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Reeder: A responsible solution to pension funding in Illinois

Scott Reeder

Scott Reeder

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Updated: April 8, 2013 7:26AM



Mr. Reeder,

I read your article today. … I am a retired teacher of 35 years. I was required to put 10 percent of my income into the TRS pension system. I did not have a choice. I did invest what little was left.

I get emails similar to this from retired teachers all across the state.

They are heart-wrenching.

Dedicated educators who have spent their careers teaching our children now find themselves caught in a failing pension system.

Their message is clear: “I did not have a choice.”

These educators and the state’s other public employees have been relegated to victim status by the state of Illinois. The politicians who caused this severe problem won’t empower them to take charge of their retirements.

I’ve often written about the desirability of transitioning teachers and other government workers to defined-contribution retirement plans such as 401(k) plans (rather than defined-benefit ones). When I do, I receive emails from them that say something like: “Don’t blame us; we didn’t choose to be a part of the pension system in the first place.”

And they are right — they have been let down by shortsighted and disingenuous politicians who made promises of ensuring public employees secure retirements.

But they haven’t been let down by Illinois taxpayers, who sacrificed an extra week of pay beginning in 2011 just to pay for government retiree benefits.

And the taxpayers of this great state have faithfully paid their taxes year after year.

Despite that, some would further penalize taxpayers because our governors and legislators didn’t spend money in the manner that they promised.

It’s time to get politicians out of the pension business. It also time to empower teachers and others to choose their investments. We trust teachers with our children. Why can’t the politicians trust them to make wise retirement decisions for themselves?

But how do you do that in a manner that is fair to employees, retirees and taxpayers?

That’s an especially difficult question when one considers that the state has an unfunded, long-term pension liability of roughly $96 billion. And folks of all political stripes are talking openly about the possible future insolvency of the system.

That’s one of the reasons I’m impressed with a plan that my colleagues at the Illinois Policy Institute have come up with to resolve Illinois’ pension funding crisis.

Here are the key differences between the institute’s proposal and other plans being circulated in Springfield:

It rules out extending the 2011 state income tax increase.

It protects pension benefits already earned by employees but ties all future earned benefits to a defined-contribution plan.

It pays off the unfunded pension liability on a level-dollar basis.

It reduces the fiscal year 2014 unfunded pension liability by $46 billion.

It reduces fiscal year 2014 state contributions to $4.7 billion, a nearly 30 percent drop from $6.7 billion under current law.

But it’s also quite generous to the employees.

For example, a teacher who starts his or her career at 25 at a salary of $35,000 and receives a 3 percent raise each year can retire at 67 with $1 million in the bank, based on an average annual investment return of 4 percent. With that amount, a teacher could buy an annuity worth $54,000 annually.

So how does the plan accomplish these things?

It raises the retirement age to 67 for new and younger employees and halts the annual cost-of-living raise of 3 percent for retirees until the pension plan is fully funded.

State Rep. Tom Morrison (R-Palatine) has introduced legislation to implement the plan.

“This bill reforms pensions in a constitutional way,” he said at a recent news conference. “It protects the pension benefits workers have earned to date. The pension formula will simply apply to their current service and their current salary. They will receive a basic pension as if they had left government employment today.

“But in order to fully protect those benefits, we have to change how future benefits are earned. And while we’re making those changes, let’s do it in a way that empowers workers with real control rather than keeping the power in the hands of this legislative body.”

Sadly, through decades of mismanagement by governors of both political parties and state legislators, we find ourselves in the midst of crisis.

Unless tough decisions are made, the cost of state workers’ pensions will consume an increasing portion of the state budget — resulting in unacceptable cutbacks to core government services such as public safety, education and caring for society’s most vulnerable members.

Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute, a nonprofit research group that supports the free market and limited government.



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