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  #161  
Old 02-20-2020, 03:53 PM
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Mary Pat Campbell
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CALIFORNIA
CALPERS

https://www.sacbee.com/news/politics...240415596.html
Quote:
Biggest-ever CalPERS pension tops $400,000 per year

Spoiler:
A former top investment official at CalPERS received the largest pension the retirement system has ever paid last year, according to Transparent California and reviews of pension data by The Sacramento Bee.

Curtis Ishii, 64, of Sacramento, retired from the California Public Employees’ Retirement System as its managing investment director for fixed income in July 2018.

Last year, Ishii received $418,608 in pension payments, according to Transparent California, a website that tracks public pensions and salaries. His pension topped Transparent California’s list of 2019 CalPERS pensions, according to a news release.

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CalPERS paid one pension in its history that was larger, but later reduced it to $132,000, according to Transparent California. That pension, originally $551,000 per year, went to former Vernon city manager Bruce Malkenhorst, according to the news release.

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The Sacramento Bee reviewed top pension data for 2018, when the highest pension was about $372,000 per year.

Ishii’s pension is unusual in that it is being paid to a retired state employee. The other top pensions in the state have been paid to local government officials such as city managers and county administrators, and top administrators at the California State University and University of California. Michael Johnson, a former Solano County administrator, previously held the top spot. Johnson’s pension was about $372,000 per year in 2019, according to Transparent California.

Ishii worked at CalPERS for 40 years, according to CalPERS spokeswoman Amy Morgan. Ishii did not respond to voicemails on Tuesday.

In 2017, his last full year of work for the fund, he was paid about $688,000, according to state pay data. He received about $408,000 in regular pay and about $280,000 in other pay, including bonuses, according to the data.

Government pensions are calculated using a formula based on annual salary and years of service. CalPERS investment officers are among the highest-paid California state employees, even though they often make less than their peers in the private sector.

Pensions the size of Ishii’s are no longer allowed for new state or local government workers in California. The 2013 Public Employees’ Pension Reform Act ties public pensions in the state to an IRS limit, which for 2020 is up to about $152,000 per year. The average public pension in California is about $37,000 per year.

The 2013 law was aimed at improving the funded status of the system, which had about $404 billion in assets as of Tuesday. CalPERS is about 71 percent funded, meaning its assets are equivalent to about 71 percent of its current and future obligations to public workers.

The 2013 law, known as PEPRA, also ended a benefit known as “air time,” which allowed public workers to purchase the equivalent of up to five years of service for the purpose of augmenting their annual pensions.

Ishii worked for CalPERS for 40 years yet retired with 45.9 years of service credit. Amy Morgan, the CalPERS spokeswoman, declined to disclose specifics of Ishii’s benefit elections, but she said he did not accrue any service credit at other state agencies before he started working at CalPERS in 1978.

California public workers could purchase retirement service credit up until the 2013 law went into effect on Jan. 1 of that year. Other, more specific types of service credit are still allowed under the 2013 law.

The 2013 changes are projected to save $29 billion to $38 billion over 30 years. But in the near future, the number of extra-large pensions paid out in California will increase before the number begins to decline.

As of January, about 44 percent of active public employees enrolled in CalPERS had been hired since 2013, Morgan said.


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  #162  
Old 02-20-2020, 05:55 PM
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https://www.plansponsor.com/public-s...nefits-viable/

Quote:
Public-Sector Employers Have Incentive to Keep Retiree Benefits Viable
The value public-sector employees place on retiree health and pension benefits is worth the effort of finding solutions to keep offering them.
Spoiler:
Roughly half of public-sector employees surveyed (46%) are worried that the health care benefits they were promised in retirement will evaporate when they need them most, according to the 2020 Keeping Benefit Promises Study by Willis Towers Watson.

The public-sector employees expressed the importance of retiree health care coverage, with 58% saying it was extremely or highly influential in their decision to work in the public sector. In addition, a National Institute on Retirement Security (NIRS) Issue Brief says 78% of Millennials working in state and local government said their health care benefits is one reason they chose a position in the public sector. And if those benefits were cut, 77% say they would be more likely to leave their jobs.

