Reeder: Pension reform legislation falls far short
By Scott Reeder December 7, 2013 12:12PM
Updated: January 9, 2014 6:27AM
On Tuesday, the Illinois General Assembly passed a measure that legislators contend will solve the state’s pension crisis.
If only it would.
The reality is it likely lays the groundwork for future tax increases and does little to solve the state’s fiscal woes.
Mind you, Illinois has the worst-funded state pension system in the nation, the worst credit rating in the country and is paying its bills months late.
In short, Illinois is a fiscal basket case. Such a situation demands strong medicine.
Instead, what we got was a placebo treatment — a sugar pill disguised as a potent remedy.
At the end of the day, the savings from the pension reform bill mainly comes in two forms — gradually raising government workers’ retirement age and lowering the cost-of-living adjustments, or COLAs, for retirees.
That’s it, folks.
Labor union officials are calling the pension changes onerous. The reality is it is too little, far too late.
Under the legislation that Gov. Pat Quinn signed, state employees will still be retiring in their mid to late 50s for many years to come. And they will still be receiving COLAs in their retirement.
Meanwhile, most of the rest of us can look forward to retiring in our mid-60s and not getting any COLAs from our private retirement plans.
And the burden of financing public employees’ generous retirements falls on the shoulders of those of us with private retirement plans.
Three years ago, lawmakers passed a temporary income tax increase (from 3 percent to 5 percent) that’s slated to partially sunset in 18 months. The money was supposed to go toward helping the state pay its bills and to bring its pension systems back toward solvency.
But the state pension systems are at their worst level of funding ever. And that’s despite the state taking in more than $7.5 billion a year more through the higher income tax. Spending went up after the tax increase.
And even with legislative leaders’ optimistic projections, the pension reform bill would save Illinois at most $1.5 billion a year, according to Crain’s Chicago Business.
So even if those rosy projections become reality, those same legislative leaders would have to come up with more than $3 billion annually in savings elsewhere to ensure that the income tax hike partially sunsets as promised.
Come 2015, I can already hear the politicians explaining the need to make the higher in come tax permanent: “Well, we tried pension reform, and it just wasn’t enough …”
That’s right, it’s not nearly enough. The savings, to be blunt, are picayune compared with the pension systems’ overall fiscal woes.
And the promises this new bill makes are steps in the wrong direction.
For example, it empowers the pension systems to sue the state if they aren’t allocated as much money as they think they need. That’s a risky proposition for taxpayers.
Illinois’ five state pension systems invest in stocks, bonds, real estate and other volatile securities. Some of those investments pan out, while others don’t.
But guess what? Under this new plan, if those investments go south, the pension funds can sue the state and make up the difference.
Does anyone guarantee your 401(k) account that way? I didn’t think so.
The result is that you, the taxpayer, will be guaranteeing someone else’s pension that way.
Under the reform legislation, pension funding is more important than public safety, education or any other government program. Only paying off government bonds will be a higher priority.
I must have missed that day in junior high civics class where we learned that the primary purpose of government is to pay debt and provide for employee pensions.
During Tuesday’s debates on the bill, lawmaker after lawmaker said, “this bill isn’t perfect, but …” So they passed it. Legislators wanted to do something, anything to address this overwhelming problem.
I only wish their actions would solve the problem.
There’s little doubt in my mind that future legislators will need to address even worse pension crises because this legislation didn’t do nearly enough.
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.