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The bill is due… again

Monday, Jul 17, 2017

* From the Illinois Policy Institute’s news service

The entirety of the $5 billion in tax increases the legislature imposed on Illinoisans will be eaten up by this year’s pension payment, and that’s still not enough to address the growing liability.

Lawmakers overrode Gov. Bruce Rauner’s veto of a $36 billion budget July 6, enacting it into law. Under the newly enacted budget, the state will spend around $7 billion for public sector pension funds. […]

State Rep. Jeanne Ives, R-Wheaton, said the same thing happened with the 2011 temporary income tax hike, where the increase went to pay off growing pension obligations.

That’s true.

Illinois got itself into a big hole over the years by failing to make its pension payments, keeping state taxes relatively low while still expanding programs. You simply can’t do that forever. Eventually, you gotta pay the tab.

- Posted by Rich Miller        

89 Comments
  1. - Michelle Flaherty - Monday, Jul 17, 17 @ 10:04 am:

    Keep in mind Rauner has been spending at $39 billion without a budget and dumping it all on the stack of IOUs.


  2. - Anony - Monday, Jul 17, 17 @ 10:09 am:

    And the General Assembly (aka Madigan) owns the budget.


  3. - Ahoy! - Monday, Jul 17, 17 @ 10:11 am:

    –Keep in mind Rauner has been spending at $39 billion without a budget and dumping it all on the stack of IOUs.–

    I’m not sure I would say Rauner has been spending money when it was court ordered. I think Rauner has plenty of things that we can blame him for that are actually his doing, I’m not sure this is one of them.


  4. - Oswego Willy - Monday, Jul 17, 17 @ 10:11 am:

    ===And the General Assembly (aka Madigan) owns the budget.===

    Too bad Rauner, for three fiscal years was so grossly inept, he couldn’t do a thing.

    Some might call that failed leadership, like Candidate Rauner did…


  5. - Christopher - Monday, Jul 17, 17 @ 10:12 am:

    Anony, would you rather we still had NO budget, since Rauner didn’t propose a balanced budget himself?


  6. - Anonymous - Monday, Jul 17, 17 @ 10:15 am:

    Hence the need for reforms. Oh heck, let’s just raise the state income tax to 9.95%, that will fix everything.


  7. - Streator Curmudgeon - Monday, Jul 17, 17 @ 10:16 am:

    –Illinois got itself into a big hole over the years by failing to make its pension payments, keeping state taxes relatively low while still expanding programs. You simply can’t do that forever. Eventually, you gotta pay the tab.–

    I don’t want this to seem like a “Because…Madigan” rant, but it was on his watch that much of this happened, but other than Rauner, you don’t hear too many people blaming him.

    It seems to be kicking the can down the road or just poor fiscal management, neither of which is boastworthy.

    Maybe I’m being naive, but can Mike Madigan honestly say, “Boy, I’ve done a great job for the state of Illinois the past 30 years?”


  8. - JPC - Monday, Jul 17, 17 @ 10:16 am:

    That bill was always going to be due.


  9. - LTSW - Monday, Jul 17, 17 @ 10:16 am:

    Until the right folks realize this is a debt problem and not a pension benefits problem we won’t get a solution.


  10. - Christopher - Monday, Jul 17, 17 @ 10:17 am:

    Well, without Madigan, I think Rauner would have steamrolled over everyone with his “Turnaround Agenda.”


  11. - Earnest - Monday, Jul 17, 17 @ 10:19 am:

    >I’m not sure I would say Rauner has been spending money when it was court ordered. I think Rauner has plenty of things that we can blame him for that are actually his doing, I’m not sure this is one of them.

    If this is true, then how did the Legislative Branch craft a budget that spent less money?


  12. - Oswego Willy - Monday, Jul 17, 17 @ 10:19 am:

    ===Well, without Madigan, I think Rauner would have steamrolled over everyone with his “Turnaround Agenda.”===

    I’m guessing this is snark, given the Labor aspects, for one example, wasn’t what Rauner ran on the first time….


  13. - cdog - Monday, Jul 17, 17 @ 10:19 am:

    Exactly.

    Rauner has to pay his tab, and quit the deficit spending. There is nothing prudent or conservative about his past words and actions.

