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* As I told subscribers yesterday, neither Sen. Biss nor Rep. Nekritz are buying into the validity of Gov. Bruce Rauner’s proposed pension reform plan. Neither of then can figure out how it could save $2.2 billion in the first year and they can’t fathom how the governor can claim it will immediately knock $25 billion off the state’s unfunded pension liability…
“I’m not quite sure I understand the numbers at all. It seemed a little confusing to me,” said [Sen. Daniel Biss, D-Evanston], a Harvard-educated former mathematics professor at the University of Chicago. “I also don’t know how you can possibly bank the savings before you’ve gone to court.” […]
“This, to me, is a return to fuzzy pension math,” [Rep. Elaine Nekritz, D-Northbrook]. “There’s just no way, looking at the proposal, that you protect every retiree and give every worker [the “vast majority” of whom are already ages 45 to 50] the pensions they have earned and say that you are going to knock 25 percent off of the unfunded liability. If you are going to preserve all of that, the math just doesn’t add up.”
She also said that during negotiations on the pension reform bill, some suggested then the idea of moving workers into a 401(k)-style plan.
“Pretty much all of the experts came back and said that that will blow a bigger hole in the pension systems,” she said.
Discuss.
posted by Rich Miller
Friday, Feb 20, 15 @ 8:52 am
Sorry, comments are closed at this time.
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It’s days like this when I really miss legendary blog comment artist Bill.
Comment by John A Logan Friday, Feb 20, 15 @ 8:57 am
Maybe someone should ask the governor to respond?
As for Nekritz and Biss, they’re apparently better at math then they are at law. Cough SB1, Cough.
Comment by PublicServant Friday, Feb 20, 15 @ 8:59 am
Oh my gosh! To those who don’t understand what “constitutionally guaranteed” means… It means that all accrued benefits are “absolutely 100% without a doubt, stop crying in your oatmeal you dopes, guaranteed.” So, if you take a 50 year old state worker with 20 years of service and move him to a 401k, you still owe him 20 years worth of pension. Dopes. Dopes. Dopes.
Comment by Ducky LaMoore Friday, Feb 20, 15 @ 9:00 am
Hey, when are we going to hear from those courageous rank and file GOP House and Senate members? Are they lovin’ this budget or what?
This is a great game so far, but we need to know if the legislator with universities are going to play offense or defense!
They need to get off the bench and get into this game, baby!
Comment by Dick Vitale Friday, Feb 20, 15 @ 9:00 am
Moving to a 401k style plan would just leave everyone fending for themselves in a bull market.
We need reform, but not like this!
Comment by Undergrad Economist Friday, Feb 20, 15 @ 9:07 am
Maybe the Math Prof should come up with the plan that solves the huge pension problem. Has he? Can he?
Comment by anon Friday, Feb 20, 15 @ 9:07 am
Maybe these geniuses need to really listen to Ralph Martire who seems to be the only adult in the room.
Comment by AnonymousOne Friday, Feb 20, 15 @ 9:09 am
No one is taking that pension proposal seriously or its supposed savings. Methinks it’s either thrown out there as the first volley in contract negotiations or, combined with proposed draconian cuts, a step up to possible talk of income tax increase…….or both.
Comment by Former Merit Comp Slave Friday, Feb 20, 15 @ 9:10 am
I’m not a math professor anon, but to solve the huge debt problem, you do the following:
1) Stop using the pensions as a fund to make up for a state structural deficit.
2) Pay what you borrowed back.
There ya go bud!
Comment by PublicServant Friday, Feb 20, 15 @ 9:11 am
==Moving to a 401k style plan would just leave everyone fending for themselves in a bull market.==
You mean…, like almost every other retirement plan outside State employees? Lord how do they all survive?
Comment by Anonymoiis Friday, Feb 20, 15 @ 9:13 am
Well, now that we know what we can afford if we want more it’s time to discuss new revenues. Income taxes need to rise some, expanding sales tax ok, expanded casino into Chicago, gas tax increase for roads. Plus it’s time to get serious about changing the ramp. Spread it out a little longer maybe issue bonds while rates are low.
Comment by Lincoln's tears Friday, Feb 20, 15 @ 9:14 am
The Math genius should provide a solution instead of ripping Rauner’s plan. If 25% of the tax revenues is not enough to fund the pensions, what is the number? 50% of our tax money?
Spell it out or shut up
Comment by Iron Duke Friday, Feb 20, 15 @ 9:14 am
Actually, the most interesting part of this post is the fact (?) that the vast majority of state workers are in the 45-50 age range.
I’ve never heard that before — and I find that fascinating. It means — or could potentially mean — that the pension fix needs to happen sooner rather than later. (It also means that these folks — folks with maybe 15 years of service and 10 more to go — a voluntary 401K (at this late stage in their career) is a non-starter.
Comment by Frenchie Mendoza Friday, Feb 20, 15 @ 9:14 am
===You mean…, like almost every other retirement plan outside State employees? Lord how do they all survive?===
Are they?
Comment by PublicServant Friday, Feb 20, 15 @ 9:15 am
==Maybe these geniuses need to really listen to Ralph Martire who seems to be the only adult in the room.==
How did he vote on last summer’s “adult” budget?
Comment by Anonymoiis Friday, Feb 20, 15 @ 9:15 am
A governor who throws out a budget plan that is akin to an opening volley really isn’t much of a governor. He has lost all credibility.
Comment by Tim Snopes Friday, Feb 20, 15 @ 9:15 am
Seems like the Harvard educated math professor could have come up with some valid numbers over the last 6 years. Since Nekritz talks about “fuzzy” math, she should consider a refresher course from the math professor.
Comment by Apocalypse Now Friday, Feb 20, 15 @ 9:15 am
One mans gimmick is another mans proposal.
Comment by Obama's Puppy Friday, Feb 20, 15 @ 9:15 am
BTW — the age range also means that Rauner oughta work hard — very hard — to attract young folks to public service. Attacks on labor and on pension benefits are not the way to go if you want a new generation of workers to embrace civil service.
Comment by Frenchie Mendoza Friday, Feb 20, 15 @ 9:16 am
Time to put on my conspiracy hat. What are the odds that Governor Rauner and Senator Biss work on pension reform behind President Cullerton’s back? Biss is definitely a wild card and is often rebuffed by his own caucus when he trots out sound, well thought out plans. He introduced some pretty solid fiscal bills (including pension tweaking but not clear reform) during his first session as a Senator, and I have been told that he had a huge hand in crafting that legislation and working the numbers. I guess the question is whether Senator Biss would buck his own caucus leader and work with a Governor who probably shares a closer view of pension reform with Senator Biss than anyone else in the Senate Dem Caucus.
Comment by Team Sleep Friday, Feb 20, 15 @ 9:17 am
===odds that Governor Rauner and Senator Biss work on pension reform behind President Cullerton’s back?===
Put whatever odds you want on it and I’ll take that bet for whatever amount you want.
lol
Comment by Rich Miller Friday, Feb 20, 15 @ 9:18 am
===The Math genius should provide a solution instead of ripping Rauner’s plan. If 25% of the tax revenues is not enough to fund the pensions, what is the number? 50% of our tax money?===
Know what you’re talking about before posting. Pensions cost about 7% of revenues. Paying back THE DEBT (all the money you borrowed) is the other 18%. Dope.
Comment by PublicServant Friday, Feb 20, 15 @ 9:19 am
Everyone is speculating based on a vague speech. We need a detailed description of the proposal and the calculations supporting the savings in order to have an intelligent discussion. Two days later we don’t have either. Someone should explain the concepts of transparency and accountability to the Governor. We should demand transparency and accountability!
