Illinois pension crisis draws Northern Illinois Tea Partiers’ attention

April 14, 2014

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By Nancy Thorner – 

Illinois taxpayers are beginning to paying attention to how their tax dollars are being spent, and Tea Partiers in Northern Illinois were especially interested last week in getting more information on one of the state’s biggest expenditures – state employee retirement benefits.

The Northern Illinois Patriots met at Austin’s in Libertyville, IL, Wednesday, April 9, although the usual meeting night of the organization is every 2nd Tuesday of the month from 6:30 – 9:00 p.m.  Greg Clements is president of the organization. The core beliefs of the Northern Illinois Patriots are Limited Government; Free Market Economy; Pro-family; Choice of Education; and National Defense.

Bill Zettler, Director of Research at the Family Taxpayers Foundation, was on hand as featured guest to speak about the “Illinois Pension Scandal,” also the title of Zettler’s outstanding book.

Prior to introducing Bill Zettler, Clements commented:

1.  Our bond rating is worst in this nation.  The first watch dog group to blow the whistle on Illinois’s pension problem was in 1945.  A promise of promising more than can be paid has been ignored for over 60 years.

2.  Impact on business:  They will not expand.  Small businesses are relocating to bordering states, resulting in the loss of tax revenue.

3.  Personal impact:  It compounds the problems for those who stay through increased and additional taxes levied.  Every 9 minutes someone leaves Illinois.  Illinois ranks third in the number of people moving out of the state.  Only New Jersey and New York win over Illinois in the number of people exiting our state.

Greg Clements was questioned about IRISA, the Employee Retirement Income Security Act passed in 1974 that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.  “Just why doesn’t government have to be subject to the same rules as business where at least 80% of their retirement fund must be funded?”  The catch:  In general, ERISA does not cover retirement plans established or maintained by governmental entities.  As government uses the cash method, it can promise payment, but the amount owed doesn’t become a liability until it is paid.

Clements called the 1970 Illinois Constitution a “recipe for disaster” and that “no one deserves a constitutionally deserved retirement.”   Although government pensions in Illinois might be funded at the 57% level, if even at that, commitments already made are outstripping the money being put in.  Three words in the Constitution, “diminished or impaired,” cap a clause that is designed to force Illinois to meet obligations to its retired public sector workers.

On Thursday, April 10, current information about Mayor Rahm Emanuel’s partial city pension overhaul that passed two days before in the General Assembly (Tuesday, April 8) was shared by State Representative Jeanne Ives (R-Wheaton).  Representative Ives’ wrote:

Mayor Rahm Emanuel’s partial city pension overhaul passed in the General Assembly on Tuesday. The bill that passed merely scratches at the surface of the problem. In October 2013, Barron’s shed some light on the severity of Chicago’s pension problem in an article that ranked the 20 most populous cities in the US based on their debt as a percentage of government revenue.  Detroit, currently bankrupt, ranked 12th at 372 percent.  Chicago, ranked 20th– last place, at 683 percent. The article exposes that it would require ALL of Chicago’s government revenue for the next seven years to finally pay off the city’s debt and unfunded liabilities for worker pensions and healthcare. 

It is going to get worse.  Politicians eventually must deal with the larger Chicago funds that are in worse shape – police, fire, and teachers.  Rolling out these reforms piecemeal hides the depth of reform needed by masking the entire cost to taxpayers. Hidden during debate is the $600 million in additional pension payments state law requires the city to make to its police and firefighter funds next year and the $600 million in pension payments needed for Chicago teachers at the same time.

Greg Clements introduced Bill Zettler to the assembled patriots.  Zettler’s remarks added immensely to the current pension issue, especially in relationship to the TRS (Teachers’ Retirement System), given his knowledge of the issue as presented in his book: “Illinois Pension Scam.”  Zettler was encouraged to write “Illinois Pension Scam” by Jack Roeser of Champion News in his role as Director of Research at theFamily Taxpayers Foundation

According to Bill Zettler, although the amount of unfunded pension is often given at $100 billion, this is just a guess.  When adding up all future pensions that must be paid by the state’s five retirement funds, it’s more like $170 billion.