    Rauner needs a six year plan, that’s radically candor-ish and not a bunch of his typical phoniness. The new plan must include serious pension funding, surplus budgeting, and non-existent overdue payables.

    If Rauner and his new team want a “buy-in” from the people who voted for him the first time, he needs to get his math right this time.

    (Using his own team’s new “radical candor” Cartesian Plane, he’s been operating in the 4th quadrant — “obnoxious aggression.”

    This has to stop in order to accomplish big-time pension funding, surplus budgeting, and zero old payables–all while running the State of Illinois.

    #doyourjob


  14. - northsider (the original) - Monday, Jul 17, 17 @ 10:20 am:

    Isn’t it good to pay down obligations? How else can you get out from under them without violating the constitution?


  15. - Norseman - Monday, Jul 17, 17 @ 10:22 am:

    Somehow, I suspect that IPI propaganda service is not into explaining the background. It’s public employee bad. Make public employee suffer.


  16. - Sue - Monday, Jul 17, 17 @ 10:22 am:

    Let key it or not but absent a favorable court ruling some day by the Suprdme Court- Illinois cannot tax its way out of the pension liabilities. Pensions are choking off all other govt services and it’s going to get dramatically worse. If the Rrpublicans had any brains they would start the decades necessary battle to capture the Court because without a decision allowing a reduction in payments Illinois will continue to die a slow death. I don’t think this is an overstatement of hyperbole it’s just the reality


  17. - Rich Miller - Monday, Jul 17, 17 @ 10:25 am:

    ===Until the right folks realize this is a debt problem===

    And we cannot constitutionally discharge that particular existing debt. So, get over it. The bill has to be paid.


  18. - titan - Monday, Jul 17, 17 @ 10:35 am:

    According to the IPI https://www.illinoispolicy.org/interest-on-illinois-pension-debt-is-9-1b-per-year/

    “For example, in fiscal year 2018, Illinois will make an $8.9 billion pension payment, which will cover the $2.1 billion employer normal cost and $6.8 billion of annual interest cost. However, the annual interest cost is actually $9.1 billion, meaning that after the employer’s portion of the normal cost, Illinois will come up $2.3 billion short on the interest payment. The unpaid portion of the interest cost is added to the debt, just as if a person didn’t cover the full interest payment on a home loan or credit card. In Illinois’ case, that $2.3 billion shortfall will be added to the pension debt….”

    So, even the IP acknowledges that the main problem is the money already borrowed from the pension systems in the past.


  19. - Chicago Cynic - Monday, Jul 17, 17 @ 10:38 am:

    It’s positively batty that these geniuses at IPI act as if it’s the governor (Quinn) or the ILGA’s fault that the tax increase is going to pay the pension debt. Would they rather we just not pay it and add to the debt?


  20. - Can - Monday, Jul 17, 17 @ 10:44 am:

    ==The entirety of the $5 billion in tax increases the legislature imposed on Illinoisans will be eaten up by this year’s pension payment==

    So, the tax increase will enable the state to make the pension payment, and it can use the rest of the state’s revenues to pay for other priorities. It’s a good thing they imposed that tax increase on us then. Otherwise, we’d be in even worse shape.


  21. - anon - Monday, Jul 17, 17 @ 10:48 am:

    Sue I don’t believe you can target one political group over another regarding the pension. Both parties are to blame for borrowing against the pension fund and kicking the can down the road.
    Additionally, the republicans for years signed off on pension enhancements without regard to how they would be funded. If you don’t believe that go back and look at the Alternative funding formula for highway maintainers signed into law by George Ryan.
    We need to stop blaming and get to funding.


  22. - Phil King - Monday, Jul 17, 17 @ 10:51 am:

    Illinois got itself into trouble by creating a ponzy scheme for a pension system; it never would have been able to fund itself.

    They promised too much.


  23. - A Jack - Monday, Jul 17, 17 @ 10:51 am:

    If you want to slow down the growing liability, entice workers to stay longer.

    For example, I could retire at 60, although that is young by today’s standards. Many state employees have in the past expressed an interest in working past that age.

    If I continue to work to age 70, the state would save its share of pension payments to me for between the ages of 60 and 70.

    But with the current poisonous environment, what is the incentive to stay any longer than necessary.


  24. - A Jack - Monday, Jul 17, 17 @ 11:00 am:

    Phil, New York State has a defined benefit system as large as Illinois’. It is fully funded.


