Latest Post | Last 10 Posts | Archives
Previous Post: *** UPDATED x1 - Path cleared *** Dorgan out as state party chairman, Schneider backed
Next Post: State Journal-Register on SB 2187: “The risk to patients is too great.”
Posted in:
* The pension reform fight between mayors and unions representing firefighters and police officers has been raging for months. The mayors claim that dozens of pension sweeteners passed by the General Assembly over the years has made the pensions unaffordable. Unions rightly point out that pretty much all of those increases were negotiated with the municipalities, and those agreements included union concessions as well. The unions, in turn, point the finger of blame at the municipalities for deliberately underfunding their systems. But WBEZ’s Alex Keefe manages to sort through the claims and counter claims…
Rather than “pension sweeteners,” longtime Illinois police and fire pension actuary Art Tepfer said the rapidly rising pension costs that towns are struggling with came about by design.
“This is the way that Illinois retains it’s No. 1 ranking as having the worst-funded pension funds in the country,” said Tepfer, who serves as an actuary to more than 100 downstate and suburban public safety funds in Illinois.
Tepfer points to a 1993 change in state law, when legislators approved a pension funding scheme that functioned similar to an adjustable-rate mortgage: low payments at first, but rapidly rising payments in the future.
“Well, we’re in the future now,” Tepfer said. “This is what’s happened. And that’s why we have a pension crisis. We saw it coming.”
Tepfer said smaller funds are also limited in how much money they can invest in stocks, which limits the amount of money they can make on their investments.
Discuss.
posted by Rich Miller
Tuesday, May 13, 14 @ 10:00 am
Sorry, comments are closed at this time.
Previous Post: *** UPDATED x1 - Path cleared *** Dorgan out as state party chairman, Schneider backed
Next Post: State Journal-Register on SB 2187: “The risk to patients is too great.”
WordPress Mobile Edition available at alexking.org.
powered by WordPress.
I do believe that we wouldn’t have these pension problems if our economy grew 15% a year as originally projected. Just like we are all supposed to be driving those new atomic powered Studebakers too!
This is what happens when our future is put into the hands of people just trying to win reelection for the twentieth time. The only problems our politicians solve are their reelection problems. With a 93% reelection rate, we know they can succeed at something, amiright?
Comment by VanillaMan Tuesday, May 13, 14 @ 10:05 am
Manana has always been seen as better when it comes to funding pensions.
It’s easy to see why. Now that the state is making responsible pension contributions, Quinn is taking a royal beating for it.
Daley was the big brain behind Chicago’s underfunded pensions, yet he was unbeatable after his first win and was fawned over by the national press as a great mayor.
Comment by wordslinger Tuesday, May 13, 14 @ 10:11 am
VM - youareright! Legislators got us into this mess by delaying payments to pension systems. This allowed them to spend funds on keeping their contributors content.
Now they blame unions and employees for their reckless spending.
Comment by Rufus Tuesday, May 13, 14 @ 10:13 am
V’man makes a good point. We kicked the can based on unreasonable economic projections on both the state and federal level. Bipartisan effort.
The real design at this point is Madigan and the unions refusing to discuss the true fix. They need to keep kicking the can because the pensions is the one thing they have left to keep union voters coming to the trough for the democrats.
It is not rocket science. Any plan not designed to move toward self funded and controlled 401k style plans, is just scheme to keep the debate alive. There is a reason most companies not bankrupt phased out of defined benefit pensions, they are not sustainable. Maybe when people retired at 65 and lived to be 72. But not when people retire at 56 and live to be 85.
It is not high math, but Madigan wants to have this chip to play again in 2 years.
Comment by The Patriot Tuesday, May 13, 14 @ 10:18 am
Perhaps we could push it off some more……
Always easier to spend $3 in a couple of months and $1 today…
Comment by OneMan Tuesday, May 13, 14 @ 10:19 am
Well said Word!
Comment by Norseman Tuesday, May 13, 14 @ 10:22 am
There are plenty of examples where the pension contributions were made in full and on time and the fund balance is losing ground. People live longer. A lot of people saw pre-retirement raises that upped the pension costs. I’m in complete agreement about places that skipped payments or shorted them; that’s reprehensible. The other causes, where payments were made, are a whole different story. And there are plenty of them.