In the Willis Towers Watson study, almost two-thirds (64%) of public-sector employees said their financial security in retirement depends on the promise of employer-sponsored health care coverage. Forty-one percent said they would give notice if their benefits were reduced, and more than half (54%) expect to be supported in retirement because they served their community.

However, the company notes that retiree health care is becoming an unsustainable financial burden on public-sector organizations, with state unfunded retiree health care liabilities nationwide reaching $700 billion. Many organizations are reacting by cutting retiree health care altogether or adopting short-term solutions, such as reducing spousal benefits or requiring more years of service to qualify.

“When balancing their budgets, public-sector organizations are stuck between a rock and a hard place,” says Jon Andrews, managing director, Benefits Delivery and Administration, Willis Towers Watson. “They do not want to increase taxpayer burden nor deprive employees of the benefits that initially attracted them to the job. The good news is a solution exists. Employers should consider an often-overlooked remedy: providing funding via a health reimbursement arrangement and allowing retirees to shop for health plans (with these funds) on the individual Medicare marketplace.”

Willis Towers Watson explains that the individual Medicare marketplace—or Medicare exchange—is a marketplace that provides affordable plan options for retirees through a defined contribution (DC) model while making retiree health care sustainable for plan sponsors.

According to the NIRS report, most Millennials in state and local government (80%) believe they could earn a higher salary working in the private sector. When it comes to retirement benefits, they said their retirement benefits are more competitive than salaries. Ninety percent see their public-sector retirement benefits as competitive.

Millennials working in state and local government are highly supportive of pensions. Nearly three-fourths of Millennials in state and local government (73%) indicated that pensions also are a significant reason they selected their job. Similarly, a high number of Millennials (84%) said a pension benefit is the reason they stay in a state and local government job. Most Millennials (85%) in state and local government said they plan to stay in their job until they retire or can no longer work.

Similar to health care benefits, most Millennials (71%) said cutting their pension benefits would make them more likely to leave their state or local government job.

The NIRS report notes that a few states have considered switching public employees from defined benefit (DB) pensions to defined contribution (DC) plans. However, the report recalls that some states did so and had to reconsider the change when they found costs were not lower and/or teachers were falling far short in their retirement savings targets. More than three-fourths of Millennial state and local employees (77%) said they prefer pensions over 401(k) accounts.

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  #163  
Old 02-21-2020, 11:49 AM
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MASSACHUSETTS
MBTA

https://www.bostonherald.com/2020/02/20/t-pension/
Quote:
GOP lawmakers demand overhaul of shaky MBTA pension fund
State pumped $118M into pension system last year; ‘grave risk’ cited if ‘fund falters’

Spoiler:
GOP lawmakers sick of taxpayers propping up the troubled MBTA pension — where one in every five pensioners retired before age 50 — are pushing to overhaul or eliminate the fund.

State Sen. Bruce Tarr warned the $118.2 million diverted from the state’s general fund last year to cover a T pension shortfall needs to come to a screeching halt.

“If this fund falters, it puts at grave risk not only the ability to meet pension obligations to retirees, but it can stall the MBTA’s ability to fully fund its core operations while also putting taxpayers on the hook,” said the Gloucester Republican. “That’s why these recommendations may include a total or partial transfer of T pension funds to the care of the state’s pension fund.”


Tarr, the Senate minority leader, filed a bill Thursday to create a commission to analyze the sustainability and stability of the MBTA Retirement Fund. Tarr warned of “several layers of serious financial consequences.”




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Co-sponsored by state Sens. Ryan Fattman, R-Webster, and Dean Tran, R-Fitchburg, the lawmakers raised concerns about the fund’s inability to meet its obligations, which has repeatedly resulted in taxpayers having to make large financial contributions to account for shortfalls.

“This MBTA pension fund examination will help assure the public that our state is continuing to address the critically important issue of funding our public transportation system in the most sustainable way possible,” Fattman said.

The senators say there are too many questions about the fund’s vulnerability, lack of transparency, and growing burdens on taxpayers and riders who must shore up the shortfalls.

“The persistent issues plaguing the MBTA Pension Fund demand analysis and reasoned action,” Tarr said. “We propose to scrutinize the current state of the pension fund by empaneling a commission of experts to recommend actions.