  25. - Sue - Monday, Jul 17, 17 @ 11:12 am:

    Anon- there is not a politically saleable tax rate to resolve the pension obligation. The 5 percent won’t suffice and unfortunately every other state funded program is suffering- s me for the municipals. See what Cook County is now confronting. What really is unfortunate is that the three percent wasn’t excluded from the pension clause when it was added by Statute. The State’s future is truly being jeopardized in his Eder to pay the pensions


  26. - Anonymous - Monday, Jul 17, 17 @ 11:14 am:

    A Jack - Once someone becomes fully vested in their pension, there is little incentive to remain working. The only folks I see typically working well beyond full vesting are high-level who aren’t quite ready to give up their high-level salaries.

    I do agree it is cheaper to have you work at 70 then to pay out your pension, your retiree health benefits, and the salary and benefits of your replacement.


  27. - Anonymous - Monday, Jul 17, 17 @ 11:19 am:

    Phil, IMRF is over 90% funded because legally no one could steal from the required contribution.

    I guess that’s a Ponzi Scheme too.

    Funny, how DB pension plans work so well and cheaply when no one welches on their end of the payment.


  28. - Anonymous - Monday, Jul 17, 17 @ 11:22 am:

    Staying longer at work?

    In the teaching field, teachers have been encourage to leave to “save” money on the higher salaries that experienced teachers earn.

    Which is it that’s saving money? Higher salary for older teachers, or paying their pension?


  29. - City Zen - Monday, Jul 17, 17 @ 11:27 am:

    ==What really is unfortunate is that the three percent wasn’t excluded from the pension clause when it was added by Statute.==

    Sue, when the pension clause was enacted, AAI was only 1.5% simple interest.


  30. - City Zen - Monday, Jul 17, 17 @ 11:33 am:

    ==In the teaching field, teachers have been encourage to leave to “save” money on the higher salaries that experienced teachers earn.==

    That’s an old wives tale. Only the local school district saves money when older teachers retire. Pension withdrawals start earlier, meaning compounding COLA starts earlier, then add retiree health care on top of that. But you have to replace that teacher, so you end up having to pay a new salary (albeit lower) but just as expensive health care (and probably more expensive as the new guy might have family coverage whereas the retiring teacher is probably an empty nester).


  31. - Anyone Remember - Monday, Jul 17, 17 @ 11:38 am:

    “The entirety of the $5 billion in tax increases the legislature imposed on Illinoisans will be eaten up by this year’s pension payment …”

    This is not new - see this 2012 quote from then-Treasurer Dan Rutherford. “He says the problem is so bad that the recent 66 percent income tax increase only covers the money needed for pensions and does nothing for the state’s backlog of unpaid bills.”
    http://chicago.cbslocal.com/2012/04/23/rutherford-tough-road-ahead-for-quinns-pension-plan/


  32. - Sue - Monday, Jul 17, 17 @ 11:48 am:

    Pension clause 1970/ COLA 1990. The retireds for the past 15 years have enjoyed the 3 percent pops while inflation has lagged. Most actives haven’t done as well in terms of raises. I know what the Supremes ruled but they could just as easily ruled the COLA wasn’t contemplated by the 1970 pension clause. Under the current Supreme Court there is no reform which will withstand a challenge.


  33. - LTSW - Monday, Jul 17, 17 @ 11:54 am:

    What I meant in my earlier post that nibbling around the edges with benefit changes doesn’t change the existing debt. Re amortization or a dedicated revenue stream from the income tax is needed.


  34. - City Zen - Monday, Jul 17, 17 @ 12:05 pm:

    ==New York State has a defined benefit system as large as Illinois’. It is fully funded.==

    New York State’s pension system has 6 tiers.


  35. - The_Equalizer - Monday, Jul 17, 17 @ 12:08 pm:

    The IPI now literally work for Rauner. Can we quit calling them a “news service”? They may call themselves that, but it’s not true. They can call themselves Martians and it’s equally untrue.


  36. - Sue - Monday, Jul 17, 17 @ 12:14 pm:

    The NY Funds may be better funded but they certainly are not fully funded


  37. - Lucky Pierre - Monday, Jul 17, 17 @ 12:22 pm:

    You could reduce the future benefits for current workers either through the consideration model or constitutional amendment

    The Supreme Court has never said reductions for benefits not yet earned is unconstitutional. The Fullerton consideration model has not been tested in the courts.

