the State not be paying their share.

    We in Evanston pay out of the City budget for the employer's share of the employee pension and, in theory for those of the police and firemen, as well. That primarily comes from property taxes and sales taxes, etc. Our schools seem to have avoided the equivalent and, if you read the papers, it was clear that suburban and downstate legislators fought to avoid including a transfer of that responsiblity from the State to the districts. (The Trib has filled us with stories of districts that up the payouts for retirees knowing they need not worry about the cost). BTW downstate and suburban means Democrats and Republicans. Meantime, as citizens of illinois, you and I still are bound to pay for those school pensions, even for those same downstate schools that will not pay in. Why?  Even worse, ironically, Chicago is not "carried" in this manner by the State and, as a result, those folks pay their share of pensions (not well funded since Daley chose to cut funding to plant flowers and never raise taxes either) as well as carrying the rest of the State.

    In sum, no one wants to bite the bullet even a month after re-election and accept that there are no free lunches. Whatever pensions or other programs that the public wishes to have must be funded and not, as has been done once more, kick the can down the road again.  I think, by the way, that kicking the can is not the equivalent of a punt.

    Oh yes, for those who want to increase the tax on the top 2% or whatever to help us out of this mess will discover that the Illinois Constituion is not set up for a graduated income tax and also that coroporate tax is set as a fixed multiple (8/5 or 1.6) of the personal tax.

    Finally, as to Quinn's idea of a commission. Does anyone in Evanston truly wish to hand over responsiblity to a group of people appointed by Quinn, Madigan, etc and have their decision become binding without holding elected officials responsible? Maybe I missed that in my Illinois and US Constitution classes, but I always thought elected officials had a responsiblity  and a duty to vote for bills and eneact legislation and not pass the buck onto someone else who may have no responsiblity, legal or otherwise, to the public.

    Oh, yes, if this has been an indication of how the State wants to deal with pensions, what are the odds that they will come to the rescue of evanston and other towns with underfunded police and fire pension funds. That was, as I recall, one of the Mayor's and the Councils great hope to get us out of an equivalent mess..

     

    1. or ……..

      Could it be that the union leaders and political leaders, Quinn, Cullerton, and Madigan (and those that came before them), duped the union members and taxpayers. Could it be that this was a scheme to trade union benefits for votes? You betcha. Taxes were kept at a reasonable rate,unions got great benefits, the legislature got big salaries and benefits, and union leaders got out-of-this-world salaries and pensions. Everybody was happy in the last few years the ponzi scheme has spun out of control.

      It may be too late to save Illinois with the 10's of billions of dollars of debt.  It is mind boggling to think that the majority of people and union members are dumb enough to keep voting the same pols and union leaders back  back into office, again and again.

      What will happen next year when out state income tax automatically goes from 5 % to 3.5 % unless the legislature votes to keep it at 5 or raise it to 6, 7, or 8 percent.

  2. So true

    Bravo one smart guy. I feel no sympathy for any union workers.  The union is supposed to be "their" union, yet the members have allowed this situation to fester for decades upon decades now. 

    The periodic lame and empty calls by the unions asking the state to fund the pensions is not what the members should have accepted and members should have demanded radical change in the way their pensions were structured decades ago.

    It has been obvious to everyone that the union leadership and the democrat politicians were perpetuating a cozy ponzi relationship for their own benefit at the expense of rank and file, yet the rank and file stood by like dumb mutes incapable of taking control and forcing changes to "their" union and "their" money.

    In some instances, like Wisconsin, union members actually stand around and protest in support of the very organizations that ripped them off on each and every paycheck, how stupid is that?   

    To this day there is no demand from members for contract and system changes so they can take control of their own money, their own futures.  Instead you hear how they paid in, allowed themselves to be ripped off by their own unions and democrat pols, and now want everybody else to pony up and bail out their lame butts.  They deserve to lose their benefits, maybe then they will demand fundamental changes in how that cozy union/democrat skim that guaranteed cash flow scheme operates.

