By: Mark Glennon*


If you follow the Illinois pension mess closely, each week is a slap in the face. New absurdities turn up routinely. Consider just the things we encountered last week.


The first little outrage arose when we tried to guage the full impact of recent Kanerva decision by the Illinois Supreme Court, which elevated subsidized healthcare benefits for pensioners to a constitutionally unalterable right. Those healthcare benefits are unfunded and were thought to be discretionary. The ruling applies not just to the roughly $50 billion for state pensioner healthcare (we have that estimate) but to some 650-plus other local pensions as well, insofar as they subsidize healthcare.


So, how many more billions are we talking about here?


The court considered the dollar impact of its ruling, right? No, cost doesn’t matter, it said.


The Department of Insurance or some other state agency surely publishes at least a total, right? Nope.


Well, certainly the governor has gotten a handle on the impact and told us what it means, right? Oh, please.


No, there’s no government total published. As is so often the case with getting pension data you have to turn to private groups – and thank goodness for them. Without organizations like the Civic Federation, the Illinois Policy Institute and Truth in Accounting, we’d be relying on state and local self-reporting on pensions, which varies on most points from nonexistent to overly optimistic to grossly deceptive.


On this particular point about city and municipal impact of Kanerva, the private groups haven’t yet been able to do the government’s job of compiling good, current numbers. Truth in Accounting told me they earlier estimated the total just for the Chicago metro area at about $7 billion. The Illinois Policy Institute estimated the statewide total at around $11 billion, though that was several years ago.


In short, beyond the $50 billion impact of Kanerva for state pensioners, Illinois doesn’t know how bad it will be when you add in local pensions. Obviously, the some agency should be all over this. It’s a local obligation but the same taxpayers have overlapping obligations.


The second bit of craziness encountered during the week is about just getting the basic numbers on local pensions. The Illinois Department of Insurance is charged with reporting to the public on those 650-plus public pensions — all the basic numbers. Twice a year, they publish a report of the information they collect. That report breaks out the big ones but hundreds of the smaller police and fire pensions are just totaled together.


So, suppose you want to see how the police and fire pensions are doing in your particular city or town? Good luck with that. Some municipalities put that information online, but not the Department of Insurance, though they have standardized, individual reports for all of them. Here’s a sample of one of the smaller ones. You’d think they would put them all online and they’d be commonly discussed in local papers, right?


No, you have to file a Freedom of Information Act request to get them. If local media have ever looked at even one of them, I haven’t seen it.


A Freedom of Information Act request for all of them is exactly what Jim Palermo did. Mr. Palermo is a Village Trustee of LaGrange who follows pension problems in detail. A financial professional and CFA, we talk to him regularly. “Few local officials have any idea how badly most of those pensions are funded,” he told me. He’s still going through them, but based on his review to date, he said this:


Funding ratios may be known, but plan condition goes beyond that single measure. Many plans have more people drawing retirement or disability benefits than there are active workers, and even more plans have liabilities due inactive participants that exceed the assets in the plan, which means there are no assets for the current workers. Still other plans have annual benefit payments that exceed the employer and employee contributions, which means the plans are entirely dependent on asset growth for the balances to increase. The worst of the plans suffer from some or all of these conditions.


Ouch. Do those towns and cities know that? Very few of their elected officials probably see the right data or understand it, and the Department of Insurance sure doesn’t help.


There’s a common thread to this one week’s list of small horrors – how opaque these pensions are. The public, and many officeholders, are still learning how bad the pension crisis is. Politicians’ have every incentive to suppress bad pension facts, and they’ve been pretty successful.


Their success at that, combined with the inherent complexity of defined benefit pensions, is a recipe for a bomb. Our public pension system is fundamentally incompatible with open government and rational fiscal management. That bomb is now exploding and we’ll soon learn just how big the blast will be.


*Mark Glennon is founder of WirePoints


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5 years ago

Should clarify it’s a legal crime scene contained in the Illinois Pension Code.
No need for anything illegal.
3 easy legislative steps.
1. House.
2. Senate.
3. Governor.

5 years ago

For the most part public sector pension and retiree healthcare systems in Illinois are legislative bargaining chips used for political purposes and have been for 40 years.
At best fiscal sustainability, transparency, and common sense are illusions.
How does one unravel a 40 year problem while powerbrokers and special interest groups are busy protecting the status quo?
Good old fashioned detective work, piece by piece in methodical painstaking fashion.
It is a crime scene and should be treated as such.