    When President Obama hired Time magazine Washington Bureau chief Jay Carney to be his press secretary did you call for Time Magazine to be stripped of it’s credentials as a news service?

    Journalists were hired by the Obama administration at least 24 times by 2013.

    https://www.theatlantic.com/politics/archive/2013/09/rick-stengel-least-24-journalist-go-work-obama-administration/310928/


  38. - RNUG - Monday, Jul 17, 17 @ 12:27 pm:

    == I’m not sure I would say Rauner has been spending money when it was court ordered. I think Rauner has plenty of things that we can blame him for that are actually his doing, I’m not sure this is one of them. ==

    Actually, Rauner committed the State to a couple of billion ERP software project that is, at best, questionable and at worst, actually worse to use than the previous hodge-podge. In a time of massive debt and short revenues, it really was fiscal mismanagement to fo “nice to have” things like that.


  39. - RNUG - Monday, Jul 17, 17 @ 12:30 pm:

    == The entirety of the $5 billion in tax increases the legislature imposed on Illinoisans will be eaten up by this year’s pension payment ==

    Conversely, with the tax increase, Illinois has $5B to spend on programs because, without the tax increase, Illinois still had to pay $5B to the pension funds.


  40. - DuPage Saint - Monday, Jul 17, 17 @ 12:32 pm:

    If one would read the Illinois Supreme Court opinion one would see that they specifically ruled the 3% increase is not a COLA but a bargained for annual increase . They also showed that the social security COLA over he time period in question was higher than the 3% bargained benefit. They also suggested in a footnote that the pension beneficiaries should sue the state to force the state to make pension payment. I am astounded that this has not happened. Read he decision it is a fun read


  41. - RNUG - Monday, Jul 17, 17 @ 12:32 pm:

    Rich, it’s your blog & article but … I would have titled it “The bill is still due …”


  42. - Captain Ed Smith - Monday, Jul 17, 17 @ 12:32 pm:

    Missed pension problems are an issue, a couple recessions, an unrealistic 90% funding level, and retirees that are living much longer than originally anticipated.


  43. - City Zen - Monday, Jul 17, 17 @ 12:37 pm:

    == they specifically ruled the 3% increase is not a COLA but a bargained for annual increase.==

    Interesting definition of the word “bargain.” What exactly was given up by the unions in exchange for the COLA increase from 2% to 3% or from simple to compounded interest?


  44. - A Jack - Monday, Jul 17, 17 @ 12:39 pm:

    Sue, New York State is 98% funded and it’s a defined benefit plan. So the argument that a defined benefit plan is not affordable is bs.

    One big difference between Illinois and New York is the progressive tax that New Yorkers pay. So they can afford their defined benefit plan. Yes, they have six tiers and we have two.


  45. - titan - Monday, Jul 17, 17 @ 12:39 pm:

    +++ - Lucky Pierre - Monday, Jul 17, 17 @ 12:22 pm: You could reduce the future benefits for current workers either through the consideration model or constitutional amendment +++

    Not likely to work. Consideration route would require offering something the participants would choose to take (i.e. something “better” for at least a large number of them to want). Constitutional amendment is likely not to work either, except going forward, and going forward isn’t the problem Tier II fixed that). The Supreme Court hasn’t ruled on the issue yet because it hasn’t been tried, but a reading what they have ruled on in the past makes it a dubious option.


  46. - Oswego Willy - Monday, Jul 17, 17 @ 12:41 pm:

    ===Interesting definition of the word “bargain.” What exactly was given up by the unions in exchange for the COLA increase from 2% to 3% or from simple to compounded interest?===

    Huh?

    If it was asked for and agreed to, why does any “bargain” have to have a “must in return”?

    Complete packages speak from themselves, as a whole.


  47. - RNUG - Monday, Jul 17, 17 @ 12:48 pm:

    Early retirement is a double edged sword.

    If people retire early, in theory you save the difference on GRF paid salaries between the high paid old timer and the lower paid rookie. However, you are still paying for two health insurance packages.