Comment by PublicMath Friday, Feb 20, 15 @ 9:19 am
===The Math genius should provide a solution instead of===
He did. It’s in court right now.
Comment by Rich Miller Friday, Feb 20, 15 @ 9:20 am
===It’s days like this when I really miss legendary blog comment artist Bill. ===
Yeah.
Man, I really miss that guy.
Comment by Rich Miller Friday, Feb 20, 15 @ 9:20 am
===Lord how do they all survive?===
They, we, you, and me will all survive per se.
But you mean…, a state employee can handle their money the same as their private counterparts?
Well, I have some more to think about then.
Comment by Undergrad Economist Friday, Feb 20, 15 @ 9:21 am
I bet Governor Rauner is pining for the “Good ole days” when a Venture Capitalist could cut, chop,reduce and thereby increase shareholder value. You need another Strategery Bruce, what you’re bringin’ a’int a workin’!
Comment by I B Strapped Friday, Feb 20, 15 @ 9:23 am
I like that he presented a brutal budget, just as Governor Quinn did last year. Based on his campaign, that’s what I would have expected.
However, I’m incredibly disappointed that he used imaginary savings to fund a portion of it. Of all the actions he has taken, this is the one that worries me the most.
Comment by Earnest Friday, Feb 20, 15 @ 9:23 am
===You mean…, like almost every other retirement plan outside State employees? Lord how do they all survive?===
TRS and SURS participants do not have social security so they are factually not like everyone else. If you were to give them SS plus a 3% DC match you would increase costs to the State. If you do not want to hear that, feel free to ignore it.
Comment by Lil Squeezy Friday, Feb 20, 15 @ 9:23 am
The Unfunded Liability is the value of the benefits that have been earned to date that are not covered by assets in the system.
So - how can Rauner give everyone everything they have earned and REDUCE the liability (which is the value of benefits that have been earned)?
The answer is he is not doing what he says. He is allowing people to keep the retirement service credits they have earned - but applying those credits to their CURRENT salary, not the salary they would have at retirement.
So, what the five pension systems have in their books as earned benefits is reduced. Makes sense - if I am in mid-career making $50,000 and have earned half my pension, I will have earned 37.5% of my final average salary. But Rauner’s math is that 37.5% is only of my current salary to be paid when I retire at 60 in 18 years. By then I would be making $80,000 (with 3% raises) - but my retirement will be based on the $50,000 I am making now.
That is the math he is using - please don’t beat me up for saying “3% raises” or making “$50,000″ now. Only did that to illustrate there is a big difference in what Rauner says I have earned in benefits versus what the pension system actuaries say I have earned in benefits.
By the way, I am retired, so his proposal would not impact me since I am done earning. It will hit the younger employees harder.
Also, unless he changes the amount deducted from paychecks for the pension, the State will make money on Tier 2. The normal cost for Tier 2 is about 7% and TRS (teachers) are paying 9.4% and State and University workers are paying 8%. So the State can add that difference to their “savings.”
Comment by archimedes Friday, Feb 20, 15 @ 9:23 am
Maybe a little off the topic, but an important connection to the big picture.
http://www.nytimes.com/2015/02/19/opinion/nicholas-kristof-the-cost-of-a-decline-in-unions.html?_r=2
Comment by forwhatitsworth Friday, Feb 20, 15 @ 9:24 am
Speaking of Bill - Rich, I would accept your bet, but then you’d have to take a picture of the back of my head and show it to the blogosphere.
Comment by Team Sleep Friday, Feb 20, 15 @ 9:24 am
PublicServant—-Your solution seems so simple. I am surprised Quinn and the Math Prof didn’t implement it. I’m shocked your party didn’t solve this big mess the past 12 years!
Comment by anon Friday, Feb 20, 15 @ 9:27 am
Gee, and the big brains at the Tribbie edit board said Rauner’s proposal was a “rendezvous with reality” and “honest.”
Must be true — they wouldn’t sacrifice their integrity just to be willfully ignorant shills. We know how committed they are to attracting a buyer, I mean the truth.
Comment by Wordslinger Friday, Feb 20, 15 @ 9:27 am
I just love comments like “The Math genius should provide a solution instead of ripping Rauner’s plan.”
People have been asking Rauner for details for how long? Any one really have them yet?
Comment by Out Here In The Middle Friday, Feb 20, 15 @ 9:28 am
Folks at TRS, SURS, and SERS will tell you that Biss’ projected “savings” on SB 1 are wildly inaccurate. Put me down in the LBJ camp of people who know that affiliations with Harvard and U of C don’t mean squat if you don’t know how to do math.
Comment by ChiTown Seven Friday, Feb 20, 15 @ 9:29 am
BY the way - I don’t agree that Rauner’s pension proposal allows everyone to keep what they earned. It reduces (diminishes) what has been earned.
Now - if he truly left what was earned alone (so he can’t reduce the unfunded liability, i.e. the debt) and changed going forward he could still save the State money (still probably not legal) by reducing the cost of the pension plan but still having employees pay what they are paying now.
This would do what he says he is doing - but won’t save the State near as much money and is still most likely unconstitutional.
Comment by archimedes Friday, Feb 20, 15 @ 9:31 am
Ok what is the percentage of our tax money needed to solve the problem? That is not a dopey question. I did not borrow any money your buddies did
Comment by Iron Duke Friday, Feb 20, 15 @ 9:32 am
Anonymoiis
“You mean…, like almost every other retirement plan outside State employees? Lord how do they all survive?”
The “killer” is the transition. The current pension ramp-up law is dependent upon current employees paying into the retirement systems. Let them pull their funds out for 401(k)s and you’ve actuarially unhinged the pension systems. This is known - Utah and Georgia went through this in 2008 when they tried to “fix” their pension problems after the Bush Collapse (Utah was 100% funded in 2007). Utah ended up with a version of Tier 2, not 401(k)s. Brady realized this in 2010 when he advocated selling 50 year bonds for the entire pension debt so employees paying into 401(k)s wouldn’t unhinge the pension systems.
Any suggestions on a new dedicated funding source to cover the estimated $3-4 B + in debt service to liquidate the current pension systems so employee contributions can go to 401(k)s?
Comment by Anyone Remember Friday, Feb 20, 15 @ 9:32 am
==Moving to a 401k style plan would just leave everyone fending for themselves in a bull market.== And this is the point that Rauner wants to drive home. His argument to put people into a 401k has nothing to do with achieving any potential savings. There’s ample evidence that this doesn’t solve the pension problem it exacerbates it. The end game is to demonize public workers by convincing voters that they’re getting a “better deal” than you and I are. Rauner knows that his pension reform plans are a non-starter, but if it helps in painting the broader picture that public union employees are responsible for our woes then in his mind he’s winning the argument.
Comment by pundent Friday, Feb 20, 15 @ 9:33 am
To the post:
Fee, fi, fo, fum, I smell the blood of a giant about to fall from a great height.
I can’t wait to see how long it takes them to get legislative language on this, and someone to actually sponsor it.
Comment by vibes Friday, Feb 20, 15 @ 9:34 am
Out Here In the Middle,
Yes. And not just “anyone.” But, actually, “everyone.”
budget.illinois.gov
Comment by White Denim Friday, Feb 20, 15 @ 9:36 am
===I’m shocked your party didn’t solve this big mess the past 12 years!===
No time like the present, right anon?