As the Herald recently reported, the average T pensioner is 55.8 years old. Last year, 13 retirees were under the age of 50.



It’s all due to the T’s “23-and-out” policy, which didn’t put a retirement age on its workers — it just required 23 years of service, at which point they could grab the pension, eventually become eligible for Social Security, and pick up another gig at the same time. That perk has been eliminated, but current workers were grandfathered in.

The retirement fund has floundered deeper into fiscal danger, last year reporting $2.91 billion in liabilities versus $1.45 billion in assets.

Under the bill, the 11 member-commission would include appointments from Gov. Charlie Baker, Attorney General Maura Healey, Treasurer Deborah Goldberg, the secretary of administration and finance, the secretary of transportation, the executive director of the state’s Pension Reserves Investment Management Board, members of organized labor, a member of the general public and others with expertise in transportation, finance and pension fund management.

Go to the Herald’s Your Tax Dollars at Work section to review the latest T pension report.
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  #164  
Old 02-21-2020, 11:51 AM
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CHICAGO, ILLINOIS


https://abcnews.go.com/US/wireStory/...nsion-69104186
Quote:
Fired Chicago Police superintendent getting $190K pension
A report says Chicago's fired police superintendent is receiving a monthly pension of more than $15,800

Spoiler:
CHICAGO -- Chicago's former police chief has been receiving a pension of more than $15,800 a month since the mayor fired him for allegedly lying about a night he was found asleep in his city-issued SUV, according to a newspaper report.

Eddie Johnson was awarded the pension by the Policemen’s Annuity and Benefit Fund of Chicago, the Chicago Tribune reported, citing records it obtained under Illinois' Freedom of Information Act.

The pension adds up to nearly $190,000 annually, or 75% of his average salary of just over $253,000 per year during his final four years with the Chicago Police Department.

Johnson was named superintendent by then-Mayor Rahm Emanuel in March 2016 and he was confirmed by the City Council the following month. Current Mayor Lori Lightfoot fired him in December.

Johnson, 59, blamed medication for making him drowsy before he was found asleep in his SUV, but subsequent media reports disclosed that the married superintendent had been drinking for hours and kissing a woman on his security detail, and that the responding officers took steps to keep it secret.

Pensions for Chicago police command staffers are generally calculated by looking at their highest average salary over their peak four-year period with the department. Those with CPD for more than 29 years are entitled to 75% of that peak salary. Johnson was a 31-year veteran of the department.

On Jan. 1, 2021, Johnson will be eligible to receive a post-retirement, cost-of-living increase of more than $5,600 for that year, according to the records reviewed by the newspaper.

Johnson did not return messages seeking comment.


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  #165  
Old 02-21-2020, 12:04 PM
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UNITED KINGDOM

https://www.ai-cio.com/news/uk-unive...-pension-plan/
Quote:
UK Universities Launch Largest Strike in History over ‘Radical Changes’ to Pension Plan
University staff start 14 days of strikes at more than 70 campuses.

Spoiler:
The UK’s University and College Union (UCU) on Thursday launched a 14-day strike over concerns that include falling pay, a gender and ethnic pay gap, precarious employment practices, unsafe workloads, as well as a “radical redesign” of its pension fund, the Universities Superannuation Scheme (USS).

The radical redesign, according to the USU, is pertinent to several factors on the state of their benefits. Under the proposed changes, the employers allegedly want to end guaranteed pension benefits, and told beneficiaries that “your final pension should depend on how your ‘investments’ perform and not on your contributions,” according to the USU’s website. Additionally, members under the plan would have to increase their contributions.

February’s strikes mark the second time the UCU is protesting the changes in the recent months. More than 40,000 members of the union led a strike throughout 60 campuses against the propositions. This latest strike encompasses 74 campuses.

“It is incredibly frustrating that UCU members are being forced to walk out again to secure fair pay, conditions, and pensions,” General Secretary Jo Grady said in a statement. “This unprecedented level of action shows just how angry staff are at their universities’ refusal to negotiate properly with us.”