    But (there is always a but), you had a somewhat different effect on the pension fund(s). Yes, the benefit accumulation has stopped (in terms of years of service and, maybe, FAC) but you now, most likely, will have to pay out for more years and the 3% AAI kicks in (it always was for Tier 1, but I mention it to be inclusive). Yes, the new hire is on Tier 2, so they shouldn’t be racking up increased pension funding debt. But the State still has to keep paying in for past Tier 1 debt, which comes out of GRF (again, has to paid regardless of working or not).

    You have to look at the big picture, not just the effect of GRF or on the pension fund. The net effect on to the State is, most likely, a little savings on a cash flow basis and, maybe, actual increase in total long term debt.

    So any time someone tells you they are going to save money on the pensions, ask if it is truly short term savings that can be booked in a fiscal year budget or if it is long term savings that should be properly booked over 20 or 30 or 40 years.


  48. - City Zen - Monday, Jul 17, 17 @ 12:50 pm:

    ==So the argument that a defined benefit plan is not affordable is bs.==

    Once again…NYSLRS has 6 tiers. They were on their 5th tier before we got on our 2nd.


  49. - RNUG - Monday, Jul 17, 17 @ 12:52 pm:

    == Maybe I’m being naive, but can Mike Madigan honestly say, “Boy, I’ve done a great job for the state of Illinois the past 30 years?” ==

    Maybe not, but he can honestly say he kept the income tax rate low for that period and he managed to keep the cash flow solvent enough that we survived for those years.

    Note: I’m not a MJM fan per se, but I do admire his ability to accomplish what is “doable”. Illinois has never really been willing to step up to the pension debt … and that pre-dated MJM by about 60 - 70 years.


  50. - RNUG - Monday, Jul 17, 17 @ 12:57 pm:

    == hey also suggested in a footnote that the pension beneficiaries should sue the state to force the state to make pension payment. ==

    Would be interesting to see how these 7 would rule. In the 1975 IFT case, those 7 refused to order specific payments into the pension funds; they just ruled the pensions had to be paid when due.

    Even today, I think the IL SC would be wading into a sticky separation of powers issue.


  51. - Ghost - Monday, Jul 17, 17 @ 1:02 pm:

    4 Billion of that is from the ramp. change the ramp payment and you could cut that payment 2-3 billion.


  52. - A Jack - Monday, Jul 17, 17 @ 1:11 pm:

    RNUG, yes, When I took a government accounting class in the 90’s, the year mentioned for when Illinois started underfunding the pension system was 1918. So we are coming up on the centennial of pension underfunding.


  53. - A Jack - Monday, Jul 17, 17 @ 1:16 pm:

    If you change the ramp, you end up owing more in the long run because you lose out on the earned interest.

    A change in ramp would not have been necessary pre-Rauner, but now you have that large bill backlog. So if they want to rename it the Rauner backlog ramp…..


  54. - RNUG - Monday, Jul 17, 17 @ 1:55 pm:

    == they would start the decades necessary battle to capture the Court because without a decision allowing a reduction in payments ==

    -Sue-,

    I don’t think even a change in political idealogy will make a difference. Because of the phrasing of the 1970 Pension Clause making pensions a contract, it’s a simple Contract Law question. The only ways out are (1) a ruling it is not a valid contract, which is hard to imagine, or (2) taking not allowed bankruptcy, and even in the that case, it is high odds most (if not all) of the pension obligations would be upheld by the courts.

    Better to put effort into figuring out how to pay it.


  55. - Sue - Monday, Jul 17, 17 @ 2:15 pm:

    RNUG - the Court could easily have bought into the emergency exception- whatever the Supreme Ct ruled would be the final answer and the Court could revisit the decision at some point in the future should the opportunity avail itsslf


  56. - RNUG - Monday, Jul 17, 17 @ 2:24 pm:

    == the Court could easily have bought into the emergency exception ==

    The court was never going to buy into using police powers for a self created crisis … especially since there were multiple alternative solutions, including taxation.

    And even IF the IL SC did, it wouldn’t be the end of litigation. It would have gone to SCOTUS as a Contract Law question (not bankruptcy law), where the odds are high that the State would lose.
    SCOTUS, IMO, is highly unlikely to rule against a valid contract with the strength of the IL pensions. It would open too many cans of worms about valid contracts; the court would be undermining our entire basis for commerce.