Comment by PublicServant Friday, Feb 20, 15 @ 9:39 am
FMCS, I wouldn’t ascribe any Byzantine strategy to the magic beans.
It was just a punt. Rauner couldn’t pull off what he campaigned on (duh) so he just pulled about $2.9 billion out of thin air and called them “savings.”
The dude has the gig. — he’s going to have to get real at some point.
Comment by Wordslinger Friday, Feb 20, 15 @ 9:39 am
This is a bipartisan mess. In Chicago, it was in 1995 when they were allowed to really raid the teacher’s pension. That was under Edgar. Thompson and Ryan both borrowed and failed to make necessary payments as did Blago.
Comment by Carhartt Representative Friday, Feb 20, 15 @ 9:40 am
Funny that every single day in every newspaper in this state, people are fixated on how to weasel out on paying back a theft. No matter constitutional rights, no matter legality. How can we cheat the people even more?
Comment by AnonymousOne Friday, Feb 20, 15 @ 9:41 am
===I did not borrow any money your buddies did===
I think you need a lesson in how representative democracy works pal. Your rep borrowed it, and now you’re on the hook to pay it back.
Comment by PublicServant Friday, Feb 20, 15 @ 9:41 am
Also sorry for the dumb question but why has this not improved since the depths of the recession in 2009.
Most 401k balances have recovered
Dow has almost tripled but this is still a huge mess
Comment by Iron Duke Friday, Feb 20, 15 @ 9:42 am
Jus sayn! State employees have continually paid into their retirement it was the GA that quit paying and started borrowing! So weird that the state law mandates other retirement funds (IMRF) to fully fund their pensions. DONT CORRECT THIS ON THE BACKS OF STATE WORKERS!!!
Comment by Mitch59 Friday, Feb 20, 15 @ 9:44 am
===Also sorry for the dumb question but why has this not improved since the depths of the recession in 2009.===
Because the borrowed cash isn’t there to ride the stock market recovery. It’s in that road you drive down every day.
Comment by PublicServant Friday, Feb 20, 15 @ 9:44 am
Since we’re betting today, I’d bet the Rauner folks didn’t consult with the systems on their numbers.
This reminds me of a gubernatorial quote: “We have to protect our phoney baloney jobs here, gentlemen! We must do something about this immediately! Immediately! Immediately! Harrumph! Harrumph! Harrumph!”
Comment by Norseman Friday, Feb 20, 15 @ 9:50 am
==Maybe the Math Prof should come up with the plan that solves the huge pension problem.==
There are several “math” solutions that will work; developing “math” solutions is not the problem. To be put into place the solution also needs to be politically palatable AND constitutional. Put all of those aspects together and you have a “wicked problem.”
Comment by Pot calling kettle Friday, Feb 20, 15 @ 9:50 am
What ever happened to the old belief of finding ways to pay someone what you are contractually / legally obligated to? It seems like the common practice of today is devoting all the energy towards breaking contracts and legal obligations because it has become more convenient.
Comment by forwhatitsworth Friday, Feb 20, 15 @ 9:53 am
== Ok what is the percentage of our tax money needed to solve the problem? ==
Depends on what the tax rate is. If we take the current numbers at face value, then 25% of a 3.75% income tax is what is currently needed to pay for the pensions and pay off the shortage.
Raise the income tax rate and the pension percentage goes down. Lower the income tax rate from 5% to 3.75% like we just did and the pension percentage goes up.
Comment by RNUG Friday, Feb 20, 15 @ 9:53 am
Illinois is broke but both QUINN and Rauner love to spend funds on legal council in court!
Comment by Mitch59 Friday, Feb 20, 15 @ 9:55 am
Also sorry for the dumb question but why has this not improved since the depths of the recession in 2009.
It actually has helped a little bit. SERS made 18% on its investments in FY 14, and its investment gains outpaced its payouts by a little. More like treading water than improving, but it’s a start.
Comment by Six Degrees of Separation Friday, Feb 20, 15 @ 9:58 am
Apparently Rauner has switched the state over to Enron accounting.
Comment by Precinct Captain Friday, Feb 20, 15 @ 10:00 am
I have paid $450.00 per month for 12 years! Hope I get it back someday!
Comment by Mitch59 Friday, Feb 20, 15 @ 10:01 am
The hypocrisy is hilarious, “fuzzy pension math”…AKA what dems have been doing for the past 40 years???
Comment by Urbana Friday, Feb 20, 15 @ 10:05 am
PublicServant, what would YOU do to solve the mess?
Comment by anon Friday, Feb 20, 15 @ 10:06 am
It’s the classic bait and switch, create a problem then solve the problem with a 401k bring Illinois back.
Comment by Anonymous Friday, Feb 20, 15 @ 10:14 am
Mitch59–I hope you do too with plenty of interest on the investments. The Constitution says you have the legal right to do so. The elected scam artists we have are trying to make it not happen.
Comment by AnonymousOne Friday, Feb 20, 15 @ 10:15 am
Maybe Rich should reach out to some actuaries, instead of politicians who don’t understand how pensions work in the first place.
Comment by JI Friday, Feb 20, 15 @ 10:16 am
A few key factors have to come into play here:
1)Fixed contributions from the state and employers won’t save much, but employee MATCHING contributions, to the minimum limit allowed by law when no SSC is provided, can. 50% matching up to 7% employer match makes sense, with local employers (schools, municipalities, etc.) contributing the equivalent of the SSC employer contribution required as a minimum.
2) Public employee strike prohibition MUST be enacted by Springfield, preferably permanently but acceptably temporary. This was understood when Chicago made their reform transition, and this transition will be no less chaotic or acrimonious.
3) Rauner needs to start moving forward with a constitutional amendment to allow reduction of pension benefits to employees yet to be earned without diminishing or impairing those pension benefits already earned.
Perhaps item 3 is already being set up. Rauner can make the argument to the voters of Illinois that they have three choices; pass the amendment, raise the taxes THEY pay (it has to be shared tax sacrifice, this will need a hit from EVERY earner in Illinois), or suffer draconian cuts in services at the state and local level.
I’d bet that the amendment choice would be the most popular amongst voters.
Any takers?
Comment by Arizona Bob Friday, Feb 20, 15 @ 10:17 am
Since a pension ruling is coming soon, there’s no need to try to implement reform that may be illegal. The 401(k) pensions are what the economic right wing keep pushing. This can wait until there’s an ILSC ruling on SB 1.
I wish Rauner would also wait until SCOTUS rules on public union fair share fees before trying to eliminate the fees.
Comment by Grandson of Man Friday, Feb 20, 15 @ 10:17 am
Agree Anon!
Comment by Mitch59 Friday, Feb 20, 15 @ 10:17 am
When Rod Blagojevich was at this stage of his administration, he was presenting a lot of wild ideas for Illinois to generate new revenues. He had a lot of insider friends backing schemes which enriched them, gave a campaign kickback to Blagojevich and he floated these ideas publically.
They seemed wildly bizarre, yet seemed to indicate a creative administration with an interest in thinking differently. Blagojevich had his sights on the 2004 VP nod. He was going to be the fresh anti-tax Democratic governor with fresh ideas for the 21st Century.
Blagojevich used Illinois and gambled our future away in order to look good politically and move up to a bigger win in DC. His entire façade began to collapse after Kerry picked Edwards and Blagojevich had to not only start to address the work he didn’t do during his first couple of years as governor, he had to also had to address the illegalities he used to finance his political dream.
