Pension reform needed
TERRY SAVAGE email@example.com November 8, 2011 7:26PM
Updated: May 3, 2013 12:15PM
Here’s a Savage Truth, like it or not: Within the next 28 years, half the state’s general tax revenues will go to pension obligations, leaving little money for education, roads and bridges, prisons and law enforcement, or Medicaid programs.
Then there will be no choices left. Either the state will cut services, close hospitals and prisons, and stop funding schools. Or the state will renege on the pension promises it has made to teachers, state employees, judges, state university employees — and legislators!
Knowing these facts, which are clearly provided by the Taxpayers Federation of Illinois, you would think that our state legislators would back a third alternative, now before the “veto session” in the Illinois legislature. That third alternative is the only viable plan for dealing with our pension crisis while there is still a chance.
That alternative is Senate Bill 512, which I am told does not have a chance of passing. That is a crying shame. While I readily admit to not knowing much about Illinois state politics, I do know that if there was ever a time for bipartisan solutions to a huge problem, it is now. If politics keeps this bill from passing, it will be a clear case of legislators cutting off their own noses to spite their faces!
Senate Bill 512
Here’s what Senate Bill 512 would do to deal with the oncoming crisis in pension underfunding:
† It would NOT impact those currently receiving a state pension.
† It would NOT impact pension benefits that are already earned.
† It WOULD give current employees three choices about how future benefits could be earned.
Those three choices are simple — and more generous than the choices that were given to employees of major corporations, such as IBM, when they transformed their pension plans into 401(k) plans decades ago.
If you are a current state employee, here are the three options for earning future benefits, on top of the already-earning pension benefits, which will not change. Your three choices would be:
† Stick with the current pension plan — but pay more each year. Specifically, teachers who now pay 9.4 percent of their salaries would have to contribute 13.77 percent — to maintain the current level of pension benefits on future salaries. Note that the state will continue to pay in 6 percent of payroll, and also that many teachers do not actually pay that 9.4 percent; instead their school district pays it for them.
† Sign up for the reformed defined benefit (pension) plan that is now being offered to new employees. They would contribute less to the new plan than the current pension contribution, although the state would be obligated to contribute the same 6 percent, in addition to adding money to make up the unfunded liability of the plan.
† Make future contributions to a new defined benefit plan, a sort of 403(b) plan, which would give investment options.
Why would state retirees voluntarily give up the current good deal they receive? (The teachers plan allows for retirement age 60 with 10 years of service and a 3 percent compounded annual cost-of-living increase, although they do not get Social Security benefits.)
So why should teachers and other public employees support Senate bill 512?
Because you’re making a big bet, a bet that could cost your entire pension if you don’t vote for reform now. If the system isn’t fixed, you may have a choice of perhaps receiving benefits — but living in a state that can’t provide basic services. Or of having the state default on future pension payments. Or living in a state that taxes all income — including your pension — at exorbitant rates, driving jobs out of state.
The one thing the State of Illinois cannot do is postpone this inevitability. That’s because, unlike the federal government, the state cannot print the money to pay its bills and promises.
The bill needs a simple 50 percent majority to pass out of the Illinois House of Representatives during this three-day veto session. Contact your representative by going to www.IllinoisisBroke.com. Your action can make a lifetime difference. And that’s The Savage Truth!
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