SPRINGFIELD — It’s said that misery loves company, and Illinois has plenty of company when it comes to its public pension woes, according to a recent report.

By Andrew Thomason

SPRINGFIELD — It’s said that misery loves company, and Illinois has plenty of company when it comes to its public pension woes, according to a recent report.

Illinois has the worst funded public pension system among the 50 states, according to a Pew Center on the States study released Monday.

The Land of Lincoln joined Connecticut, Kentucky and Rhode Island for having among the poorest funded public pension systems in the nation.

In 2010, the most recent year data for all 50 states is available for the study, each of those four states had an unfunded pension liability of at least 55 percent, according to the report.

“For states that do face really severe funding challenges … it’s a competition between raising taxes, cutting services or finding ways to reduce the costs for both current employees and retirees,” David Draine, senior researcher for the Pew Center on the States, a nonprofit that studies issues facing state governments.

It’s a sentiment that Gov. Pat Quinn and others have been reinforcing. Quinn often says that as public pension costs in Illinois rise, they squeeze out other areas of state government.

“How much more information do we need from independent, outside entities to tell us we must make this giant step?” Quinn said during a news conference Monday.

A plan that would have forced current public employees and retirees to choose between better cost-of-living adjustments and participation in a state health-care program faltered at the end of the General Assembly’s spring session in May.

The main source of contention in the legislation was shifting the main responsibility for teachers’ pensions from the state to local school districts. The Teachers’ Retirement System is the largest of the five public pension systems administered by the state.

Republicans rejected that idea, saying school districts would either have to increase property taxes or cut classroom spending to pay for the pensions. But Quinn, who wants local school districts to pick up teacher pension costs, has said any impact on property taxes would be so small it would be “imperceptible”

Sara Wojcicki Jimenez, spokeswoman for Illinois House Republican Leader Tom Cross, R-Oswego, said every aspect of pension reform is still being debated between Quinn and lawmakers.

Cross headed a last-ditch effort this spring to pass a comprehensive pension reform plan. His measure kept many of the same elements of the stalled pension reform plan, but stripped the cost-shift element. It too stalled.

Patty Schuh, spokeswoman for Illinois Senate Republican Leader Christine Radogno, R-Lemont, said the cost-shift issue is a non-starter for Radogno at this point. Schuh said the leader wants serious reform to pass before revisiting the idea of making local school districts responsible for their teachers’ pensions.

The urgency to control Illinois’ public pension costs comes after years of the state borrowing from or skipping pension payments. The fallout from the Great Recession and decisions of politicians was evident, as the state’s annual pension payment jumped by $1 billion between this year and next, going from $4.1 billion to $5.2 billion.

Currently, Illinois’ public pensions only have enough assets on hand to cover 45 percent of current and future pension benefits, according to the report. And without major changes, that $83 billion gap will continue to grow, as will the state’s annual contribution to its pensions systems.

Quinn’s office claims the pension reform that faltered in May, including a cost-shift element for the Teachers’ Retirement System, would put the state’s public pension system on the road to being fully funded in 30 years thanks to the money it would save.

Legislative leaders and Quinn will powwow Thursday in Chicago to try and hammer out some agreement, according to Wojcicki Jimenez. It is the second time this month such a meeting has occurred.

Quinn wouldn’t say Monday when he expected lawmakers to return to Springfield to take up any pension reform legislation.

Out of the four states with unfunded public pension liabilities of 55 percent or greater in Pew’s report, Rhode Island has taken steps to curtail its pension problems. The Ocean State suspended cost-of-living adjustments for retirees and increased the age of retirement for public employees.

“There are certainly some states that did make changes and have improved things” since 2010, Draine, the senior researcher for the Pew Center on the States, said.

Illinois was looking at increasing the retirement age for all employees from 65 to 67, but that idea fell out of favor because of concerns about its constitutionality. The Illinois Constitution promises that “membership in any pension or retirement system of the State … shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Reporter Andrew Thomason can be reached at

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  1. Do it for our Children

    Pension reform in Illinois is critically important for our state. Reports about massive unfunded liabilities in Illinois of $83-85 BILLION boggles people's mind. These are big numbers, huge numbers, almost incomprehensible. But the $83-85 BILLION understates the problem.

    And it's getting worse, each and every day, because of compound interest. Assets are growing slower, liabilities are growing faster. Each and every day the problem gets worse. This is a problem we're giving to our children.

    Set aside egos, stop pointing fingers, and accept the fact that everyone is going to have to share a part in this burden, a so called "shared sacrifice." It won't be easy, it won't happen overnight, and it won't be fun, but if we want to leave our children in a better situation, it has to get done.

    What's the problem? There are several and the details are complex, but it boils down to unrealistic and generous promises made to people to "buy" their loyalty and votes. Not surprisingly, people are living longer today than they did 30 years ago. Subtle benefit "improvements" like switching from 3% simple increases to 3% compound increases have cost the state hundreds of millions of dollars. (Over 24 years a retiree starting with a $50,000 pension would see their pension increase to $86,000 with simple interest, versus $100,000 for compound interest. – multiply that $14,000 difference for all people receiving pensions)

    We continue to allow people to retire in their early and mid 50's, receive their full pension, get another job and earn a second pension. This is very costly.

    Another problem is that people in power have manipulated the system at the expense of taxpayers. Just look no further than former Mayor Daley to see how connected people can legally steal from taxpayers. Mayor Daley is currently receiving about $183,778 annual pension instead of about $133,000. Read the Chicago Tribune article for more details:

    And yet Illinois government is cutting back funding for early childcare programs because we don't have the money.

    A more recent problem is that the financial returns have been below their assumed return assumptions. This is an issue that will plague all pension funds (City, County & State) for several more years. Actuaries and politicians continue to use overly aggressive return assumptions which understates the magnitude of the unfunded liability and also understates how much money should be contributed into the fund each and every year.

    The most egregious example in Illinois is the Teachers Retirement System (TRS). They are currently using an 8.5% assumed rate of return which is an outlier in the pension fund industry. In California, their teacher's pension fund, CalSters, recently lowered their return assumption from 7.75% to 7.5%, even though their actuary recommended a 7.0% return assumption. Why didn't California lower it to 7.0%? Most likely because the government would have to contribute hundreds of millions of additional dollars each and every year. So instead of contributing and paying the full cost, they are SHIFTING the COST to THEIR CHILDREN. We are doing the same in Illinois.

    TRS is currently conducting a review of their actuarial assumptions – we'll see how realistic they become or if they remain in denial and continue to "kick the can down the road" to our children.

    A respected firm, BCA Research, just released a report this week that estimates over the next 5-10 years that an indexed balanced portfolio will generate a 4.8% annualized return, a far cry from the current 8.5% return currently assumed by TRS. TRS will claim that over the last 30 years they generated a 9.3% annualized return, but what they are convenienlty ignoring is that the 10 year bond peaked at 15% 30 years ago and today it is only 1.6%.

    In Europe the government of Norway hopes to generate just a 4% rate of return:

    People need to understand that financial returns for the forseeable future will most likely be below their historical normalized rates of return. Go look at the interest you are earning on your CDs, Money market or checking accounts.

    So instead of leaving our children with some nickels and dimes in their piggy bank, we are going to leave them with a BIG I.O.U. – People need to recognize the situation and look themselves in the mirror. Is this what we want to do?

    Call your State Senator and State Representative and demand real pension reform in Illinois.

    Senator Jeff Schoenberg: 847 492-1200

    Representative Biss: 847 568-1250

    Representative Gabel: 847 424-9898

    Do it for our children.




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