Rauner seems to be doing something similar. If he was a serious governor, Rauner would have a back up plan for us to consider if the State is found liable for its fiduciary irresponsibility concerning state employee pensions. He didn’t.
Rauner didn’t even try to be transparent enough to meet with his own party leaders regarding his first budget. How did he run the companies he took over - just come in with a plan that didn’t listen to anyone knowledgeable about it?
The new governor either doesn’t care about being a serious governor, or doesn’t have enough respect for his fellow Illinois Republicans to sit in a room and listen to any of them.
He will not be able to just flip our state government as easily as he flipped his prior acquisitions. Government doesn’t work like that because government is more important than any of his other ventures. We hold a far more “hands off” approach to what an owner of a business does, than we do with what a governor of an entire state does.
He is going to be frustrated if he thinks being our governor is a stepping stone to something bigger in DC. If he doesn’t show citizens that he is a serious governor appreciating the serious business of governing - he shouldn’t be considered serious enough for a bigger leadership job.
Comment by VanillaMan Friday, Feb 20, 15 @ 10:18 am
Go Get Them Rauner!!!
Comment by Drewski Friday, Feb 20, 15 @ 10:21 am
I’m going to repeat (and expand) this from the other day.
The 2011 “Tier 2″ reform IS 1/2 the solution. We just have to wait for the existing retirees to die off and for the existing “Tier 1″ employees to also retire and then die off. Statistically speaking, the average age of a SERS retire is currently about 69 (FY14 SERS Annual Report). Typical life expectancy right now is early to mid 80’s depending on sex. So in about 14 - 15 years, most of the current SERS retirees will be gone. (Someone else can look at the other systems’ numbers.)
We also have to consider the current workforce. If it is true most are in their late 40’s / early 50’s, then they should be around as workers or retirees another 35 - 40 years on average.
So the pension problem does have an end date. The other 1/2 of the solution is to keep the pension funds solvent until that date. The 5% income tax rate proved the full payments could be made, and could have been made in the future if it had been made permanent. The challenge now is to figure out what combination of revenue is politically acceptable.
My suggestion would be to pass a 40 year “temporary” revenue increase (income tax or whatever) to bring in about $2B - $3B, DEDICATE IT to just pension funding IN ADDITION TO EXISTING FUNDING, and have it gradually phase back down over the 40 years … for example, if it was a 1% income tax increase, have it drop by 0.1% every 4 years. Maybe this wouldn’t be exactly what is needed but I’m sure the pension and tax people could crunch the numbers to achieve the intent.
Anyway, there is a solution. Yes, it raises a tax but only for a period of time. Don’t like 40 years? Then raise the tax higher to make it shorter.
Another often talked about solution is the cost shift for the normal cost of the TRS pensions. If would take a while to phase in but accomplish pretty much the same thing IF the State were to put that “saved” cost into the pension systems. You would probably need some temporary revenue while doing the shift, but that could then be limited to the phase in period, say 5 or 10 years. Note: If you increased school funding by the amount you took away from pension support, then there would be no gain and no real reason to do the shift, other than some increased local responsibility on salaries.
Two possibilities … no magic beans since both require a tax increase of some kind but they should work.
FWIW … the Lord willing, I intend to be around longer than the 15 years I suggested for current SERS retirees.
Comment by RNUG Friday, Feb 20, 15 @ 10:23 am
RNUG, you’re the goods on the issue, but “40 year” and “temporary” are contradictory, really.
In reality, all revenue streams are “temporary” in that the next GA and governor can change them.
Comment by Wordslinger Friday, Feb 20, 15 @ 10:28 am
@VanillaMan
Yup. And I’m happy to hear someone else finally acknowledging Rauner’s possible dreams of something bigger.
Comment by Stuff Happens Friday, Feb 20, 15 @ 10:28 am
=What ever happened to the old belief of finding ways to pay someone what you are contractually / legally obligated to? It seems like the common practice of today is devoting all the energy towards breaking contracts and legal obligations because it has become more convenient.=
Good question. By stiffing certain creditors (employees), you can reassure the “great” credit rating powers that you will make good on your other debts (bondholders etc.)increasing your credit rating.
It would seem that when breaking contracts, rules, and laws is the standard operating procedure, as a creditor counterparty, I would have to ask. - Who’s next?
Comment by Anonymous Friday, Feb 20, 15 @ 10:29 am
Math, schmath.
When you’re shakin’ up Springfield, who cares about math?
Comment by Streator Curmudgeon Friday, Feb 20, 15 @ 10:32 am
Are TRS, SURS, and SERS the only pensions that will be affected by the governor’s freeze & switch pension plan?
Comment by Mama Friday, Feb 20, 15 @ 10:32 am
RNUG: there you go, making sense again.
Comment by UIC Guy Friday, Feb 20, 15 @ 10:33 am
- Mama -
Depends on what he can get the legislature to pass. If he is stuck trying to do it via contract or executive order, I think he’s going to be limited to SERS and possibly SURS.
Comment by RNUG Friday, Feb 20, 15 @ 10:36 am
- word -
You got to start somewhere …
Comment by RNUG Friday, Feb 20, 15 @ 10:36 am
401k stule plans are not cheaper or better performers. Just the opposite they underperform definded benefit plans. Part of the reason the 401k plan falsely looks good right now is because they are looking only at the raw employee contributions in the system. The current look does not add to the employee accounts the state employer matching contribution, and it does not add in a reasonable rate of return. By comparison you would have to take a 401k style plan, count only employee contributions and assume zero growth. The numbers would be the same amounts in roughly that you have now.
If however you look at growth or rate of return overtime, 401k underperfoms defined benefit plans. The reason, and this si a simplified generalization, is simple. 401k have a limited life, that of the owner. They move through agressive to conservative strategies as the person gets older so they go from higher to lower returns the closer the person get to retirment. If the market crashes when you plan to retire your hosed, because the loss is not an actual loss until you start selling to draw on your fund.
Defined benfit plans live forever. So they have permanent mixes of risky and safe investments for an overall hogher rate of return. If the market crashes the plan weathers the downturn by limiting selling so losses are not captured. If its funded it can use reserves or incoming contributions to pay retirees during these downturns etc
401k is not cheaper for the state or better for taxpayers or retirees. Its more income to investment firms on the individual accounts however.
The state needs to make the employer contributions now just like with a 401k, but we dont need a 401k to do it. Also no one has addressed whether the failure to include the employer contributions and amounts for rate of growth in the employee accounts is even lawful. The numbers used for yhe employee accounts may themselves be illegal since the state has not putnin their compounded growth or employer contributions.
Lastly why is this not a huge conflict for the Governor? He is directly involved with his investment and investment business, no blind trust remember, and is advocating for pushing billions in investment business out where his companies can profit from this.
Comment by Ghost Friday, Feb 20, 15 @ 10:40 am
Arizona Bob,
There is already a proposed amendment which would eliminate the pension protection clause (HJRCA0009). That may not be a solution, though, because of the following wording in the clause:
“…shall be an enforceable contractual relationship…”
Article I, Section 10 of the US constitution prevents states from passing laws that impair contracts. If the clause is removed, the battle will then head to the federal courts.
It is pretty clear that the crafters of the pension clause foresaw the exact scenario that is occurring with the pensions and did their best to craft language to prevent the state from reneging on its obligation.