Comment by A guy... Tuesday, May 13, 14 @ 10:28 am
Tepfer is absolutely correct. The pension ramp law enacted in 1993, and the fact that Quinn is actually making the payments required by that law is what’s at issue here. The mayors are using the same blame game as did the state by stating that it’s the pension sweeteners that are the issue, when the pinch they’re feeling now is a direct result of the ramp, and the initial low payments from the ramp as well as those wonderful pension “holidays” (hey who doesn’t like a holiday right?) are the cause of the pension underfunding. No one is saying that you can’t change pensions for new hires, but unilaterally saying that you’re changing a contract is unconstitutional in this country of laws.
A replacement for the ramp must be implemented. The reason that replacement hasn’t yet occurred is because pointing to the ridiculous payments currently mandated by the ramp allows politicians to demonize the benefit structure as the problem. I predict that the state will attempt to pass a law similar to SB1 at the state level, and then shortly thereafter, reamortize the debt by replacing the exponential payment schedule mandated by the current ramp.
Comment by PublicServant Tuesday, May 13, 14 @ 10:30 am
If smaller funds are limited in their investment options, then why aren’t police and firefighters included in IMRF? Or a separate statewide fund administered by IMRF? That seems to be a logical reform to reduce administrative expenses and increase investment return potential.
Comment by MyTwoCents Tuesday, May 13, 14 @ 10:35 am
Undoubtedly, there are many examples of abuses in the pension system. How many legislators have taken short term high paying jobs in order to boost their pension over the years? The shame of it is those who don’t play the system and put in their time honestly are playing the price.
Comment by Stones Tuesday, May 13, 14 @ 10:37 am
it would ben interesting to see which current legislators were around then and voted for it? I am pretty sure my current Rep was around then but now blames pensioners.
Comment by independent Tuesday, May 13, 14 @ 10:47 am
What’s a shame, Stones, is that many of our conservative friends, who otherwise are literal constitutionalists, seem to abandon that linchpin of their political beliefs, when it comes to the plain language of the state constitution, whose pension clause was overwhelmingly accepted by the people of this state in 1970.
Now, I know, and respect the few who indicate their support for the Illinois and U.S. constitutions and the clear violation thereof that SB1 represents, but they’re too few and too quiet.
I look forward to its eventual overturning by the Illinois State Supreme Court. All of us in Illinois need to pay a price for the profligacy of our politicians, not just one small group (the retirees and employees) being outrageously gouged because it’s politically expedient.
Comment by PublicServant Tuesday, May 13, 14 @ 10:48 am
I think this now is set up for the end game Madigan wanted… Push retirement more on the local level than state. For schools, I get the sense. Why should someone down state pay for bloated retirements that the New Trier school board agreed to? I think that will do as much for school funding than anything proposed… If those areas that can consolidate with the “one off” districts that all feed to the same one district high school… They can save dramatically. Force the consolodation by pushing more and more on the local taxpayers… scary.
Comment by Walter Mitty Tuesday, May 13, 14 @ 10:49 am
“There is a reason most companies not bankrupt phased out of defined benefit pensions, they are not sustainable.”
No, the reason is shareholders wanted to keep more of the money. ExxonMobil, for instance, posted the largest corporate profit in history in 2012, has the most underfunded pension of all the companies in the S&P 500. Do you think they would go bankrupt if they funded their pension? Or do you think shareholders want more of the profit for themselves?
http://www.kiplinger.com/article/retirement/T047-C000-S002-is-your-pension-still-safe.html#HALfh4DJftHEHBBj.99
Also, people are working longer now than they used to. And while they are living longer, the majority of increase in life expectancy over the last 100 years is because more people live to adulthood.
Comment by Chi Tuesday, May 13, 14 @ 10:51 am
I would like to see Tepfer’s data to back this up, back in 1991 the aggregate funded ration for police and fire was around 74 - 75% funded while in 2010 the ratio went down to around 54%. The largest decreases in the funding ratio occurred after 2001. All this was provided in CGFA’s report in January 2013, it can be found here http://cgfa.ilga.gov/upload/2013financialconditionofdownstatepolicefirepa96-1495.pdf
I find it hart to believe that the unfunded mandates passed by the State do not play a large and significant role in the municipal pension crisis.
Comment by Ahoy! Tuesday, May 13, 14 @ 10:52 am
PS
–when it comes to the plain language of the state constitution, whose pension clause was overwhelmingly accepted by the people of this state in 1970.-
You are correct about the plain language which is why i think a strong push to remove that language is coming once sb1 is struck down. Maybe even led by the very Governor “who was put on this earth to solve the pension crisis” and isn’t going to run for another term.
Comment by Mason born Tuesday, May 13, 14 @ 10:57 am
Does this mean I shouldn’t have skipped changing my car’s oil this year and last year with the intention of changing it weekly next year?
