Originally Posted Online: Feb. 11, 2013, 6:00 am
Last Updated: Feb. 11, 2013, 8:47 am
View from QCA: Can Illinois public penion reform ever happen?
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By David T. Roberts
The continuing inability of the Illinois Legislature to reform our state public pensions is damaging our state and its citizens.
Newspapers often report the unfunded pension liability as $85 billion to $95 billion -- the real number is more like $200 billion (and growing) if realistic assumptions are used in the actuarial calculations.
The chances of true reform taking place are virtually nil until a crisis hits. The basic problem is that many legislators are loyal primarily to their public union campaign contributors, and not the general citizenry.
But the problem goes much deeper than just buying votes with campaign contributions. Union leaders have a great financial interest in preventing reform because their pension benefits are among the most lucrative.
The Teachers Retirement System (TRS) is a prime example of why union leaders must prevent meaningful reform. Consider the following:
-- TRS union leader public pensions are determined by their healthy union salaries (with no citizen oversight), not the salaries when they used to teach, often a long time ago.
-- TRS union leader public pensions are also determined by including union service time, which is often much greater than their teaching service time.
== Dozens of retired union leaders from the National Education Association (NEA), the Illinois Federation of Teachers (IFT) and the Illinois Education Association (IEA) are drawing TRS pensions in excess of $100,000 annually; the highest pension is over $240,000 and that person was in the NEA in Washington, D.C., not Illinois.
== Additionally, many current union leaders with the NEA, IFT and IEA are in line to draw TRS pensions in excess of $100,000 when they retire.
Understand that Illinois taxpayers are on the hook for these pensions, and there is currently a stealth effort underway to off-load this liability for tens of millions of dollars of pension liabilities to local school districts and ultimately to property owners through increased school district property taxes.
What would constitute true public pension reform? The following is a partial list:
-- End pensions for state legislators under the theory their duties constitute public service, not lifetime careers.
-- End mandatory payroll check deductions for union dues; several fellow Midwestern states have done this with effective results in reducing public union leaders' influence over legislators.
-- End automatic cost-of-living adjustments (COLAs) until the pension plans are adequately funded; states such as Rhode Island, that have implemented effective reforms, have done this and have seen their pension costs drop by nearly 25 percent.
-- Implement a transition from defined benefit pension plans to defined contribution 401(k)-type plans to stop the financial hole from getting deeper and to protect taxpayers from the inevitable tax increases that accompany public pension plans.
When will true public pension reform occur? It will probably require a crisis before General Assembly leaders and legislators will be forced into meaningful action.
Such a crisis could occur if the pension plans begin to run out of money within the next five years, as Northwestern University Professor of Finance Joshua Rauh has predicted.
In this circumstance, funding current pension benefits would cause drastic cuts in other state services, such as public safety, health care and education which the general public would not allow.
Alternatively, meaningful reform could be precipitated if current public pension retirees and plan participants realize the money for their benefits may run out before they receive all or any of their benefits. This realization stimulated meaningful reform in Utah and Rhode Island.
True reform is unlikely for years to come and the end result for all of us will not be pretty. If we continue to return many of the legislators to Springfield who caused this problem, we have only ourselves to blame.
David T. Roberts of East Moline is a certified public accountant.