Comment by Pelonski Friday, Feb 20, 15 @ 10:44 am
Rauner’s plan to move all current employees into a tier 2 plan won’t pass legal muster, but it can become part of a contract negotiations with the unions. If you are retired, game over..even Rauner seems to get that, but if you are still working ( I know constitutional protections starts at date of hire, or soon after) you are subject to other changes in your contract such as salary job security work rules etc that may be in play as part of a grand bargain on pensions — for those still working. If you are 30 years old and you are given an option to contribute more into your pension and stay in tier 1 or contribute the same as now (or less) and move to tier 2 you might just do it, particular if all of this is tied to salary, and step adjustments along with job security and other important work rules. My point is that if you are still working and if there is legal contract acceptance of reductions in pensions in exchange for other things of value there could be ways to get change that is legal or might hold up. Higher contributions to remain in tier 1 or move to tier 2 for future years of work is not totally out of the picture if negotiated. I could see a hybrid pension where you might have 15 years under tier 1 and 15 years under tier 2. the tier 1 years would have the AAI 3% and the tier 2 would not etc. Each employee could sue but if unions negotiated this for their members and the members pass it I am not sure how all of that would work out. The courts at some point might say hey it is illegal to give current employees a choice between raises, job security, work rules etc and pensions but this whole thing could get very gray and scary for that matter for current employees. Lets say the union won’t accept the last contract offer on the table and go on strike? Does the strike work etc. plus legal battles could go for some time.
Comment by facts are stubborn things Friday, Feb 20, 15 @ 10:45 am
There was nothing wrong with Nekritz’s or Biss’s math on pensions. For them to say Rauner’s numbers cannot be true, is solid criticism.
They all likely have the same constitutional issues. Whether or not Rauner faked his numbers, and they did not, is all irrelevant in the end.
The difference is that Biss and Nekritz et al did not use those numbers in the budget.
Comment by walker Friday, Feb 20, 15 @ 10:46 am
==allow reduction of pension benefits to employees==
You reduce yours and I’ll reduce mine. That sounds fair. Want to take me up on that?
I didn’t think so . . .
Would you be so gung ho Bob about taking more money from the rich?
I didn’t think so . . .
Comment by Demoralized Friday, Feb 20, 15 @ 10:51 am
Oh, and as many have said, moving current employees to a 401(k)-type plan would blow an even bigger hole in existing pension obligations than exists now. That approach is a non-starter.
Comment by Concerned Friday, Feb 20, 15 @ 10:56 am
A couple of thoughts:
1) For those of you advocating that the pensions all be switched to 401(k) style plans as a solution, I would point out that Rauner originally wanted to do that. The reason he changed his plan to switch employees into Tier II plans is because that option was cheaper for the State. Non-SSA Tier II pension recipients actually will put in more money than necessary to fund the system.
2) The fact that Sen. Biss was a math professor is irrelevant when it comes to finding a solution. Acturarial math was needed to help determine the size of the problem. After that, the math becomes a basic finance problem that can be answered by anyone who paid attention in Finance 101. This isn’t a math problem, it is a funding and political problem.
Comment by Pelonski Friday, Feb 20, 15 @ 10:56 am
More smoke 0+0=0 plus plan B
If SB1 is upheld by the courts, and Governor Rauner’s proposal is enacted and upheld, both reform plans could take effect in large part simultaneously, boosting savings well above the projections for either plan alone.
In the alternative, the General Assembly and Governor may decide to enact a new plan that combines the best reforms in SB1 and this proposal.
Comment by Griz Friday, Feb 20, 15 @ 10:59 am
Keep in mind that a lrge part of why tier 2 comes with a surplus isnit comes with all the employer controbutions so far. Ifnyou started tier 1 benefits with a new grp, and called it tier 3 it woikd also return a surplus somlong as all the contributions were made. The magic in toer 2 isnt the change in benefits, its the doover on funding with the state actually making its contributions
Comment by Ghost Friday, Feb 20, 15 @ 11:04 am
Facts,
Pensions are not part of union contract negotiations. They are set by statute, not collective bargaining.
Even if you can get the unions to agree to not pursue a lawsuit on a pension change, there are plenty of non-union employees who could do so on their own.
Comment by Pelonski Friday, Feb 20, 15 @ 11:04 am
Thanks, Pelonski. Great info on that contractual obligation clause. Are you aware of ANY way of reducing state obligations on public employee pension benefits yet to be earned?
Comment by Arizona Bob Friday, Feb 20, 15 @ 11:13 am
Also sorry for the dumb question but why has this not improved since the depths of the recession in 2009.
If the narrative is that the public sector workers are leeches bleeding everyone else dry, no wonder there is no mention of (1) the rebounding market means the State’s financial situation isn’t quite so dire; and (2) the private sector employee’s 401(k) accounts have rebounded back.
Comment by anon Friday, Feb 20, 15 @ 11:17 am
==Are you aware of ANY way of reducing state obligations on public employee pension benefits yet to be earned?==
I would guess the only way would be to offer employees a choice that they can individually make (though I don’t know why you would make such a choice). Since it’s an individual right nobody can negotiate that away so I don’t see any other way to do it.
Comment by Demoralized Friday, Feb 20, 15 @ 11:23 am
==Are you aware of ANY way of reducing state obligations on public employee pension benefits yet to be earned?==
I would also argue that it’s a fallacy to say that benefits have not yet been earned. All benefits are automatically earned once you are in the system. It’s a word you’re gonna hate but it’s an entitlement that can’t be taken away (IMHO).
Comment by Demoralized Friday, Feb 20, 15 @ 11:25 am
Don’t you think that he (Gov. Rauner) could negotiate away some of this pension language as a means to go after the 6% retirement incentive? I don’t know what kind of savings that would realize, but I keep waiting for the General Assembly to legislate that away. Especially as it is a negotiated benefit and not necessarily constitutionally guaranteed.
Comment by General Aubrey Friday, Feb 20, 15 @ 11:27 am
And that narrative must continue to be focused on public pensions……….no deviations! Stop looking at the uptick in the markets, hence gains in invested pension money. Someone very, very, very badly needs public pension fund members to be the villains that brought down the state. Stop looking elsewhere, now!
Comment by AnonymousOne Friday, Feb 20, 15 @ 11:27 am
anon, sorry Tapas Das Gupta and I were exchanging stories about Raunerite talking points on our yachts. How would I solve Illinois Debt problems?
P A Y I T B A C K !
Since the pensions funds were used to pay for programs because of a state structural revenue shortage, you fix the revenue shortage. Take your pick of a variety of methods of accomplishing that. One I’d consider, however, is POBs for at least a portion of the debt since the debt owed to the pensions is accruing at around 7.5 percent interest per year compounded. I’d ask Schnorf what he thinks is a realistic POB rate, but it would be well under the 7.5% we’re currently paying.
Thanks for asking.
Comment by PublicServant Friday, Feb 20, 15 @ 11:29 am
== Especially as it is a negotiated benefit==
You can’t negotiate it away unless you do it person by person. Only the individual has that right. It’s an individual Constitutional guarantee.
Comment by Demoralized Friday, Feb 20, 15 @ 11:30 am
==Are you aware of ANY way of reducing state obligations on public employee pension benefits yet to be earned?==
Better yet, you could reduce state obligations on pay not yet earned. - Perfect example: You earned $4000 salary as an state investigator last month and we paid you for that month. From now on your investigator salary will be $1,900 per month.
You got all pay earned and we have successfully reduced pay Yet To Be Earned. Whah-La!
Fairness, robber baron / Matt Murphy-style
Comment by Qui Tam Friday, Feb 20, 15 @ 11:33 am
Bob,
I wouldn’t rule out that the courts will allow a reduction in future benefits. I just wanted to point out that changing the constitution isn’t necessarily the “easy” fix that some people think it is.