    It's about time union members stood up and took control of their union, their money, demanding an option other than funding the union approved pension ponzi scheme.

     

  3. Pigs get fat, but hogs get slaughtered,,,,

    Under most circumstances the old adge would hold true, but not in illinois the land of feed corn and greedy politicians. Here, it would seem, the hogs are the ones that get it all, leaving the lowly pigs or, better yet, the worker ants and drones to pay the ultimate price.

    Consider the following link that seems to indicate the biggest abusers are, in fact, the legislators themselves coupled with Chicago aldermen and union lobbyists and officials.

    What you do not see on the list are any teachers or other state workers further down the ladder or food chain. They simply paid into the system and assumed the state would honor its obligation to fund the system and ensure it remained solvent. Meantime, the boys at the top took advantage of loopholes and gorged themselves without a care since they would have enriched themselves sufficiently not to suffer when the bottom fell out

    http://media.apps.chicagotribune.com/pensions/index.html

     

  4. Illinois needs to tax services

    Illinois has a funding problem.  Educational funding is low at the State level compared to other States.  Pension funding has traditionally been skipped or payments made by borrowed money when tax increases were necessary to fully fund it's liability.   Bonds have consistently issued to pay for the day to day operations.  The State personal income tax increase wasn't enough to offset the lack of necessary funding for generations. 

    Why isn't the answer for the State to find ways to increase revenue?  Services represent a large majority of the commerce in the state.  Tax services now. 

    Any pension "reform" option on the table punishes the exact people who fully funded their portion of the pension.  Employees and retirees should not bear the brunt of any changes. 

    The Senate bill gives employees a choice of subsidized health care or continuation of annual COLA increases. 

    That and a new Tier 3 retirement option for future State employees going forward would meet Illinois Constitutional requirements.  Something must be done…on funding.

    1. Illinois has a Leadership and Management Problem

      The pension problems confronting Illinois are due to many factors, including lack of funding amongst many others.

      But the biggest problem is the lack of leadership and management.

      Pensions at the State level, and at the City and County level have been well publicized for many years. This is not a new issue. However, due to poor leadership, it has been largely ignored. This is not an easy issue to resolve and our political "leaders" in Springfield have conveniently tabled, talked about, held meetings, organized committees, but have not addressed the problem.

      And due to simple math, the problem grows and grows and becomes a bigger problem. Compound math doesn't sleep at night. 3% COLAs granted DOUBLE the size of the liability in 24 years. The rule of 72 is irrefutable. You can look the other way, pretend it doesn't exist, but this problem isn't going away. And it's BIG.

      In addition to the lack of proper funding, the true costs of providing the defined benefit pensions isn't being appropriately recognized. For example, Wage growth assumptions have understated actual increases in compensation. People are living longer than expected in the assumptions used in the actuarial tables. (While people living longer is obviously a good thing, it becomes more expensive to provide this pension benefit. However, if you assume people die at an earlier age, the pension plan doesn't have to set aside as much money – guess what people have done). There have been numerous examples of abuses in pensions in Illinois, spiking, giving credit for extra years of service etc that are all very costly for the pension funds. Even Mayor Daley manipulated the pension system to his advantage, taking at least $50,000 more PER YEAR – see Chicago Tribune article dated May 2, 2012. There are also numerous early retirement programs that have been offered by the different pension systems which added substantial cost to the pensions and have been poorly managed.

      Most recently, the Teachers Retirement System lowered their assumed rate of return from 8.5% to 8.0%. I hope they can generate this return, but the probability of this happening is VERY LOW. But using an aggressive assumption is another way to "understate" the true cost of providing the pension.

      SO TO STATE THAT ILLINOIS HAS A FUNDING PROBLEM IS MISLEADING AND FALSE.

      There are many guilty parties.