– MrJM
Comment by MrJM Tuesday, May 13, 14 @ 10:57 am
Tepfar has been known to be a union guy, and it is correct that the funding ratio declined after copers and firefighters were allowed to retire with 30 rather than 35 years of service. Man, can you imagine having to come up with 5 years of funding overnight.
Comment by Jim'e' Tuesday, May 13, 14 @ 10:58 am
Mason, they may do that, but it wouldn’t be a solution to the current pension issues because of the U.S. constitution’s Article 1, Section 10 prohibition against the state imposing any law that retroactively impairs the obligation of contracts.
Comment by PublicServant Tuesday, May 13, 14 @ 11:05 am
A large unnoticed aspect to the explosion in pension liability is the explosion in employee salaries over the past decade (since the ultimate pension is a function of the ending salary). It is not unusual to find state employees whose entry into the union has resulted in a 50, 60 or 70% salary increase in the past 7 years. (If you don’t believe it, go look at the data.) That ramps up the pension liability, too. If AFSCME had been content to freeze salaries during the Great Recession, instead of fighting for unaffordable increases AND gold-plated pension benefits, a lot of this problem wouldn’t be here. So the union can’t just blame underfunding (although that obviously didn’t help either).
Comment by Anonymous Tuesday, May 13, 14 @ 11:20 am
“shareholders wanted to keep more of the money”
Isn’t part of the demand for greater shareholder profit driven by the fact that a lot of 401(k) plans and other retirement saving vehicles rely heavily upon the stock market? So maybe there is a vicious circle at work here: more reliance on 401(k)s means more demand for stocks to perform well, which means less money left over to put into pensions, which becomes further “evidence” that traditional pension plans are unsustainable, etc.
Comment by Secret Square Tuesday, May 13, 14 @ 11:23 am
@MyTwoCents@10:35=IMRF=
IMRF is a defined benefit plan doing well, because the employer contributions were paid in full as scheduled every year.
Police, Fire, and the state plans are underfunded because the employer matching funds were not paid in full as scheduled every year. No other reason.
Comment by DuPage Tuesday, May 13, 14 @ 11:31 am
I agree that SB1 will very, very likely be found unconstitutional, and the next step will be a move for a constitutional amendment.
However, an amendment to allow changes to those already retired will never fly. For every story of abuse of the system there will be three stories of 83 year old widows surviving in Chicago on $19,000 a year. People are traditionally reluctant to touch those who are already retired, and stories like that will make it a no-go.
So the amendment will be limited to current workers only. It WILL pass, but before it goes into effect, there will be a rush to retirement like we’ve never seen before.
It will mean lots of open jobs, though.
Comment by PolPal56 Tuesday, May 13, 14 @ 11:32 am
PS
I agree that even the removal of that language doesn’t leave the Retiree’s without any recourse. It does however remove their strongest argument at least in State Court.
Comment by Mason born Tuesday, May 13, 14 @ 11:47 am
=Unions rightly point out that pretty much all of those increases were negotiated with the municipalities, and those agreements included union concessions as well.=
Uh…yeah…right. Like there’s any such thing as a fair negotiation when the scales are tilted in favor of the unions. The “agreed to” bill process essentially required the cities to agree to what the unions wanted.
Comment by Anon Tuesday, May 13, 14 @ 11:50 am
===Uh…yeah…right. Like there’s any such thing as a fair negotiation when the scales are tilted in favor of the unions. The “agreed to” bill process essentially required the cities to agree to what the unions wanted.===
Uhm, so then why did SB1 pass if everything is “tilted” in their favor? And why are we here again considering doing the same to city employees now? I mean, unions are actually running the show according to you, right, Anon?
Comment by PublicServant Tuesday, May 13, 14 @ 11:56 am
Police and Fire.
Not Engineer, Bookkeeper or Mechanic.
I think we should be careful not to bleed the public employee pension discussion over to police and fire pension discussion, they do have differences.
These guys and gals get paid for what *they know and what they *may have to do. It is a profession that becomes significantly more challenging and dangerous as we age and is a profession that needs to attract the highest possible quality applicants. I hope that a pension is one of the things that attracts the best possible quality candidate to replace me when I’m gone. I do care that my job continues to be done well.
My pension does not look “gold plated” in any way. (Above posters language, not mine.) After nearly three decades shift work, missing family events, seeking out the most dangerous criminals possible, dodging sliding cars and semi’s in snowstorms and going to every imaginable scene of death and suffering my pension seems pretty well deserved to me.