My personal view is that the best chance for a diminishment of future or even earned benefits is the “police powers” argument that the Supreme Court is reviewing. I think it is very possible the Court will rule that at some point the debts of a government get so high that there is no practical hope that they will ever be paid off, and in those cases, debts can be diminished. That won’t be the panacea that many are hoping for, however. The State is nowhere near the point of not being able to pay its debts. There is still considerable room to raise taxes when compared to the tax burdens in other states. Those taxes may not be popular and they may stunt growth, but I don’t see the Court determining that those are unreasonable outcomes. The other issue will be who bears the burden of the debt diminishment? I can’t see a scenario were the full burden is born by employees. Instead, the burden would be spread amongst all the creditors of the state. That would be extremely unpopular.
Comment by Pelonski Friday, Feb 20, 15 @ 11:38 am
PublicServant—-Hope do you fix the revenue shortage? I think I know what you will say but rather than put words in your mouth, I will allow you to explain.
Go!
Comment by anon Friday, Feb 20, 15 @ 11:45 am
If SB1 is upheld by the court how does the Rauner plan work?
SB1 gives retirees years X $1,000 X 3% for a maximum AAI of $900 for 30 years of service.
Gov. Rauner stated retirees would keep everything that was promised to them. So do retirees go back to 3% AAI if he is able to implement his plan if SB1 is constitutional?
Comment by Tsavo Friday, Feb 20, 15 @ 11:48 am
@Pelonski - Friday, Feb 20, 15 @ 11:04 am:
I totally understand what you are saying, but AFSCME already negotiated with John Cullerton and agreed not to sue with one pension bill. I totally agree, but if the unions reach a deal and they don’t sue it puts a lot of financial pressure on individuals. Agree with non union not following. My point is the constitution already says you can not diminish pensions, but look what they have done and the unions already negated (promised not to sue) for their members so I don’t think it is a stretch to see this play out as part of a contract negotiations. I don’t agree, but then I haven’t agreed with any position other then pay the promised benefits.
Comment by facts are stubborn things Friday, Feb 20, 15 @ 11:48 am
===it puts a lot of financial pressure on individuals===
Meh. If you win, you get your legal fees reimbursed, and considering some of the rulings lately, a win is highly likely.
Comment by Rich Miller Friday, Feb 20, 15 @ 11:50 am
== Don’t you think that he (Gov. Rauner) could negotiate away some of this pension language as a means to go after the 6% retirement incentive? ==
You do realize there are 5 pensions systems with different rules and that only applies to one or two of the pension systems?
Comment by RNUG Friday, Feb 20, 15 @ 11:50 am
@Demoralized - Friday, Feb 20, 15 @ 11:30 am:
I agree, but AFSCME already has, when they agreed to a pension bill with John Cullerton and the senate passed it. The house did not or it would have probably become law. Yes, I think it is an individual right, but the SB 1 was law until the courts overturned. My point is not what I believe is legal or fair but what I think this whole Rauner pension proposal is heading — he wants to negotiate tough with AFCME and try and get a deal — current employees only — on pensions as part of a grand bargain. If your union negotiates a deal on pensions (higher contributions etc. etc.) in exchange for salary job security etc. and they represent you, exactly what do you do the next morning?
Comment by facts are stubborn things Friday, Feb 20, 15 @ 11:53 am
- facts -
The unions CAN NOT legally promise their members won’t sue over pension changes. All the unions can promise is the actual union organization won’t sue. Big difference.
Comment by RNUG Friday, Feb 20, 15 @ 11:53 am
So they voted for a budget that does not balance this year and then did not have the courage to pass an extension of the 5 percent income tax.
Now Rauner is at least dealing with the problem instead of ignoring it.
If they don’t do the cuts first they will never happen
I take him at his word he will increase revenues after the budget has been reduced
The temporary tax increase was supposed to solve all of the problems
It obviously did not because the spending never went down
Comment by Iron Duke Friday, Feb 20, 15 @ 11:59 am
===and then did not have the courage to pass an extension of the 5 percent income tax.===
At the governor’s insistence.
Also, spending had to go up because the state started making its pension payments.
Comment by Rich Miller Friday, Feb 20, 15 @ 12:02 pm
“If your union negotiates a deal on pensions (higher contributions etc. etc.) in exchange for salary job security etc. and they represent you, exactly what do you do the next morning?”
You vote against the deal, and if enough union members agree with you, the deal doesn’t happen. AFSCME has a negotiation committee made up AFSCME staff and union members from all the covered local unions. This committee only has the power to put any negotiated deal up for a vote and make a recommendation. It still has to be approved by a majority of AFSCME members in the covered locals.
Comment by Pelonski Friday, Feb 20, 15 @ 12:03 pm
I think the police powers argument is eroded by almost 2 billion in corporate subsidies. The state has the legal power to manipulate the tax code to pay its obligations. What it doesn’t have is the political will. Because we could alter the ramp, restructure the debt, responsibly cut some services, fund sweep surplus balances, and restore the income tax which is 5.2 billion of this 6.2 billion problem, arguing that there is nothing left to do but raid benefits is a fallacy. Anyone who says that if we tax retirement income then there’ll be a mass exodus out of the state needs to know that you only have your choice of 2 other states to go to. And I don’t mean the OMG sky is falling granny tax. If your grandmother can’t afford not to work so she gets a job at a department store or WalMart, she pays taxes on that. If your grandmother retires on 150 grand a year in pensions, she pays nothing. This crisis is politically manufactured. Our tax code taxes for an economy that doesn’t exist and hasn’t since the 70-80’s. It was comical when the Governor said this budget deficit has nothing to do with reducin’ taxes. Would you rather cut 1 1/2 billion or damn near 6 1/2 billion? Besides all of the partisan screaming about who gets what blame, cuz there is enough to go around, what am I missing?
Comment by unbelievable Friday, Feb 20, 15 @ 12:06 pm
How ===do you fix the revenue shortage?===
Well anon, first I can’t tell you how much I’m tickled by your interest in my opinion. That’s a good question by the way, and there are a variety of ways to do it. Let’s get started with some comparisons, shall we?
On the one hand, we could let Bruce and Durkin keep the gain they’ll be getting from the tax decrease, and cut Dental Coverage, Mental Health, Medicaid, University Budgets (increasing pressure on tuition) and gut many other state programs; In other words redistributing from the least among us to the well off…
or
We could rescind the tax windfall that Rauner just got on the way to a graduated “fair” tax, and lessen the draconian cuts that the billionaire is suggesting be imposed on those in most need of our help.
It’s a tough choice I’ll grant you bud, but I’m leaning towards the latter option. However, you could attempt to persuade me…
go!
Comment by PublicServant Friday, Feb 20, 15 @ 12:07 pm
They tried to raise the taxes before the election and it did not pass if my memory is correct
Comment by Iron Duke Friday, Feb 20, 15 @ 12:11 pm
== Are you aware of ANY way of reducing state obligations on public employee pension benefits yet to be earned? ==
Yes, I know of ONE method which the State tried and then Blago reneged on when he took office.
Back in the Schnorf days, the State agreed to pick up the employee portion of the pension contribution in exchange for not providing a COLA salary increase. That had the effect of lowering the base salary for calculating the pensions by the picked up amount (generally 4% for most SERS) and that reduction was actually larger when projected forward because it was no longer part of the compounding base. When Blago reneged on it, he ended up having to giving the union people unscheduled back to back 2% raises (in addition to already scheduled ones) to make up for no longer paying the 4% … so all the pickup ended up doing was slightly reduce the compounding effect for a number of years.