“Vice-chancellors have had months to come up with serious offers to avoid widespread disruption on UK campuses. Their failings are clear for all to see today and the blame for the disruption caused by the strikes lays squarely at their door,” Grady added.

The UCU also said pay for its members has effectively been cut by 20% since 2009, while staff are mandated to work longer hours “than ever before,” the organization said. It also alleges that the employers’ own analysis shows women and minority ethnic staff experience significant pay discrimination.

Employers have refused to move from their offer of a minimum pay raise of 1.8% for 2019-2020, as many are already in “precarious” financial positions, said the Times Higher Education publication, citing Mark Smith, chair of the University and College Association. Many are running deficits and “although I wouldn’t want to make alarmist predictions” on their futures, significant increases in the cost of staff, which take up half of universities’ overall income, would increase the pressure on them, Smith said.


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  #166  
Old 02-21-2020, 06:01 PM
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ILLINOIS

https://www.forbes.com/sites/ebauer/...snt-a-fantasy/
Quote:
No, Gov. Pritzker, Illinois Pension Reform Isn’t A Fantasy

Spoiler:
On Wednesday, Illinois Gov. JB Pritzker gave his budget address, an address in which he promises wide-ranging spending boosts paid for by — yes, you guessed it — the same three sources of newfound state wealth of pot legalization, gambling expansion, and a tax hike on the rich subsequent to voters approving a constitutional amendment to permit graduated taxation rates.

And once again, he addressed pensions in a wholly unsatisfactory way. Here’s the full text of this part of his speech:


“One of Illinois’ most intractable problems is the underfunding of our pension systems.

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“We must keep our promises to the retirees who earned their pension benefits and forge a realistic path forward to meet those obligations.

“The fantasy of a constitutional amendment to cut retirees’ benefits is just that – a fantasy. The idea that all of this can be fixed with a single silver bullet ignores the protracted legal battle that will ultimately run headlong into the Contracts Clause of the U.S. Constitution. You will spend years in that protracted legal battle, and when you’re done, you will have simply kicked the can down the road, made another broken promise to taxpayers, and left them with higher tax bills.

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“This is not a political football. This is a financial issue that is complex and requires consistency and persistence to manage, with the goal of paying the pensions that are owed.

“That’s why my budget delivers on our full pension payment and then some, with $100 million from the proceeds of the graduated income tax dedicated directly to paying down our pension debt more quickly. We should double that number in subsequent years. Next year would be the first year in state history that we will make a pension payment over and above what is required in statute. It begins to allow us to bend the cost curve and reduce our net pension liability faster.

“At the same time, without breaking our promises, we must relentlessly pursue pension initiatives that reduce the burden on taxpayers. This year, the State’s required payment to the State Employees Retirement System alone will be $32 million less than it would’ve been without the optional pension buyout program. We extended that program last year – because it’s good for taxpayers. That’s why I’ve asked all of the state’s retirement systems to fully implement buyout programs across all our systems.

“What we do to reduce future net pension liabilities for our state and local pension plans has enormously positive benefits for taxpayers. Last year, working with members of this General Assembly, we did what no one had been able to do after more than 70 years of trying: consolidate the investments of the 650 local police and firefighters funds into two statewide systems. Because of their collective size, these funds are projected to see billions of dollars of improved returns over the next 20 years. That means lower property tax pressure on families and businesses across the state.

“This is a great example of how both sides of the aisle can come together with reasonable solutions to address intractable problems. Let’s continue on that path.”

And I will repeat what I have said over and over again (to link merely to the two most recent instances):

Pritzker is deluding himself and misleading Illinoisans when he provides his now-standard set of responses.

The most recent calculation of Illinois’ pensions liabilities stands at a debt of $137.3 billion, as of fiscal 2019 year-end. In 2021, contributions are expected to reach $11 billion, or 27% of the total state spending.

Pritzker’s promise to boost contributions by $100 million in 2021 and $200 million thereafter, if the graduated income tax amendment passes, is a drop in the bucket.

The reduction in liabilities due to the buyout programs are likewise a trivial portion of the total. What’s more, the reform-promoting group Wirepoints has been seeking evidence of the numbers Pritzker has been touting for the programs’ savings, and is being stonewalled.

