The most pressing issue facing Illinois is the massive debt owed to our public pension systems; our five state plans are currently underfunded by an estimated $140 billion, and billions more are owed to the other public pensions (the city of Chicago, Chicago Teachers Union and downstate police and fire, among others).
This debt is unsustainable and costs the state over $11 billion per year as a result of the 1994 “Edgar Ramp,” which amounts to around 20% of discretionary spending and was supposed to move our state pensions to 90% funded by 2045. After 30 years, our funding ratios are no better than they were at the outset. Combine that with the other pension plans that add millions more to the cost of government and you have a huge additional tax on everyone in Illinois.
Over the past several months, I’ve received several hundred emails from members of a coalition of labor unions asking me to support the Fair Retirement and Recruitment Act.
The Commission on Government Forecasting and Accountability just issued its actuarial estimate of what it would cost to implement the bill. We can’t afford it. The major changes for the three largest systems, the Teachers’ Retirement System, State Employees’ Retirement System and State University Retirement System are projected to increase their accrued actuarial liability by 2045 as follows:
- The fix to the safe harbor requirement ties the maximum pensionable salary (salary cap) to 100% of the Social Security wage base. This is projected to increase the debt by $13 billion.
- The calculation for the final average salary would be based on the highest four consecutive salary years over the last 10 of service, and is projected to increase the debt by $2.8 billion.
- The cost of living adjustment increases to 3%, simple (not compounded) and could increase debt by $9.8 billion.
- The change to the normal retirement age is projected to increase the debt by $20.7 billion.
And remember, the above numbers are only for the three largest systems. The added debt for judges and the General Assembly, not to mention the plans for the city of Chicago, Chicago Teachers and downstate police and fire (among others) will substantially increase that amount. All told, the changes in the bill add up to an increase in our accrued pension liability of $60 billion which will be added to the current balance of $140 or so billion. To begin to pay for the increase, beginning in 2027, we’d have to come up with an additional $1.1 billion over and above the billions we pay each year. We don’t have the money.
There are two aspects of Illinois’ pension crisis that need to be kept separate if we’re to have a sensible discussion of how to fix either one. The first is the “normal” cost, which is the amount that must be set aside each year to pay for current-year accruals to the pension funds. That’s an ongoing obligation that, for lack of a better description, is forward-looking based upon salaries paid in the current year. The other aspect, and to my mind the more difficult one, is the debt that has been allowed to pile up over past years because of chronic underfunding, investment performance that hasn’t kept up with investment assumptions and overly generous benefits granted without thought of how they were going to be paid for.
Forrest Claypool: Six-figure pensions are throttling Chicago’s ability to provide critical services
The sooner everybody accepts the reality that we’re in a hole that’s too deep to climb out of, the sooner we may find a way to lessen the pain, and there’s going to be pain. That means coming to the table with more than just demands that can’t be met. It’s going to require concessions, concessions that mean giving something back and not just settling for less.
I’m not saying our public employees don’t deserve a fair pension, but if we continue down the path we’re on, the pensions our employees now have are in jeopardy. That which can’t last forever simply won’t. If our public employees are serious about fixing the problem, I’m willing to talk, because the Fair Retirement and Recruitment Act is not the answer.
Steve Reick represents Illinois’ 63rd House District and is the Republican spokesman on the House Personnel and Pensions Committee.
Submit a letter, of no more than 400 words, to the editor here or email letters@chicagotribune.com.