Non-union (read mostly Merit Comp) people never received any make-up and ended up with their salary base for pensions permanently reduced by 4% plus compounding. MC people should probably have sued over it at the time, but they didn’t and that’s water under the bridge.
Controlling the salary within legal limits (there are pension decisions about what is legal and it’s pretty narrow) is about the only way you can affect currently being earned benefits. Do another pension payment pickup trade and you save a bit … but you have to not renege on it in the future to retain the savings. Maybe think about picking up any other universal benefit … but I’m having trouble coming up with any except maybe the employee contribution to their health insurance. That flies in the face of the “punish the state employee” mantra being espoused but it’s the only legal way I know of slightly reducing the pensions costs for existing workers, both Tier 1 and Tier 2. Note: this won’t work for some of the TRS members because some local school districts already pick up one or both of those benefits.
It won’t save a lot of money on the $111B debt; it might know it down by $1B or $2B … but it’s legal and you have a past precedent for it.
Comment by RNUG Friday, Feb 20, 15 @ 12:15 pm
“knock”, not “know”
Comment by RNUG Friday, Feb 20, 15 @ 12:17 pm
@- Rich Miller - Friday, Feb 20, 15 @ 11:50 am:
Ageed, good point, but until you win (could be years depending on the issue at hand) you would certainly feel financial pressure. I did not say financial ruin, but pressure.
Comment by facts are stubborn things Friday, Feb 20, 15 @ 12:20 pm
I will not comment on a solution to the pension issue, as I have a vested interest and that will ultimately be decided in court anyway. But there are things Illinois could do with respect to taxation that would generate revenue (perhaps several billion dollars more annually) for the state without increasing the overall tax burden on Illinois residents. No, there are no magic beans, because what Illinois would gain would come at the expense of the Federal government, not out of thin air. But since Illinoisans pay more to the feds than they gat back, I don’t see any moral problems with this.
The basic premise is that it is asinine for a state to have both income and sales taxes, because only one or the other of these can be deducted on federal tax returns. Based on IL Dept. of Revenue figures for FY 2014, if you
1) Increased the flat personal income tax rate to 8% and left the corporate income tax rate unchanged from last year.
2) Taxed all retirement income.
3) Eliminated all state sales and use taxes.
You would generate at least several billion dollars annually more in revenue than last year (before the income tax rates dropped), but all of the income taxes would be deductible on federal returns for filers that itemize (and with such a high income tax combined with existing high property taxes most people would). If you collect an additional $15 Billion in income tax annually in lieu of the $11-12 Billion you currently collect in sales taxes, most of that additional income tax gets deducted on federal returns. If the typical filer is in the 25% marginal tax bracket for federal income tax purposes, the additional tax collected at the state level would be largely offset with lower tax obligations at the federal level. Yes, a small number of higher-income individuals would be impacted by the alternative minimum tax (AMT) or itemized deduction phase-outs, but you would still end up shifting substantial tax revenue from the feds to the state.
Comment by Andy S. Friday, Feb 20, 15 @ 12:20 pm
@Demoralized @RNUG Sorry, I was thinking of my own pension system and didn’t make myself very clear.
Demoralized-I agree that those who have taken advantage of that incentive are treated as individual contracts between them and the district. I was referring to those of us who are unable to take that offer. That he might try to ‘concede’ certain parts of his pension plan in order to legislate away that incentive for those of us not already declared.
RNUG-Yes, I am very aware of the different systems. I was referring to my own (TRS) and didn’t make that clear.
Comment by General Aubrey Friday, Feb 20, 15 @ 12:23 pm
I’d have to look further, but that plan is really intriguing Andy S
Comment by Carhartt Representative Friday, Feb 20, 15 @ 12:24 pm
“If you win, you get your legal fees reimbursed.” Not sure that is the case. Fee-shifting is the exception, not the rule, and only if provided by statute or possibly a contract.
Comment by anon Friday, Feb 20, 15 @ 12:28 pm
Dissuading The SCT refuses to go along with any pension reform based on the impairment clause there is ONLY one way to achieve any reduction in the unfunded liability a-you have to legislatively cap salaries. If salaries are legislatively reduced the pension contribution is as well. This probably won’t happen so at least absent a Supreme Court acceptance of the fiscal emergency argument-absent a huge tax increase the funds will run out of money in the foreseeable future
Comment by Sue Friday, Feb 20, 15 @ 12:29 pm
DG, Nekritz represents one of the wealthier districts in the state. Also, LINK is a federal program. The state doesn’t pay for it.
Get a clue.
Actually, just go away, moron. Find something else to do in your Monticello “paradise.”
Comment by Rich Miller Friday, Feb 20, 15 @ 12:30 pm
I’ve never commented much til recently but have been a regular reader for years….someone please tell me what happened to Bill?
Comment by Politix Friday, Feb 20, 15 @ 12:32 pm
===I did not borrow any money your buddies did===
And that allowed you to only pay an artificially low 3% tax rate for 20 years. The State, skipping and modifying its pension contributions is why all of us got by with such a low rate, when our neighboring state of Wisconsin have had a top rate of 7.75%; Iowa 8.98%; Kentucky 6%; Missouri 6%, all these years.
Comment by Anonymous Friday, Feb 20, 15 @ 12:33 pm
Politix, you won’t see him no more.
Comment by Rich Miller Friday, Feb 20, 15 @ 12:34 pm
Bill’s making the case for Blago at the Supremiest Court.
Comment by Wordslinger Friday, Feb 20, 15 @ 12:38 pm
i don’t think we have a lower overall tax burden than Iowa, Kentucky or Missouri. I know we are lower than Wisconsin but that explains alot of Scott Walker winning 3 elections in 4 years
Comment by Shoedoctor Friday, Feb 20, 15 @ 12:39 pm
== you have to legislatively cap salaries ==
- Sue -
Probably won’t fly. Already been cases that effectively capped salaries due to various changes in the formula or terms and that was ruled unconstitutional.
Comment by RNUG Friday, Feb 20, 15 @ 12:42 pm
A change could be made to existing retirees to save a small amount of money. Any current retiree that retired prior to the 3% compounding benfit increase (i beleive 1989) could have that reduced to 3% not compounded. The Constitutional right to non diminishment applies to benefit increases made during your term of employment. There is no obligation to extend those benefit increases to those no longer employed.
This eould be a small group of people, but might reduce the unfunded liability by $.3 billion.
Comment by Archimedes Friday, Feb 20, 15 @ 12:46 pm
Andy S,
All of the income wouldn’t be deductible on federal income tax returns since the majority of taxpayers claim the standard deduction. The ones who would benefit the most would be higher income taxpayers who itemize and who pay a higher marginal tax rate. The ones who would be hurt the most would be the middle class taxpayers who don’t itemize. It could work if you also implemented a high Illinois personal exemption, but such a scheme would probably be eliminated by the federal government pretty quickly.
Comment by Pelonski Friday, Feb 20, 15 @ 12:47 pm
- Archimedes -
Would be interesting to see how that went over in the courts.
I believe the IL SC has used language to the effect of “… plus enhancements granted by the General Assembly” when previously describing protected benefits.
Comment by RNUG Friday, Feb 20, 15 @ 12:54 pm
51% of the baby boomers can diminish the contract as long as they get there’s?
Comment by Anonymous Friday, Feb 20, 15 @ 12:58 pm
1)Reinstate the 5% income tax rate, (no expansion to services), and/or the surcharge on incomes over 1 million. Use the money to pay the pension contributions each year in full.