The consolidation of local police and fire pensions’ asset management that Pritzker boasts of came about not because of his superior leadership skills but because these communities were up against a wall in a way that they hadn’t been in the past due to the 2011 “pension intercept” law and funding ramp causing serious pain in a way that hadn’t been the case before. And, what’s more, even this baby step was only for local pensions, so it makes no dent in the $137 billion, and this was botched even so, with a boost in Tier 2 pensions included with no analysis of the cost.

With respect to a constitutional amendment, he creates a straw man by claiming that reformers’ objective is to “cut retirees’ benefits” when the objective of such an amendment is not to cut benefits at all, but to provide the state with the flexibility to reduce future benefit accruals or increases.

And as to the claim that this will result in a “protracted legal battle that will ultimately run headlong into the Contracts Clause of the U.S. Constitution”? This is repeated over and over again by opponents of reform, and has become the new talking point after Pritzker seems to have abandoned his prior claim that it’s simply impossible to amend the state constitution. And here Mark Glennon at Wirepoints provides a clear explanation of why this claim is not credible, worth quoting in full:

“Pritzker is either dishonest or horribly misinformed. Court rulings and actual experience in other states make it clear that Pritzker is wrong. A pension amendment would almost certainly work to allow for needed reforms to most of our 667 public pensions in Illinois.

“Why? Let’s put this in plain English, without legalese:

“The most recent lesson from the courts came last year in Rhode Island after the City of Cranston lowered certain pension benefits. Some pensioners went to court trying to invalidate the cuts. There was no state constitutional issue there, making the case just like we’d have here after a proper constitutional amendment.

“So, the only thing pensioners could base their case on was the U.S Constitution, including the Contract Clause Pritzker referred to. That clause prohibits states from breaking contracts, and pensions are contracts.

“But the Rhode Island Supreme Court ruled against the pensioners. The Contract Clause and other U.S. constitutional matters are not blanket rules against breaking contracts, the court reminded us. The United States Supreme Court has long said that.

“The Rhode Island court weighed all the circumstances in making its decision – how hard off Cranston, RI was, the reasonableness of the reforms and similar matters. Protecting contract rights gives way when there’s a ‘higher public purpose,’ as one nationally recognized legal expert put it.

“That is, government has to be able to provide proper services. Pension costs were squeezing out money for proper services in Cranston, just as in Illinois.

“’We the People,’ in other words, are not bound by a suicide pact because of the Contract Clause or anything else in the U.S. Constitution. Pensioners tried to appeal their loss to the United States Supreme Court but the high court let the Rhode Island decision stand [emphasis mine].

“Then there’s Arizona’s experience. It had a state constitutional pension protection clause just like in Illinois. They’ve amended it twice to cut benefits, mostly with the approval of union pensioners. Unlike Illinois, most of them saw the long-term benefit of reform even for pensioners.

“However, not all pensioners agreed with the cuts. Yet none has sued under the Contract Clause or anything else. Still to this day any one of them could sue if they thought they could win, individually or as a group. They would sue if Pritzker were right about pension amendments being ‘fantasy.’ They haven’t. They know they’d lose.”

So, yes, if the state reduced future accruals or pension increases for arbitrary or capricious reasons, the Contracts Clause would prohibit it. But that’s not what’s under discussion here.

And it’s likewise not acceptable to defer the debt burden to the next generation.

As it happens, separately, I was asked by a reader the other day to explain a statement on the Teachers’ Retirement System website which appeared to say that there was no serious cause for concern and that “current obligations are well met”:

“If all TRS obligations for current retirees and active teachers were called due today, the System could not meet 60 percent of those outstanding pensions and benefits. But that can never happen because not all teachers will retire at the same time. By law, active teachers cannot collect retirement benefits, so TRS must pay out only what is owed to benefit recipients in that year. In fiscal year 2019, TRS paid out $6.7 billion in benefits and collected $8.1 billion in total revenue.”

(To be clear, the reader didn’t believe that to be true but was unsure how to understand this statement.)

This statement points out the very true fact that the system is not insolvent; the system is at no real risk of insolvency unless the state cuts down or abandons its statutory funding requirements, and even then, the plan can pay benefits from its existing assets for quite some time. (See the table at the bottom of my article from January, “Six Key Charts That Prove Why There Is No Alternative To Pension Reform In Illinois.”)