  57. - Anonymous - Monday, Jul 17, 17 @ 2:52 pm:

    Self created crisis says it all.

    It all just sounds so…………childish..the way our state has functioned. Don’t parents raise you to make good on your word? Follow the rules? Honor your committments?


  58. - Anonymous - Monday, Jul 17, 17 @ 3:02 pm:

    Just accept the corruption and pay,pay and pay.


  59. - Sue - Monday, Jul 17, 17 @ 3:13 pm:

    RNUG- no automatic appeal to the S Ct. who knows if they would grant Cert. your wrong on police powers- could have gone either way. The State can’t tax its way to solvency. Something down the line will have to occur


  60. - Mama - Monday, Jul 17, 17 @ 3:18 pm:

    The legislature passed the tax increase Rauner wanted - not the tax increase that is necessary. Rauner supposedly asked for the lower rate knowing it would not be enough to pay IL’s bills.


  61. - FriedWalleye - Monday, Jul 17, 17 @ 4:18 pm:

    I view State’s pension system similar to Social Security. Workers are required to pay into it, State calls all the shots on how it is invested and what your payout will be, Workers are provided yearly statements outlining what you made, what you paid into the system, and all options on when you can retire from full retirement to early retirement with a reduced pension. Workers plan their career and retirement around those. If Social Security suddenly said….sorry, we haven’t been funding it properly, how dare you expect us to provide you with a benefit as promised….you would see riots in the streets. Illinois has not been a good steward….of any public monies. We have watched it happen and did nothing.


  62. - Sue - Monday, Jul 17, 17 @ 4:23 pm:

    Mama- I didn’t hear Madigan asking for more did you. By the way feel free to send in more if you like


  63. - Sue - Monday, Jul 17, 17 @ 4:27 pm:

    Wally eye- SS does not pay you the 75 percent plus 3 percent every year compounded which teachers and other State folks get at full retirement. BTW- at least for teachers- they contribute Zero. Ever hear of the employer pick-up? Virtuously ever TRS employer pays the employee and employer portion but other then that good analogy


  64. - Davos Seaworth - Monday, Jul 17, 17 @ 4:28 pm:

    =your wrong on police powers- could have gone either way”

    It was this close to being a 6-1 decision, Burke flipped at the last minute.


  65. - Hieronymus - Monday, Jul 17, 17 @ 4:31 pm:

    Sue, are you also in favor of defaulting (”reforming”) on the debt owed to bondholders and vendors, or just the debt owed to the pension plans?


  66. - Davos Seaworth - Monday, Jul 17, 17 @ 4:32 pm:

    =BTW- at least for teachers- they contribute Zero. Ever hear of the employer pick-up?=

    It was bargained for in lieu of other forms of compensation/benefits. Teachers in these districts made concessions to receive this benefit.


  67. - Sue - Monday, Jul 17, 17 @ 4:34 pm:

    Hieronius- eliminate the three percent and call it a day. But I don’t have a vote


  68. - RNUG - Monday, Jul 17, 17 @ 4:34 pm:

    == no automatic appeal to the S Ct. who knows if they would grant Cert. ==

    Yes, it’s not an automatic appeal. But I would expect the unions and retirees to appeal. Cert is always a question, but being a fundamental contract issue that would affect at least 3 states (NY, IL, AZ), my guess is they would take it. Maybe we’ll live to see it happen in my remaining lifetime.


  69. - City Zen - Monday, Jul 17, 17 @ 4:34 pm:

    ==If Social Security suddenly said….sorry, we haven’t been funding it properly, how dare you expect us to provide you with a benefit as promised==

    Social Security rules have been changed numerous times to my detriment since I started paying into it. Some self-employed folks saw their contribution rates double over their careers with no benefit enhancement. That’s not exactly providing a benefit as promised.

    In other words, social security is in no way similar to the State’s pension system.


  70. - City Zen - Monday, Jul 17, 17 @ 4:36 pm:

    ==eliminate the three percent and call it a day.==

    Pensioners pay 0.5% for AAI. You simply cannot eliminate it without refunding those deposits with interest. And you can’t eliminate it anyway.


  71. - FriedWalleye - Monday, Jul 17, 17 @ 4:39 pm:

    Sue, don’t know where you get 75% of salary. 75% is max in my system. A State worker would need to work 46 years to hit 75%. I will give you a link to the calculator to run some scenarios.

