Pension reform needed now in Illinois!

May 25, 2011

Published in the Lake Forester:  Pioneer Press publication, May 23

Pensions of teachers and public employees were hot topics this spring in the Illinois General Assembly, and in state capitals all over the country, because of unsustainable, unfunded pension systems which are bankrupting states.

The Pew Center on the States, a Washington, D.C., think tank, released a report on April 25 on the financial status of state public pension plans, including the Illinois Teachers Retirement System (TRS) and other Illinois systems. The report notes that Illinois is in last place among states in putting away enough money for benefits promised to its employees in retirement. The state’s pension bill for next year, plus debt service on borrowing to pay recent pension bills, totals $6.2 billion, based on an $85 billion pension short fall.

Out of 13 million residents in Illinois, 700,000 of them, about 5 percent, are enrolled in the State’s pension programs, meaning that the remaining 95 percent of us must pay higher taxes to pay retirement benefits to those whose pensions are far more generous than our own.

Given that Illinois has an $85 billion pension shortfall, pension reform must be of major concern to Illinois legislators, but will reform happen before the May 31 adjournment of the General Assembly? Or will another session pass leaving the state with the nation’s most under-funded state pension system?

On April 12 of last year, Governor Quinn signed pension reform legislation into law. That law took effect on Jan. 1 this year. While it is a constructive step, it is a baby step. These reforms only apply to new hires, teachers and state employees, so their impact won’t be felt for 30 years, or more.

Even though Quinn claims this pension reform will save Illinois $220 billion over the coming decades, and even $400 million in fiscal year 2011, which begins on July 1,these saving do little to reduce the state’s $85 billion pension shortfall. Even the governor’s claim, that there will be $400 million in savings 2011 are dubious. Could it be he’s counting contributions from new hires as savings?

A major piece of reform legislation, House Bill 149, sponsored by Rep. Tom Cross (R-Oswego) and being pushed by the Republican leadership with the help of the Civic Committee of the Commercial Club of Chicago, is needed now more than ever. This legislation would create a Three-tier Retirement system for All Active Members.

The Chicago Tribune, on May 5, was quick to endorse the beauty of the reform plan which would allow current workers to receive benefit payouts already earned or choose from these three options: 1) Increase their contribution; 2) Keep current contribution levels intact and work more years for a less open-ended package; or 3) Choose a 401(k)-style defined contribution plan with the state offering a 6 percent matching contribution.

As to be expected, union action was immediate. The “We Are One Illinois” coalition launched a campaign to portray public employees as hard-working victims of politicians who want to cover their mistakes by slashing pensions.

Of chief concern to taxpayers are the pensions paid to educators, because they account for $44 billion of the state’s $85 billion unfunded pension liability.

Although by law active Teachers’ Retirement System members are required each year to contribute 9.4 percent of their creditable earnings. Of that 9.4 percent, only 7.5 percent is used to fund the educator’s basic pension. The remaining 1.9 percent breaks down as follows: 1) 0.5 percent goes toward Cost of Living Adjustments (COLA) after retirement, 2) 1.0 percent goes toward survivor benefits, through which a surviving spouse gets payments equal to half the educator’s benefit, 3) 0.4 percent goes toward the Early Retirement Option (ERO). None of these contributions cover more than a fraction of the pension benefits. All state taxpayers are the losers.

Most members don’t understand the complexity of the TRS, but they all understand that their pensions are based on 75 percent of the average of the highest four years in their last ten years of teaching. Unions have been successful, all across the state, of getting contracts that put the burden of TRS contributions completely or mostly on the local school districts, apart from salary levels. Two-thirds of all educators in Illinois contribute less than 1 percent of their pay to TRS. On top of this fully paid pension benefit, they also demand, and get, “competitive” salaries. Local taxpayers are the losers.

Members of the TRS, who retired in calendar year 2010, averaged a $47,000 base pension for 25 years of work. They will receive a yearly 3 percent COLA, and their pensions, which continue for life, are not subject to state or federal income taxes. In the private sector, if a person started a career after graduating from college at 22, 44 years of work are required to receive full Social Security age at 66, and Social Security is taxed as income. That pension will only amount to about 35 percent of the retiree’s final pay.

This gouging of taxpayers happened gradually as unions gained influence and power over many years of bargaining with elected members of Boards of Education. The union sees its role as an advocate for teachers. Period. The locals typically assume an adversarial position in relation to their boards. They assume no responsibility for advancing financially sound requests, thus the burden is on the boards.

What has been allowed to happen in Lake Forest District 115 (high school district shared with the Village of Lake Bluff) is alarming, given the insatiable wage and benefit appetite of unions representing teachers, and of superintendents, combined with school board passivity in coping with reality.

Countless Freedom of Information requests allowed me to access teacher and superintendent salaries.

Teachers in Lake Forest District 115 fare well. Out of 169 full time and part-time administrators and teachers employed by District 115, 89 of them earn more than $100,000 per year and another twenty-one earn salaries of $90,000 to $100,000 with no obligations to contribute to their pensions.

As shocked as I was to see those figures, it was the lavish, sweet, dare I say lucrative retirement package superintendent Dr. Harry Griffith will receive, that was the icing on the cake for me. His over-the-top retirement package may well exceed the retirement packages of any other superintendent in the state of Illinois—and perhaps the entire nation—when he retires at the end of the 2012 school year.

His package includes:

1. In June of 2012, Dr. Griffith will collect over $200,000 a year from the Illinois Teacher Retirement System with guaranteed increases of 3% per year, plus an annuity that the school district purchased, at a cost of hundreds of thousands of dollars, to augment his retirement income.

2. Full cost of hospital, surgical, major medical, and dental insurance for Griffith and his family until October 31, 2015.

3. A continuation of Griffith’s term life insurance with a $1 million death benefit until his 65th birthday.

4. A car leased by the district for Griffith’s use will be given to him on the day he retires. Whatever happened to the gold watch?!

Lake Forest District 115 pension obligations are excessive in any economy, and downright unrealistic today. But the same situation exists throughout Illinois. No wonder there’s a massive, unfunded pension liability now sinking Illinois.

New teachers hired after January 1st of this year will retire under different rules. Age 67 must be reached, with 10 accumulated years of service, in order to qualify for full benefits. Retirement after 10 years of service at age 62 is possible, but retirement benefits would be reduced 6 percent for every year the teacher is under age 67.

While this letter was being written, Speaker Michael Madigan held the key to whether the Tom Cross reform legislation would clear the House with its meaningful measures to tame the public pension beast that is devouring billions of dollars of this state’s economy.

Will Speaker Michael Madigan and Democratic legislators allow unions to thwart efforts to curb current employees’ future pension earnings?

Teachers and pubic employees’ demands make them their own worst enemies. They retire too early, and they don’t contribute enough into their retirement funds. It took a long time for Illinois to create its massive unfunded pension liability mess, but without reforms, it will get much worse, and the rate at which it deteriorates will accelerate. Failure to enact well-thought out reforms will result in circumstances that no one wants, and that will especially anger union members: Illinois is not too big to fail. If the state sinks further into its cesspool of debt, teachers and public employees will face massive lay-offs and the complete failure of their pension funds.

The Cross legislation may not be the best remedy, but he and his co-sponsors have had the courage to face the reality of the situation. The legislature should debate the bill on its merits: identify and endorse its strengths; identify and fix its weaknesses. We are counting on them to find solutions that will last into the next century. By doing so Springfield can assure future generations that they can thrive and prosper in a state that ranks near the top in this nation, in economic outlook, GDP growth, personal income growth, and employment growth.

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