But “not insolvent” is an unacceptably low bar.

It’s not OK for the state’s pension plans to be merely “not insolvent.” It’s not OK to pass the debt on from one generation to the next, and the injustice done to the next generation by saddling them with this debt isn’t justified by the fact that they might, in turn, choose to saddle yet another generation with debt, if they can get away with it. And, again, the existing funding target of 90% in 2045 relies so heavily on a 7% asset return and on the unsustainably-low Tier 2 benefits that, should that rate be cut or the Tier 2 benefits cuts be undone, that 90% will be far more costly to reach than is even the case at present.

All of which comes down to this: it’s not pension reformists who are constructing a fantasy. It’s Pritzker himself.


https://www.illinoispolicy.org/pritz...al-reform-can/

Quote:
PRITZKER’S ACCOUNTING GIMMICKS CAN’T FIX PENSION CRISIS, BUT REAL REFORM CAN

Spoiler:
Illinois Gov. J.B. Pritzker previously floated a pension plan that included pawning-off state assets, taking on more high-interest debt and reducing pension funding before walking back the plan amid criticism. Here’s a real solution.

Pension costs consume more than 25% of Illinois’ budget annually, but have historically grown faster than official projections and are on track to grow to nearly 30% of the budget by the end of the decade.

If instead Illinois enacts a constitutional amendment allowing reforms to slow the growth in future pension benefits – without taking away what retirees and current workers have already earned – it could result in an average of $2 billion in budgetary savings during the next 10 years. Savings from now until 2045 would be more than $50 billion. The following year pension costs would fall back to historic single-digit levels as a percent of the budget, because the debt would be fully eliminated.



These are results of an original actuarial analysis of the Illinois Policy Institute’s pension reform proposal, scored by pension expert and Forbes contributor Elizabeth Bauer, an actuary. The plan would raise retirement ages for workers under 45, replace 3% compounding post retirement increases with a measure pegged to inflation and cap the maximum pensionable salary for workers hired before 2011. “Tier 2” workers hired after 2011 already have a pensionable salary cap. The Institute’s reform plan would increase the cost-of-living adjustment for younger workers to full inflation from the current one-half of the consumer price index for urban areas.

Adopting this plan would mean billions more could be spent on debt relief and core government services that have been hollowed out by the rise in pension costs.

Last year Gov. J.B. Pritzker walked away from plans to sell off state assets, gamble with taxpayer money through risky pension bonds and underfund pensions by delaying payments. The $200 million he pledged from his progressive income tax plan represents just 5% of the additional $3.7 billion the tax would take from the economy.

Pritzker’s only remaining options are even larger tax hikes that hit the poor and working class, unwise accounting games or true structural pension reform that starts with a constitutional amendment. Only reform will allow Illinois to truly stabilize its long-running pension crisis.

Does Pritzker still have a plan for the pension crisis?

Illinois’ pension crisis is the worst in the nation, but it’s currently unclear whether Pritzker has a plan to tackle it. The lack of details about pension reform and other fiscal plans in the governor’s state of the state address was criticized by some financial experts.

In his first year in office, Pritzker’s administration had floated a five-point plan to help alleviate the financial pressure of pensions:

Underfund pensions by extending the payment ramp, shorting pensions by nearly $900 million in the first year and costing the state as much as $105 billion more in the long run.
Pawn off state property through “asset transfers” and depositing the proceeds into the pension funds.
Gamble with taxpayer money by adding $2 billion more in risky pension bonds to Illinois’ current debt load.
Dedicate $200 million from a “progressive income tax,” which voters have yet to approve, to pension funding. That is about 5% of the $3.7 billion more taxpayers would send to Springfield under the tax plan.
Extend the partial, optional pension buyouts – available to recent retirees and inactive employees – so they are available until 2024 instead of 2021, despite the disappointing first year savings.
Only the last part of this proposal was enacted for Pritzker’s first budget. Pension buyouts saved just $13 million in the first year of implementation, about 3% of the projected $400 million savings. Extending the buyouts for three more years won’t come close to solving the state’s pension debt, which is estimated at $137 billion by the state and at $241 billion by Moody’s Investors Service.

