Illinois’ Pension Mess! — (in the “if I were czar” series)

Last updated on: August 16, 2016 at 9:52 am by Jane the Actuary

Illinois’ Pension Mess! — (in the “if I were czar” series) 2016-08-16T09:52:58-06:00 Jane the Actuary

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This is, in broad outlines, the content of a recent unpublished letter to the editor, my fix for the pension crisis in Illinois:

First of all, existing accrued pension benefits have already been promised — these have to be maintained, just as in the private sector.

What’s more, it’s been taken as a given that future accruals, under the same pension formula, are guaranteed by the Illinois constitution. But you know what? — Last year, there was a very convoluted constitutional amendment which attempted to rein in pensions. Fundamentally, we need a different, very simple amendment: “the State of Illinois is obliged to pay out pension accruals for benefits due to service already rendered. The state may, at its discretion, alter or cease pension or other post-retirement benefits for future service, without limitation. Nothing in this constitution shall oblige the state, or any entity within the state, to maintain future pensions under existing pension formulas and provisions.”

The next step is to get the government out of the pension business entirely — not necessarily by moving every state employee to 401(k)s but telling the public employee unions (SEIU, NEA, etc.) to step up to the plate and provide Taft-Hartley multi-employer plans for their members, for which the employer pays a fixed contribution and the union-run pension plan has the obligation to run the plan effectively — in this case, with the understanding that the state will not pick up additional costs for mismanagement or investment losses; these will have to come out of workers’ paychecks. Existing accruals would be maintained in the manner of a frozen plan at any private-sector employer, with the added concession that these fixed accruals will be increased each year by inflation (or even average Illinois wage increases), and the state, over time, improves the funding level by dedicating boom-year surpluses (instead of spending the money on constituent-pleasing special projects).

That’s it! Though I’m undecided on whether part II should be legislation or a further constitutional amendment.

(By the way, I label this the “if I were czar” series well aware that Obama’s “czars” are a touchy subject — but it’s in homage to my dad, who likes to say this.)

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