      Sadly, our children will pay the price, especially "at risk" children. The growing cost of pensions is causing the State of Illinois to cut back funding in other social services. Already some pre school and early childcare funding has been cut, and there is more likely to come. As a society we should be increasing funding for children, especially younger children, but these kids don't vote and they don't understand what's happening to them, so it enables our political "leaders" to make an easy decision.

      In addition to the reduced funding for important programs that is occuring we are "giving" our children an enormous amount of "Pension Debt." Instead of leaving some pennies, nickels and dimes in their piggy bank, we're giving all children in Illinois a large I.O.U. They won't be happy when they figure this out in 20-30 years. Their standard of living will be significantly reduced. The implicit and explicit decision we've made is to "overconsume" today, and leave this bill for our children and grandchildren tomorrow.

      Fortunately all hope is not lost. Both Daniel Biss and Elaine Nekritz realize and appreciate the gravity of this situation and tried to pass legislation to address this issue. Few other Springfield politicians had the intestinal fortitude to follow their leadership. Shame on them.

      Thank you Daniel and Elaine, I hope more people are willing to address substantive issues and engage in meaningful dialogue while there is time to fix our pension system. But time is running short, very short.

       

  5. Pension reform?

    Cook County pension fund was over 90 percent funded prior to the Great recession.

    Do not lump the County in with the dismal Chicago funding level and the self imposed State funding issues.  Senator Cullerton has the only Constitutionally appropriate bill.  Workers get a choice of State subsidized health care upon  retirement or keep their current COLA.  This bill eliminates one third of the States pension liability.  SURS and TRS funds are not effected by this bill.  Those funds need their costs shifted back to where they came from….the local communities who paid the salaries generating these pension payouts must assume the pension liability of their workers.

    City of Chicago residents are paying seperately for their teacher's pensions and every one else's teachers via the State income tax.  Is that fair?  I don't think so.  Cost shifting eliminates the majority of the rest of the States pension liability without violating the Stae constitution.

    1. Cook County Pension Fund in BAD SHAPE too!!

      Please read and think about the report led by Cook County Commissioner, Bridget Gainer:

      http://www.bridgetgainer.com/pension/Gainer-Truth-In-Numbers.pdf

      You will cringe, or you should – based on its current path, the pension fund is projected to be bankrupt in 25 years.

      We need sustainable and fair pension plans that will provide a dependable retirement for all current and retired public employees. The current structure in Cook County, many Cities, and especially the 5 State funds don't work, and it's not "just a funding issue." Funding is a major problem and every and all political leaders who made short term, "easy decisions" contributed to this mess.

      In Cook County, Employees and Employers have always made the annual pension contribution since 1964. So how can there be a problem?

      The Actual Costs of operating this pension plan have EXCEEDED the projected costs. One can discuss if this was intentional or not, that's for another time. Here are some of the biggest discrepancies:

      1. Healthcare Costs increased at a faster rate

      2. People are living longer (higher life expectancy)

      3. Lower investment returns

      4. Early retirement programs

      5. Cost of living increase of 3% compounded annually

      While many people rightfully cite the lack of proper funding for the City of Evanston's Police and Fire Funds and for the 5 State run funds as a reason for their poor situation, that's not the case in Cook County. Employees have contributed 8.5% of their salary each year and Cook County has contributed ~13%. But the real cost of providing this defined benefit pension plan is GREATER THAN 21.5%. The leadership at Cook County has not fully accounted for the true cost – an error of commission or ommission?  The cost not funded gets passed onto future generations, our kids and grandkids. They're NOT going to be happy.

      1. In 1991 Cook County shifted the cost and administration of retiree health care to the pension plan. Page 5 of the report shows the growing cost.Notably, current employees do not contribute towards their retiree healthcare.

      2. People are living longer. While rising life expectancy is a good thing, it is also creates a cost for the pension plan. This increase in longevity hasn't always been reflected in assumptions.