I believe all public employees deserve what they are promised but there are reasons why police, fire and military can retire with a pension at a younger age. And as our good friend Garry Meier says, if you don’t like it, call a hippie when someone is breaking in your house! (For the uninitiated, yes that is a joke.)
Comment by Freeze up Tuesday, May 13, 14 @ 11:56 am
===The “agreed to” bill process essentially required the cities to agree to what the unions wanted===
Malarkey.
You must work for the IML. lol
Comment by Rich Miller Tuesday, May 13, 14 @ 11:57 am
Absolutely right. State did not hold up their end of the bargin. So, Gov’s Edgar, Ryan and Blago take your bow. Also Madigan and Cullerton and all rank and file who never said a friggin word! And no taking a bow for Quinn. If he did not make the yearly payment, the state would never be able to pass another bond issue..
Comment by John O Tuesday, May 13, 14 @ 12:29 pm
Anonymous 11:20AM. Once again, per COGFA Analysis of Change in State Pension Unfunded Liability 1985 to 2012 (page 2), the salary increases did not contribute to the unfunded liability. Benefit increases contributed to less than 10% of the unfunded liability (and the annual increase went from simple to compounded during that time frame).
The notion that big salary increases and benefit increases are a significant part of our pension crisis is not borne out by the facts.
Comment by archimedes Tuesday, May 13, 14 @ 12:37 pm
The Patriot
The last politician in Illinois to propose ‘full funding’ for pensions prior to Jim Edgar’s ramp-up law was … wait for it … Mike Madigan (and Phil Rock) in 1985. And the rate of funding Speaker Madigan proposed in 1985 was much better than anything Jim Thompson or Jim Edgar ever did.
Comment by Anyone Remember Tuesday, May 13, 14 @ 12:56 pm
John O
==Also Madigan and Cullerton and all rank and file who never said a friggin word!==
Mike Madigan did in 1985, and Thompson vetoed the appropriations and put the ’savings’ into new State jobs for, among others, the Sangamon County GOP.
Comment by Anyone Remember Tuesday, May 13, 14 @ 12:57 pm
== defined benefit pensions are not sustainable ==
Tell that to the IMRF, which is well funded and healthy. Of course employer payments are mandatory. Or tell it to those states that have fully funded pension systems. Failure is a choice, not an inevitability.
Comment by Anon Tuesday, May 13, 14 @ 1:08 pm
There does seem to appear to be a lot of confusion in the comments regarding all the separate pension systems (various state employee retirement systems, IMRF, municipal police and fire, etc).
The topic is about police and fire municipal pensions, this is separate from State pension system, I don’t think everyone on here realizes that.
Comment by Ahoy! Tuesday, May 13, 14 @ 1:22 pm
Wordslinger you’re right but you forgot to mention the fawning over Edgar and what a fiscal conservative he was. Truth is, he set the standard in 1993 of the balloon pension payment schedule that the locals followed.
Comment by Bogart Tuesday, May 13, 14 @ 1:27 pm
Ya gotta lay a lot of these pension problems on allegedly Republican Jim Edgar’s doorstep. He made the income tax “surcharge” permanent, but then dumped the pension costs as back-end loaded about 20 years down the line, while he “porked up” to help his buddies Kjellander and Cellin and their cabal.
Edgar is responsible for so much that went wrong and got us into this financial mire. Why is the guy given a pass, and why would anyone care about what he proposes for “solutions” to the problems he caused?
Comment by Arizona Bob Tuesday, May 13, 14 @ 1:42 pm
Issues that affect the public sector have usually already hit the private sector. Private sector pensions are nearly a thing of the past and public sector pensions are heading in the same direction. The bottom line is that the pension issue at the core is a debt issue and dealing with debt is typically very painful. publicretirementplanners.blogspot.com
Comment by Sean Tankarian Tuesday, May 13, 14 @ 1:51 pm
With all the talk about pensions, I find it interesting as to how the Health Insurance case before the ISC seems to draw so little attention. How they rule on this may very well give an indication as to their pension decision.
It’s been over six months since the hearings in September. Any guesses as to how long this will drag out? Until the Fall elections are over?
Comment by Federalist Tuesday, May 13, 14 @ 1:55 pm
With respect to IMRF, not only is it super healthy because no one shafted the employees by skipping payments, but they are so healthy that recipients receive 13 checks per year. Complaints about defined benefits systems now?
Comment by Just Trying to Survive Tuesday, May 13, 14 @ 2:07 pm
Federalist, the issues are similar but not exactly the same. The ruling will be watched and is certainly not being ignored by many. I’m wondering when we can expect a ruling too.