    Also, I have had 6.5% of each check taken by the State for my “pension”, along with Social Security, for the last 31 years and invested however they see fit. It isn’t any worker’s fault that the State failed to fund it.


  72. - Anonymous - Monday, Jul 17, 17 @ 4:39 pm:

    Sue, sorry State workers would need to work 45 years…not 46. fat fingers


  73. - City Zen - Monday, Jul 17, 17 @ 4:44 pm:

    ==Ever hear of the employer pick-up? It was bargained for in lieu of other forms of compensation/benefits. Teachers in these districts made concessions to receive this benefit.==

    That’s a highly dubious claim. The “in lieu of” only happens once, then raises are given out normally as if the pick-up didn’t exist. The only way the pick-up saves money is if raises are extremely small going forward. We’re talking below inflation. Otherwise, the district ends up spending more over the long-term.

    Pick-ups should only be a one-time deal, yet once given, they’re almost never pulled back. I would like to see how raises in a pick-up district compare to a comparable non pick-up district. I doubt you’d see much, if any, difference.


  74. - Hieronymus - Monday, Jul 17, 17 @ 4:45 pm:

    @4:34pm. Disingenuous. Any business owner who ever ran a payroll, and I did for ten years, knows that it is smoke and mirrors to say that the business owner pays half of the SS contribution. From the employer’s perspective, it is how much does it cost to put a body at a desk or workstation. As a self-employed person, you were only really paying half of what a W2 person was paying for equivalent benefits, and you are smart enough to know that.


  75. - Hieronymus - Monday, Jul 17, 17 @ 4:48 pm:

    @Sue 4:34pm. Try answering the question that I actually asked. BTW, I believe the 3%AAI was paid for by an additional.5% worker contribution. RNUG?


  76. - Anonymous - Monday, Jul 17, 17 @ 4:50 pm:

    CityZen, it is very true that SS contribution rates have increased as the system needed funding since the system is funded by contributions thru the salaries of workers. The State pension system is funded thru IL revenue sources….so it makes sense that if that pension system needs $$ (due to lack of proper funding in the past) it must be made up from those same revenue sources.
    Sorry you are self-employed, those individuals truly get the short end of the stick having to make up both parts. For anyone looking at self-employment, it is a risk that should be weighed.


  77. - City Zen - Monday, Jul 17, 17 @ 5:06 pm:

    ==so it makes sense that if that pension system needs $$ (due to lack of proper funding in the past) it must be made up from those same revenue sources.==

    Yes, but one of those revenue sources includes employee contributions. No one’s saying Tier 1 participants have to contribute 12% now “as the system needed funding”.

    Safe not to compare the 2 systems and leave it at that.


  78. - CrispyCritter - Monday, Jul 17, 17 @ 5:32 pm:

    I would like to see the figures on an average state employee paying 4% of their salary into the system for 30 years plus the state’s 4% and assuming pay increases over that same 30 years; using the rates of return the pension systems received for the past 30 years, what would the future value of those payments have grown into. Then based on the value of those payments over 30 years, would there be enough from the current rates of return to pay the employee their pension from those investments.


  79. - union thug - Monday, Jul 17, 17 @ 6:27 pm:

    CrispyCritter: I would like to see the figures on an average state employee paying 4% of their salary FOUR PERCENT???? ONLY FOUR PERCENT


  80. - RNUG - Monday, Jul 17, 17 @ 7:57 pm:

    == BTW, I believe the 3%AAI was paid for by an additional.5% worker contribution. RNUG? ==

    Varied by system. Some paid, some didn’t. I’ll have to check my benefits spreadsheet for the specific details when I get home … if I’m too tired then.


  81. - RNUG - Monday, Jul 17, 17 @ 8:07 pm:

    == That’s a highly dubious claim. The “in lieu of” only happens once, then raises are given out normally as if the pick-up didn’t exist. ==

    Actually, the forgone pay raise (and subsequent lack of compounding on it) permanently lowers the FAC, which results in smaller pension. Schnorf understood that; he engineered such a deal for SERS employees … that Blago later reneged on, and unions then clawed back the forgone raise.