Pritzker walked away from his plan to underfund pension contributions on the payment ramp amid heavy criticism from two major credit rating agencies and the teacher’s pension fund, among others. However, the governor claimed he was able to abandon the plan thanks to an “April Surprise” of $1.5 billion in higher revenue resulting from federal tax reform and faster than expected national economic growth.

The Illinois Department of Revenue raised its projections for income tax revenue by $800 million, almost exactly the amount Pritzker’s proposed budget banked from underfunding pensions. Illinois Comptroller Susana Mendoza cautioned that she could not “confirm nor deny” the unexpectedly higher estimate. Doubts about these projections are part of the reason the Illinois Policy Institute projected the fiscal year 2020 budget was out of balance by between $574 million and $1.3 billion, despite the governor’s claims of balance.

The administration also silently dropped plans for asset transfers and pension obligation bonds, with neither included in the fiscal year 2020 enacted budget. An expected report from a commission on asset transfers has yet to be released. Unfortunately, the governor has indicated that delays in payments on pension debt might still be on the table.

The truth is all of these accounting games cannot come close to solving the pension crisis or freeing up resources for government services and tax relief. As credit rating agency S&P Global Ratings put it, Illinois needs a “practical reduction in liabilities,” which means a reduction in the value of expected future pension benefits.

The only way left to accomplish that is with a constitutional amendment allowing for reductions in the growth of future, not-yet-earned pension benefits. A deeper dive into Pritzker’s original five-point plan shows the proposals range from ineffective to counterproductive.

1. Underfund pensions by extending payment ramp

Pritzker’s first budget proposed reducing pension contributions in the short term by extending the time the state has to pay down the debt to 2052 from 2045. This would have reduced pension funding by $878 million in the first year. However, because Pritzker would be reducing pension costs by simply paying in less, rather than reducing the ‘principle’ of the debt by slowing benefit growth, this would have cost the state roughly $105 billion more in the long run.

In fact, the state’s 90% funding target already violates actuarial best practices. States should seek to pay down 100% of their debt over a period of no more than 20 to 30 years. Any proposal that suggests “re-amortizing” pension debt or “flattening out payments” is nothing but a repetition of past mistakes.

The state’s current unsound funding ramp helps explain why contributions have historically grown far faster than predicted 5-years prior. Pension costs have grown more than 15% faster than official projections over the last 10-years.



Delaying payments and underfunding pensions should not be on the table for any future Illinois budget. Continuing to pursue this proposal would likely mean Pritzker would be the first governor to see his state’s credit rating drop to “junk status.”

2. Pawn off state assets

Pritzker’s administration also suggested raising additional revenue for the pension systems by selling off unspecified state property.

Examples given to the media included “the sale or lease of unused office space” according to Crain’s Chicago Business. Pritzker’s administration never released any data demonstrating the state had a substantial surplus of any type of asset that could be sold to make a dent in the pension crisis.

In fact, Illinois’ net worth is currently negative $189.1 billion, meaning its debts far outweigh its assets. The majority of this imbalance is due to pensions and it’s highly unlikely the state has enough valuable excess assets to materially reduce unfunded pension liabilities.

3. Gamble with taxpayer money

Pension obligation bonds are a gamble with taxpayer money. Pritzker had proposed issuing bonds worth $2 billion.

In theory, pension obligation bonds can save money if the interest on the bonds is lower than the interest earned by the pension funds. This has rarely worked in practice. Citing a history of failure, credit ratings agency S&P Global Ratings considers the use of POBs to be a credit negative. Illinois has already sold nearly $17.5 billion worth of the bonds that will cost $31.3 billion to pay off through 2044.

The only time Illinois should even consider issuing additional pension obligation bonds would be after the enactment of constitutional pension reform. A real reduction in pension costs by reducing liabilities should significantly increase the state’s credit rating and thus lower the cost of borrowing.

Until then, pursuing this idea would be taking a bet which taxpayers are nearly guaranteed to lose.

