By: Mark Glennon*
Illinois’ largest public pension issued an unusually blunt statement this week, unanimously approved by its Board of Trustees, in direct opposition to Governor JB Pritzker’s recent budget proposal.
The statement is from TRS, The Teachers’ Retirement System of Illinois. It’s officially just 40% funded and its reported $76 billion unfunded liability accounts for about 60% of Illinois’ state-level pension shortfall.
Most significantly, the statement opposes the “can-kick” in Pritzker’s budget proposal that would extend by seven years the target date set by current law to reach 90 percent funding. It further opposes any other effort to reduce the taxpayer contributions for the upcoming fiscal year below the $4.8 billion TRS earlier calculated is required by existing statute.
The statement further opposed any expansion of the current “buyout” program unless funds used for the buyout come from some source outside the pension. Wirepoints and others have questioned the economics of the buyout program which have never been properly documented by the state. We expect the buyout program will result in minimal savings to the pensions and was used as a pretext for reducing earlier state contributions to its pensions and covering up budget deficits.
The statement also reaffirmed that even the currently scheduled contribution to TRS is $3 billion short of “full funding.”
The rebuke of a Democratic governor by a unanimous Illinois pension board is interesting and unusual because they are typically dominated by Democrats. TRS is governed by 13 trustees including the state superintendent of education (who Pritzker appointed), six trustees appointed by the governor, four trustees elected by contributing TRS members, and two trustees elected by TRS annuitants. Two appointed seats are currently vacant. Four were appointed by Republican Governor Bruce Rauner. Pritzker has yet to make any appointments aside from the state superintendent.
Personally, if I were a trustee of an Illinois pension, I’d be cutting current payouts to ensure that something is left for younger retirees who will be facing crisis. There’s nothing in the system for them, especially Tier 2 current workers, for whom not a dime is set aside. Textbook duties of a fiduciary include treating all claimants equally. Instead of honoring that duty, pensions are bleeding out full payments, leaving later claimants with ever-diminishing hopes in a system where benefit cuts are inevitable.
That’s not to say I’d expect an Illinois court to agree with me, which I wrote about earlier. I have zero respect for how Illinois courts have dealt with our pension crisis.
*Mark Glennon is founder of Wirepoints.
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.
Isn’t martwick have some undisclosed plan to bailout or do away with tier ll? However in the world that would be paid for
The pension benefits are determined by law and protected by the state and U.S. Constitutions. The trustees have virtually no legal authority to reduce them. The one exception may be the money purchase annuity factors under SURS: when that system reduces its expected rate of return on investments, as it did recently to 6.75% annually, that action results in higher factors and lower initial benefits for those retiring under the money purchase formula. On a different note, it is shameful that SURS has not yet said one peep publicly condemning Pritzker’s proposed contribution reductions, even though (as TRS explains) it… Read more »
The fiduciary duty of trustees is also imposed by law.
In most contexts, when debts exceed assets, the bankruptcy court decides how to divide up the available assets. Federal law has some rules when the PBGC takes over a plan. I think the PBGC continues to pay pensions “in pay status” but capped in amount. Teamsters etc. have hinted that current benefits may need to be cut to save something for future retirees. I guess legislators or treasurers decide whom to pay when all can’t be paid. I think the fiduciary is as good as anybody else in sight to start rationing pension assets and incoming pension contributions. Fiduciary can… Read more »
Outstanding comment, Mr. Brustad. I would think that approach would be especially viable in a situation where an Illinois municipal pension’s trustees are already cornered in a fiduciary bind over the intercept issue. That is, a significant number of municipal pensions have been shorted by their sponsoring municipality on the statutorily required annual contribution. That gives them the option of having the IL Comptroller intercept other state money flowing to the municipality and redirect it to the pension, which we’ve written about often. I know for a fact that some trustees are quite worried, as I think they should be,… Read more »
Would diversity get us there? Lots of claimants live outside Illinois. But in some respects it seems like an “in rem” proceeding: it’s substantially about disposition of a trust corpus (though, to be sure, its about both incoming and outgoing money). If a claimant asserts a federal law contract impairment, perhaps that would create a federal question. If Illinois’ highest court rules pension cutbacks are an impairment under the Illinois constitution, might not a federal court rule (a) that the same cutback is not an impairment under the federal constitution due to the state’s sovereign police power? THEN what happens?… Read more »
I’m mighty rusty on Civ Pro so I won’t venture an answer on jurisdiction and will leave that to still-practicing lawyers. But on your point about police power under Federal law, I do know that some folks are taking a hard look at that and think the time may be ripe to find the right test case — a municipality where basic government services are failing. I’ve looked before at the Federal cases and think it’s viable on the right facts. Also, while the recent Janus decision wasn’t about that, I’m not the only one who thought Alito went out… Read more »
I am fairly sure the basis is that a state cannot be forced to surrender an essential element of its sovereignty, such as the police power. U.S. Trust Co. of New York v. New Jersey, Supreme Court of the United States (April 27, 1977). Excerpt follows: “When a State impairs the obligation of its own contract, the reserved-powers doctrine has a different basis. The initial inquiry concerns the ability of the State to enter into an agreement that limits its power to act in the future. As early as Fletcher v. Peck, the Court considered the argument that “one legislature… Read more »
The law and state constitutions can’t protect the pensioner from Illinois and Chicago Bankruptcy, Mass Exodus of companies and high earners via Scorched Earth Death Spiral imposed by the Democrats. It’s impossible to the ask the hard earning taxpayers to be decimated by the privileged government pensioners.
US Constitutions? JB can wack that out at the same time as changes to a progressive tax and we won’t need it 😉
Last updated 2014 – the math already said the state could not balance its budget without addressing pensions, and pensions could not be fixed without touching those already retired. See the basic explanation we wrote a few years ago. https://dupagewatchdog.org/2014/07/22/pensions-explained/