There’s more egg on the faces of last year’s Tier III pension reform champions than we knew.
You may remember that the current year’s budget, finally passed last July, assumed savings of $500 million per year from pension reform. The savings were to be accomplished through implementation of a Tier III benefit level for new hires.
We learned last year that it wasn’t feasible to get it done that quickly, which should have been obvious from the start. Now, however, it’s clear that Tier III can’t go live until the 2020 fiscal year, which starts July 1, 2019, at the earliest. That’s according to the website for TRS, the pension for teachers, which accounts for about 60% of the unfunded liabilities at the state level. I believe the other affected pensions would likewise have to wait until then, though that’s not entirely clear.
And will it really save $500 million per year? Don’t believe it until you see it. Nobody ever did any analysis on it. The Tier III plan was one of many things stuck into the 700-page budget implementation bill by Democratic leadership and lawmakers had only hours to review it.
When it became clear last year that the $500 million had no basis, Democrats blamed Governor Rauner, whose office first put out the number. In fact, both Rauner and every member of the General Assembly who voted for it deserve blame.
They didn’t understand it then and they still don’t.
I wouldn’t be surprised if we ultimately learn that the changes save nothing. That’s because most current Tier II members are expected to opt into Tier III, which is allowed under the new law. But those current Tier II members today are paying in more than the actual cost of their own benefits. They’re basically paying a premium to subsidize the system to prevent it from sinking faster than it is. Losing their subsidy will actually cost money, not produce savings.
It’s just another example of why we keep saying that defined benefit pubic pensions are hopelessly opaque, easily corrupted, and fundamentally incompatible with any notion of informed democracy.
–Mark Glennon is founder of Wirepoints. Opinions expressed are his own.