2)Issue bonds at lower interest rate to pay off pension debt borrowed at a higher rate.
3)Re-work the payback “ramp” if needed. Go for 80% funding and or payments over a longer period.
These step(s) could easily stabilize the pensions. Quinn used money from the 5% tax and paid the full amount into the pensions. The sky did not fall. A 5% rate is lower then most people in surrounding states pay.
Comment by DuPage Friday, Feb 20, 15 @ 1:06 pm
Looks like the sky did fall, job growth declined relative to our neighbors when the taxes went up
our recovery has been one of the weakest in the nation. taxes have something to do with it
Comment by Shoedoctor Friday, Feb 20, 15 @ 1:11 pm
The idea of changing from 3% AAI compounded to 3% non compounded AAI for those that retired prior to 1989 was discussed by Eric Madiar in his,”Whats Past is Prolouge” paper. The thought is that benefit imceases passed by GA after you retire may not have the protection of increases while
You are employed. Makese sense, since you did not peform any work toward them.
But its a tiny amount of the unfunded liability.
Comment by Archimedes Friday, Feb 20, 15 @ 1:26 pm
Here is another solution to solve Illinois’ fiscal problems. Make the 5% state income tax permanent.
A 5% state income tax is lower than many states pay for top earners. Some of the states with higher state income rates:
California 12.3%, Hawaii 11%, Oregon 9.9%,
New Jersey 8.95%, Vermont 8.95%, Minnesota 7.85%
In the interest of shared sacrifice Illinois should also extend the 5% tax to retirement income and also tax some services. Then we can pay our bills and take care of our vulnerable citizens.
http://www.money-zine.com/financial-planning/tax-shelter/state-income-tax-rates/
Comment by Enviro Friday, Feb 20, 15 @ 1:58 pm
Enviro-5 percent doesn’t solve the pension funding issues. Clearly every extra dollar helps but in reality the obligation has become so big that the rate needs to exceed 5 which is not politically viable. Unless I misread the Tribune article Wednesday-Medicaid and pensions consume 75 percent of annual revenue and both costs are growing. Rauner if he has a shot at taming the budget has to reduce those programs or in a few years there will be even greater cuts to all other programs. It’s a mess
Comment by Sue Friday, Feb 20, 15 @ 2:21 pm
Sue and Enviro-
We really need to see the math, and the creative ways the existing debt can (or can’t) be corralled and drawn down. I’ve heard a lot of talk, but little facts in the last few years.
Comment by Six Degrees of Separation Friday, Feb 20, 15 @ 2:28 pm
Sue - you are wrong. 5% DOES solve our problem. Pensions consume 19% of the GRF budget, 25% if you include the payment of Pension Obligation Bonds issued by the State (when they didn’t pay the pension bill at all - issued PIOB’s instead).
If the tax were 5% (instead of 3.75%) pensions would be 16%, and 22% including POB’s.
Medicaid is $6.3 billion from GRF budget (per Rauner budget), which is 19.7% of the budget.
Comment by archimedes Friday, Feb 20, 15 @ 2:45 pm
I’m still stumped as to how collecting less in taxes (3.75%) makes our economic picture better than 5%. In a state that wants to confiscate property of workers due to police powers, it seems uneducated to give tax breaks.
Comment by AnonymousOne Friday, Feb 20, 15 @ 3:15 pm
Sue - @ 2:21 pm:
The 5% state income tax including retirement income and a tax on some services would be our best and most honest plan to pay Illinois’ debts.
It would also help to stop the corporate welfare which costs our state billions of dollars. I would also add to that a surtax on income over one million dollars if really necessary.
Comment by Enviro Friday, Feb 20, 15 @ 3:17 pm
Taxing the elderly for compassion to the venerable sounds like doublespeak.
Comment by Anonymous Friday, Feb 20, 15 @ 3:23 pm
=Taxing the elderly for compassion to the venerable sounds like doublespeak.=
Freudian slip as in corporate speculators and titans are “The Venerable”.
They would never want to be considered vulnerable.
Comment by Qui Tam Friday, Feb 20, 15 @ 3:31 pm
Elderly does not necessarily equal vulnerable. We say we don’t want to leave the debt for our children and future generations. If this is true then we should be willing to step up and pay state income taxes as retired citizens do in most other states.
Comment by Enviro Friday, Feb 20, 15 @ 3:33 pm
Almost any good employer that offers a 401(K)as a retirement plan for its employees matches whatever the employee puts in.
A SURS employee with an average annual salary of $50,000 would have paid 8% or $4000 annually into their pension. Over a 20 year period that employee will paid $80,000 out of their paychecks into the pension. And the employer, the state should have been matching that amount.
Two questions about Rauner’s plan to let Tier 1 employees go into a 401(k): 1) Is Rauner planing on the State then also contributing a matching $80,000 into that employees account.
2) Is Rauner planning on the State also contributing the compounding interest that money would have earned over 30 years?
Figuring that the State owes a matching amount from all of those years, and the employee’s account grows at a compounding interest rate - and the State offers to make that contribution is the only way Rauner’s offer even remotely makes sense.
In other words, the Employees annual $4000 - and the State’s annual $4000 contributions, with compounding interest of 7%, over 20 years would have generated $381,878 into that employees account. Right now there is only the employees contributions and compounding interest of $190,934. In other words the state would have to add another $190,934 to the employees new 401(k)account. I’d say there is not much chance that the State has that kind of money to be making very many contributions like that if very many Tier 1’s took him up on his offer.
Comment by Joe M Friday, Feb 20, 15 @ 3:43 pm
- Archimedes - Friday, Feb 20, 15 @ 1:26 pm:
The idea of changing from 3% AAI compounded to 3% non compounded AAI for those that retired prior to 1989 was discussed by Eric Madiar in his,”Whats Past is Prolouge” paper. The thought is that benefit imceases passed by GA after you retire may not have the protection of increases while
You are employed. Makese sense, since you did not peform any work toward them.
But its a tiny amount of the unfunded liability.
Not only that, but how many of those people are still alive?
Comment by Andy Friday, Feb 20, 15 @ 3:59 pm
- DuPage - Friday, Feb 20, 15 @ 1:06 pm:
1)Reinstate the 5% income tax rate, (no expansion to services), and/or the surcharge on incomes over 1 million. Use the money to pay the pension contributions each year in full.
2)Issue bonds at lower interest rate to pay off pension debt borrowed at a higher rate.
3)Re-work the payback “ramp” if needed. Go for 80% funding and or payments over a longer period.
These step(s) could easily stabilize the pensions. Quinn used money from the 5% tax and paid the full amount into the pensions. The sky did not fall. A 5% rate is lower then most people in surrounding states pay.
And there you have it. if only Rauner, et al, would take this advice.
Comment by Andy Friday, Feb 20, 15 @ 4:01 pm
Andy - someone who retired in 1989 would be 86 today. This would be a significant number - but not a large proportion of the retirees. Further, they have already received compounded 3% increases to this point. So you could only go to the 3% non-compounded from this point forward.
The impact is very tiny on the unfunded liability.
Comment by archimedes Friday, Feb 20, 15 @ 4:12 pm
Just got my SERS statement. Here are there numbers
Under 51 219 ???? not sure how ??
51-60 8,794 me
61-70 23,392 the pig in the python
71-80 13,661
81-89 5,852
90+ 1,560
total 53,478
Comment by Anotherretiree Friday, Feb 20, 15 @ 4:21 pm