Zettler immediately zeroed in on the TRS, as it’s the state’s biggest public pension fund.  According to an article published at “Huff Post Chicago” on October 25, 2013 by Reuters:  TRS said it has never received a full contribution from Illinois since it was created in 1939.  TRS, the 39th largest pension system in the United States, serves 389,900 teachers, administrators and other school personnel and had assets of $40.97 billion as of Sept. 30, 2013.

Madigan was in the House back in 1970 when the “Constitution” was passed guaranteeing pensions, but not funding.

How is it that despite a 13% return on investments in fiscal year 2013, the TRS funding gap rose to $55.73 billion as of June 30, up from $52.08 billion at the end of fiscal 2012, increasing the unfunded liability of the TRS by 7%. With only $40.97 billion of assets, and a funding gap of $55.73 billion, real pension reform is urgently needed in Springfield, not a make-believe fix.

Bill Zettler explained how the ROI (Rate of Investment) has much to do with the way pension debt is mounting.  Using a large mounted tablet Zettler wrote the following simplified example to illustrate why pension debt is increasing:

  • Suppose that $8.00 a year pension is owed and there is $100.00 in the bank.
  • With $100 in the bank, the $8.00 a year pension can be met when receiving an 8% interest rate on a CD.  With this rate the pension can be paid forever.
  • Now let’s suppose in rolling over the CD that the best rate available is 4% for the following year.
  • Now in order to meet the $8 pension there would have to be $200.00 in the bank, as only 50% of the pension would be funded.

The proof is indeed in the pudding!  It matters not how much the amount of debt is.  When interest rates are cut in half, liability doubles.  

Zettler illustrated the nature of the “Defined Benefit Fund” with a pie-chart.   Depicted was how a small amount of money is paid into the fund by the employers and a slightly higher amount by the employees, meaning that the rest of the pie, which is over 3/4 of the whole, must somehow be paid for.  With the amount derived from investments cut in half from 8% to 4%, taxpayers are now liable for half of the amount that investments are no longer covering.

A $5.3 billion contribution would be needed to keep the unfunded liability of the TRS from rising further. As the TRS gave preliminary approval to only a $3.412 billion contribution for fiscal 2014, a further rise in unfunded TRS liability is assured.

High salaries for teachers equals high pensions.  Teachers in Illinois can retire at 55 or 30 years, with an assured 3% cost of living every year until the end of their lives.

Through FOIA requests, Zettler has determined that in Illinois there are 10,000 teachers and 16,000, if you include administrators, whose salaries are greater than $100,000.  In contrast, Wisconsin has one $100K teacher; Indiana (21); Iowa (8); Missouri (11); and Kentucky (0).

A handout by Zettler listed the 50 top pensions as of 2013, ranging in amounts from $439,672 down to $231,110.  Illinois now has its first $500,000 pensioner, anesthesiologist Dr. Alon Winnie, a retiree from the State’s University Retirement System.  His pension during 2013 was $512,964 or $42,747 a month.  His COLA payment of January 1, 2014 amounted to $15,389, raising Winnie’s pension to $528,353 or $44.029 a month.  Dr. Winnie has already collected close to $6 million to date. If he lives a normal life expectancy (80 years per IRS), he will end up collecting over $12 million.

It should be obvious that the defined pension benefit plan where the benefit formula is defined and known in advance and is predetermined by a formula based on the employee’s earnings history, tenure of service and age, as with TRS, is bound to collapse, especially for young teachers coming into the system.  Mandated is the need to shift to a 401K-style retirement system.  Might salaries be frozen for three years, and what about the yearly fixed 3% COLAS?

In closing Mark Miller announced a new endeavor for the Northern Illinois Patriots.  Its leadership team will help members by partnering and then working with them to educate people in their local communities on how to stand up, using facts, to shed light on the situation at hand.

Recommended as a coming event was the 6th annual Chicago/Illinois Tax Day Tea Party rally on April 15, 2015 at 4:00 p.m. at the Arcada Theater in St. Charles, IL.

 

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