      3. Lower investment returns have had a big negative impact on the fund. While many people will blame the recent market downturn in 2008-2009, that's not the total picture. The Cook County pension fund assumes a 7.5% annual investment return. On page 6 of the report it states, "even before the 2008 market collapse the average return rate for years 2000-2007 was 5.76%." Today, many people are looking in the review mirror and hoping future investment returns will be similar to historical returns. The major flaw in this "hope" is that 30 years ago the 10 year US Government bond peaked at 15% and today it's about 1.9%. We've just experienced one of the biggest bull markets in bonds in our lifetime, and we're at the bottom of the cycle. At some point bond yields will go higher, bond investors will experience LOSSES, and the overall rate of return will be lower than the 7.5% assumption.

      4.Early retirement programs created significant costs. page 7 of the report mentions that early retirement programs were available to employees in 1992, 1997, and 2002. These programs effectively shifted the cost from the annual operating budget of Cook County to the Pension Fund. You've heard the expression, "there is no free lunch?" Same is true in the pension world. Managements "incentize" longer tenured, higher cost employees to retire, and replace them with a younger lower cost employee. However, don't those incentives have a cost? But for the Cook County Commissioners and other members of management, their annual budget "looks better" because they've just shifted the cost to the pension fund which most people don't see and understand. Again, there is a real cost to these programs and we're only starting to understand their impact today.

      5. Cost of Living Increases (COLA) – Cook County provides a 3% annual compounded COLA. Using the rule of 72 (Time and Interest Rate) the cost of a $50,000 pension will double in 24 years to $100,000. Just multiply $50,000 X 1.03  for 24 times. It's just math, but the cost of COLAs are extremely expensive, especially when they're compounded. If if was not compounded (simple interest), it would take 33 1/3 years before the $50,000 doubles, or a difference of over 9 years.

      So yes, sadly, the Cook County pension fund is in deep trouble, and it needs to be discussed in a similar vein as the 5 State funds and Evanston's Police and Fire Pension Funds. Even the venerated Illinois Municipal Retirement Fund (IMRF) is showing some "pension fatigue." Very few pension funds, if any, are immune from the challenges in today's environment.

      Thankfully both Daniel Biss and Elaine Nekritz understand the importance of these issues.

       

      1. Thanks James

        As always, great reporting.

        I'm currently working in the teachers union, and my mother is set to retire this year from teaching.   I agree with everything you write.   I get weekly robo-calls from the teachers union, on the otherhand, urging me to call my legislators to fight every proposal- including those by Daniel Biss.   The union will sue if costs are shifted to local districts. The union will sue if benefits are reduced.  The union urges members to call for increased taxes on business to increase revenue instead.

        The problem with this is that increased taxes won't increase revenue, as businesses either leave or get exempted out of paying the increases.

        Unfortunately, I don't see a good ending to any of this.     I have many more years of work to go, and I don't personally expect to see any of the money taken from my paycheck again.   I pray that my mom ends up with at least 50 cents on the dollar- 50 cents on the dollar promised is what's there for her now- but the longer they kick the can down the road, she risks losing everything.

         ON the one hand, I understand that the unions are fighting for teachers to get what they promised. ON the otherhand, I think that the union leaders urgently need to wake up to the reality of the situation and make a big compromise.  

         

         

  6. County pension funding

    A key component of Commissioner Gainer's report is glossed over. 

    "Property taxes are used to fund the County pension liability.  The County hasn't raised property taxes of $720,000,000.00 since 1994." 

    Therein lies the problem.  Just like the City of Chicago, County elected officials don't like explaining the need for revenue increases.  See the recent County sales tax cuts.  Property tax increases are a political nightmare. 

    Revenues must be increased to fund the promises made, and protected by the Illinois Constitution, to retirees and current employees.  Changes for future employees is a different story and perhaps that is where constitutionally compliant savings can be made.

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