Comment by PublicServant Tuesday, May 13, 14 @ 2:15 pm
==There is a reason most companies not bankrupt phased out of defined benefit pensions, they are not sustainable.==
Actually, in the not-too-distant past, many private plans were overfunded, and were closed because the company got to keep the excess funding. Congress put a stop to that, but the damage was already done.
Comment by Anon. Tuesday, May 13, 14 @ 2:55 pm
Illinois Supreme Court usually issues opinions on Thursdays (sometimes Fridays) and announces 2 to 3 days in advance. Keep watching for it here: http://www.state.il.us/court/SupremeCourt/Antic_Ops/default.asp
Comment by anon Tuesday, May 13, 14 @ 3:30 pm
archimedes - how is that mathematically possible? If every current state employee had a current salary 1/3 less than they currently do, their retirement income would be 1/3 less as well and the liability side of the equation would be 1/3 less. How can that not be a significant factor in the unfunded liability of the pension system?
Comment by Anonymous Tuesday, May 13, 14 @ 3:44 pm
To continue the question - in that hypothetical world where the salaries were all 1/3 less, the freed up resources could have been used to make the employer contributions to the pension system. Again, how could that not reduce the underfunding?
Comment by Anonymous Tuesday, May 13, 14 @ 4:10 pm
IF you have a mass exodus that has thousands of people retiring 5 - 10 years earlier than anticipated, and you pay pensions for 30 years rather than 20 years, that would overwhelm the “savings” of the 1/3 reduction.
Comment by Anyone Remember Tuesday, May 13, 14 @ 4:45 pm
Pensions are funded by paying the normal cost each year - a % of salaries - to pre-fund the benefits earned for that year. The actuaries project the factors that are in the pension formula - including annual salary increases while members are active, average life expectancy, etc.
Per the COGFA report, over those years, the salary increases did not exceed what was projected by the actuaries. The normal cost, if paid, would have covered that factor and there would have been no increase in unfunded liability due to this factor.
The bottom line is that the unfunded liability is a debt owed to fund the pensions. Both the State and the fire/police funds discussed here have the same problem. The employer did not pay the employer share of the normal cost each year - driving up the unfunded liability. Paying off this debt is the source of the huge costs we are now discussing.
In the case of the State, the pension ramp from 1995 - by design - deferred all of these costs until 2010 and beyond (the pay back of the debt was deferred and increased dramatically since the interest that wasn’t paid becomes part of the debt). Same thing for municipalities, the 1993 act allowed them to pay less than the normal cost and debt service of the unfunded liability - deferring those cost out into the future.
the great recession made it worse - since the assets of the pension funds lost value and added to the unfunded liability. So here we are.
IMRF is fully funded. The employers paid all of the normal cost every year. The employers made up for any shortfall in investment earnings and reaped the benefit when investments exceeded projection. The actuarial required cost for IMRF has gone up and down - but the variance has not been dramatic simply because it was funded without fail.
Comment by archimedes Tuesday, May 13, 14 @ 4:52 pm
@archimedes
Thank you for explaining in the most simplest terms on why the pension funds are unfunded.
Comment by NewWestSuburbanGOP'er Tuesday, May 13, 14 @ 5:29 pm
Well said Freeze up! Amen brother or sister.
Comment by Pacman Tuesday, May 13, 14 @ 6:13 pm
The comments noting Madigan’s relative fiscal rectitude and Edgar’s recklessness are noted and appreciated. I hope more people learn the truth. The pass Edgar gets is incredible. Even Jim Thompson gets more credit than he deserves. We’ve had a lot of very expensive cheap politics over the past generation, and remarkably little of it comes from Madigan considering how long he has been in office.
Comment by Angry Chicagoan Tuesday, May 13, 14 @ 10:02 pm
=== A large unnoticed aspect to the explosion in pension liability is the explosion in employee salaries over the past decade === - Anonymous - Tuesday, May 13, 14 @ 11:20 am
In the decade before that, many state employees (like me) went almost 6 years without an increase. Some of the pay increases you refer to were an attempt to make up for previous skimping.
Comment by Late to the Party Wednesday, May 14, 14 @ 8:52 am
Angry Chicagoan
==The comments noting Madigan’s relative fiscal rectitude and Edgar’s recklessness are noted and appreciated.==
You’re welcome. Please be aware the locals here in Sangamon County don’t appreciate such comments - one wants to respond …
http://www.youtube.com/watch?v=MMzd40i8TfA
Comment by Anyone Remember Wednesday, May 14, 14 @ 10:49 am