4. Hike taxes and dedicate an insignificant amount to pensions

Specifically, Pritzker promised to earmark an additional $200 million for pensions from his progressive income tax plan, a little more than 5% of the expected $3.7 billion taxpayers would send to Springfield if voters approve the progressive tax Nov. 3.

This isn’t enough to even keep up with annual increases in the cost of pensions, which will be $577 million the first year the progressive tax could take effect.



A progressive tax that would actually solve the pension crisis would have to raise taxes on everyone, including by about 20% on the poor and middle class.



The Illinois Policy Institute’s economic impact analysis is based on the research of a leading financial expert at J.P. Morgan who found Illinois would need to raise revenue equivalent to a 50% increase in the income tax to pay down retirement benefits at current levels. A progressive tax hike large enough to solve the problem could cost Illinois’ economy nearly 127,000 jobs and $21.8 billion in lost gross domestic product.

Simply put, tax hikes are not a viable solution to the pension crisis.

5. Extend partial, optional pension buyouts

The fiscal year 2019 budget created an optional pension buyout program for members of the pension system who are either recently retired or “inactives” – those who quit working for the state before retirement age but had already vested.

The Illinois Policy Institute warned that savings from these buyouts were “speculative and unlikely to materialize” when they were originally offered to employees until 2021. In the first year, the buyouts saved $13 million, just 3% of the projected $400 million savings.

Pritzker extended the program through 2024 in his first budget and has publicly claimed they can now save $25 billion, a statement rated “false” by PolitiFact. Pritzker’s administration admitted in audited statements to potential investors that it can’t promise any specific savings from the buyouts.

Constitutional pension reform is the only comprehensive solution left

The only sustainable way out of Illinois’ pension crisis – and its negative effects on taxpayers, residents in need, the economy and government finances – is to reduce pension liabilities with benefit reforms. As shown below, benefit reforms can solve the pension problem while protecting both taxpayers and government workers. The biggest obstacle to a brighter future for Illinois has been and remains the lack of political will to pursue meaningful reform.

The Illinois Policy Institute’s pension reform plan follows the bipartisan 2013 reforms as an example. Specific changes to benefits and plan structure would be as follows:

Increase the funding target to 100% from 90% in accordance with actuarial best practices. The goal year for 100% funding would remain 2045.
Gradually increase retirement ages for current workers under age 45 by a maximum of five years.
Apply a pensionable salary cap of $100,000 that grows with inflation. Government workers could still earn more than $100,000, but their pensions could not be based on more than the cap. The cap would only apply to employees not currently receiving a retirement check.
Replace Tier 1 retirees’ 3% compounding benefit increase with true cost-of-living adjustments tied to inflation. Annual increases would be simple, not compounding, and rise with the urban consumer price index as reported by the Bureau of Labor Statistics.
Increase Tier 2 COLAs from half of inflation to full inflation. This would end the unfair subsidization of older workers by younger workers and could prevent a potential lawsuit.
Implement COLA holidays to allow inflation to catch up to past benefit increases. If a worker has been retired for eight years or more, they would skip every other year for 16 years for a total of eight adjustment periods at 0%. If a retiree has been receiving benefits for seven years, they would skip one payment every other year for 14 years, and so on.
Enroll all newly hired employees in a defined contribution personal retirement account with a 4% guaranteed employer match. This would ensure the state never gets into pension trouble again, as defined contribution systems are inherently less risky and more predictable. This would also provide state workers with a portable retirement benefit they could take with them from employer to employer, rather than being forced to stay with the state in order to maximize retirement benefits.
An original actuarial analysis commissioned by the Illinois Policy Institute shows how far these modest reforms can go to bring Illinois back from the brink. The analysis was performed by Elizabeth Bauer, a credentialed actuary who writes about pension policy for “Forbes” magazine. Bauer’s analysis showed that in the first year, this reform package would save nearly $2.4 billion for the state budget. From now until 2045, these reforms would save the state more than $50 billion in taxpayer contributions.



These savings are also achievable while preserving the core benefit for every worker and retiree. No retired person would see the size of their current check decrease and no current worker would see their currently promised monthly annuity shrink.

There is no fairer solution for both taxpayers and those relying on Illinois’ pension systems for their retirement security.


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