  82. - RNUG - Monday, Jul 17, 17 @ 8:16 pm:

    == I would like to see the figures on An average state employee paying 4% of their salary FOUR PERCENT???? ONLY FOUR PERCENT ==

    Folks, you have to talk about a specific system when you talk about contributions. It ranges anywhere from 4% (to the State) for a SERS coordinated to over 12% (to the State) for uncoordinated (no Social Security).

    And the maximum pension, and the time to earn it, also varies by both system and even job title. You have to talk specifics, and it’s not easy to compare them.


  83. - RNUG - Monday, Jul 17, 17 @ 8:24 pm:

    == I would like to see the figures ==

    Adding … all the systems’ annual reports are online for quite a few years. They have most the data you need to run such an analysis. Look in the “statistical” section.


  84. - City Zen - Monday, Jul 17, 17 @ 10:23 pm:

    ==Actually, the forgone pay raise (and subsequent lack of compounding on it) permanently lowers the FAC, which results in smaller pension.==

    Maybe, but the cost of the pension pick-up combined with the salary is typically greater than the cost of just giving normal raises each year. If the amount of the pick-up is greater than the typical raises (like CPS’s 7% pick-up), then it costs more over the long term. Throw the numbers into a spreadsheet and you’ll see what I mean. There is zero cost savings to the school districts in the pension pick-up UNLESS every subsequent raise is very small compared to its peers.

    Let’s stick w/ CPS as I don’t know the history of other school districts w/ pick-ups. Every contract, CPS started negotiations with an already built in 7% bonus (the pick-up) before any COLA or step raises were negotiated. The original deal was a 7% pick-up for no raise. Why then, in subsequent contracts, offer X% raises on top of a 7% pick-up? That wasn’t the original purpose of the pick-up. If you’re gonna give raises going forward, the pick-up should be reduced or eliminated.


  85. - Hieronymus - Monday, Jul 17, 17 @ 10:52 pm:

    @10:23 pm. Humph. The purpose of the pickups was to then not pay into the pension funds. Otherwise why not just pay the COLA/raise in the first place?


  86. - City Zen - Tuesday, Jul 18, 17 @ 8:23 am:

    Hieronymus - I’m not aware of school districts that do not deposit their pick-ups into the pension fund. The employer portion is another story.

    Otherwise, I agree…why bother with the pick-up and just pay the raise? Because I think the district intends to only offer it once but it never turns out that way. If you back it out quickly, you can save money. If not, you spend more.


  87. - Hieronymus - Tuesday, Jul 18, 17 @ 8:57 am:

    I believe you are mistaken regarding the pickup. If it is more than than the “normal” cost of the average COLA/step, then I would agree, but I don’t know the specific history of that plan.

    But generally, if there is a pickup in lieu of an increase to nominal compensation, then in following years, subsequent real increases are still based on the smaller starting point.

    And that other poster is correct, too — the Final Average Compensation is effectively reduced by the percentage of the pickup, so long as it remains in effect.

    But my point, which you seemed to agree with, is that I suspect that (at least for SERS), the bigger reason for the pickup was to assume the employee portion of the pension contribution, which is then spent on something else. Again I’ll have to ask RNUG if that was, in fact, so.


  88. - City Zen - Tuesday, Jul 18, 17 @ 9:04 am:

    ==But generally, if there is a pickup in lieu of an increase to nominal compensation, then in following years, subsequent real increases are still based on the smaller starting point.==

    Right, but the cost of that smaller increase plus the cost of the pick-up typically exceeds the cost of the raise on what would’ve been a higher salary and no pick-up. Once again, that’s assuming raises going forward are not smaller because of the pick-up.

    Hard to explain here. Throw those numbers in a spreadsheet to see what I mean. And I’m sick of typing “pick-up”.


  89. - Hieronymus - Tuesday, Jul 18, 17 @ 10:42 am:

    It sounds to me as if you are arguing that subsequent raise percentages are higher than they would otherwise be for a COLA as if the previous pick-up had no bearing on the situation, and they we’re trying my to “catch up”.

    When I run the numbers matching a hypothetical COLA to a pick-up, there is no difference in the total amount. Now in SERS, several years ago, we unwound the pick-up in two increments. We got two 2% increases, that were then immediately taken away as we resumed deducting the employee portion. We then got a small COLA on the sixth-month interval to serve as a “real” increase.


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