By: Ted Dabrowski and John Klingner
Politicians are once again doing pension reform on the cheap – stuffing piecemeal changes in an unrelated bill with no numbers and no debate.
We’ve written earlier in soft support of the proposal to consolidate downstate and suburban police and fire pension funds for investment purposes only. Despite the caveats we raised, it makes sense to pool the funds of the 650 pension plans in an attempt to increase investment returns and lower transaction fees. Everything else equal, not doing so would be irresponsible.
But the consolidation bill being debated on the floor today isn’t just about consolidation of fund assets. It’s also become a vehicle for changes to pension benefits, with increases for Tier 2 public safety workers. Pensions are the biggest issue that the state faces and lawmakers are about to make significant changes with no debate as to their merits and no public actuarial analysis calculating their cost.
For sure, benefits for Tier 2 workers – those who started work after January 2011 – will at some point have to be fixed. We’ve written about that in the past. It’s a real mess.
But this bill is not the place to do it. If Tier 2 is changed, it should be part of a dedicated pension reform bill that fixes all the funds at once, not snuck in as part of unrelated legislation.
Supporters of the Tier 2 reform in the bill argue that the costs of the increased benefits – estimated at some $70 to $95 million over the first five years – are covered by the expected higher investment returns generated as a result of consolidation.
But higher returns aren’t guaranteed by the bill. Yes, the consolidated funds will be able to take more risks in the stock market – but those greater risks can lead to better returns or bigger losses.
And if this bill becomes a “model” for reforming Tier 2 in other systems, how will the changes be paid for then? Downstate and police and fire funds represent just 4 percent of all the public sector retirement debt Illinoisans are saddled with. There are no similar potential savings to be had from pooling the rest of the state funds. So any additional costs from increasing Tier 2 benefits will have to be paid for by ordinary Illinoisans.
It’s absurd that the state has never released a true analysis of the Tier 2 problem. How badly is Tier 2 in violation of Social Security “safe harbor” laws. When will it be in violation? How many funds and how many workers are affected by it? What kind of subsidy are Tier 2 workers paying for workers in Tier 1? What will the “fixes” to Tier 2 do to the solvency of the funds?
And most importantly, how much will it cost Illinoisans to fix the problem?
None of those questions are addressed in the bill.
The downstate consolidation bill is a perfect example of why Illinois is mired in the nation’s worst pension crisis.
As one official from a major pension fund told us, “It’s immoral that they’re only fixing the Tier 2 in some plans and not the others.”
Immoral, yes. But not surprising.
Read more about Illinois’ pension crisis and the consolidation bill:
- Consolidation of Illinois police and fire pensions: a good idea with limited impact and many risks
- Local pension investment consolidation is sensible but risky
- US stock markets up 200%, yet Illinois pension hole deepens 75%
- Illinois’ financial decay spreads to cities across the state
A set of state lawmakers want to extend CPS’ current school closing moratorium to February 1, 2027 – the same year CPS is set to transition to a fully-elected school board. That means schools like Manley High School, with capacity for more than 1,000 students but enrollment of just 78, can’t be closed for anther three years. The school spends $45,000 per student, but just 2.4% of students read at grade level.
Hopefully, all media will get the message, in Illinois, too.
Ted joined Tom Miller of WJPF to talk about Illinois’ highest-in-the-nation property taxes, why lawmakers don’t want to touch the tax’s cost drivers, just how much Illinoisans’ tax burden has grown over the decades, why Gov. Pritzker failed to meet his promise to reform property taxes, and more.
The best day of your life is the day you move out of Illinois. A U-Haul will solve the problem. Call a mover today and start a better life for you and your family. Illinois is DOA, no hope. Even the cops, firemen and teachers with the HUGE PENSIONS are running out of Illinois.
Last man standing will be a dead man. 83 Degrees and Sunny in South Florida, NO state income taxes. Freeze you a$$ of in poverty or start a great new life.
I just realized the the U.S.Postal Service may be the only government agency that has a fully funded pension system. The Post Office annual contribution is the first item to be paid in every budget. Sorta what the Illinois Constitution requires but is never followed because our Supreme Court says that is a political question and cannot be enforced.
Something ti consider is that the old Civil Service Retirement System was substantially pared down during the Reagan years. The State though has done nothing despite an increase of life expediencies, investing with “who knows who” pension system officers, bad real estate investments, a diminished expectancy of asset returns based upon lower market interest rates not contributing to the pension funds ever since the advent of the “:Edgar Ramp,” and assorted other problems adding up to a colossal failure that has imposed some significant eventual mortgages on all Illinois real estate. However bring t his up to most Illinoisans and… Read more »
all springers should be locked in a nursery school. when a pol, mike quigley, says “hearsay is better than direct evidence”, sane minds should prevail. So in my taxpayer sanity, I love this next mistake now being foisted upon these union members. You supported them, gave them $$ and voted for them. You paid union dues without resistance-and now look what you have-they have turned on you, too. And the mass exodus from Illinois continues and escalates.
What is don’t to address the funding in funding levels, some are 90+ others are 20% funded.
Don’t answer the census our lost representatives will represent you better in a different state!!
Even 90% id not good enough. When you pay your property tax bill, send in 90$ of what’s owed , tell the treasurer “that’s good enough” and see what happens.
You live in Illinois. You expected things to get better?????
It’s almost as though nothing good is coming out of the state and city anymore. Some say it’s the leadership in government. ¯\_(ツ)_/¯
Don’t forget that every pension funding forecast and re-amortization plan assumes Tier 2 in its current state and all its inherent “savings”. In other words, don’t believe the hype.
Who put this in the bill? I saw it referred to earlier as a “poison pill.”
The poison pill is actually a different issue where they removed the city from having a voice in cases of disability benefits. They gave the local pension board full oversight over disability claims, taking the city out of the discussion.