Illinois Pension Reform

[youbet]

All right now you are going a little too far here. Are you saying they should do away with traditional IRA'S? How else are people supposed to save for retirement than if they don't have pensions.

They could do it through saving and investing.

My point is that over the past few years, with the economy on the ropes and with private pensions, public pensions and SS all threatened, everyone is grasping for their own source of retirement funding to be spared the axe. I'm simply saying, screw it, cut 'em all. Why should political winds force one citizen to subsidize another when the favoritism is invariably politically driven?

As mentioned above, there seems to be much more to the so-called pension "reform" in Illinois than is being headlined in the media or discussed here. Our ramblings are more about sharing the burden of retirement funding in general with each participant pulling for his/her own interest. I think we are trying the moderators' patience, but it's hard to discuss pensions without poltics, especially public sector pensions.

Hence, my feeling that perhaps rather than try to legislate pension "fairness," just doing away with gov't preferences would be best.

 

[Mulligan]

Actually Zig, while spiking and other scams make great media headlines, the biggest problem in Illinois, by far, was the lack of funding. Yes, overly optimistic estimates of investment returns are part of the lack of funding issue, but remember that in Illinois the bottom line has been to not fund the system. That was consistent. The excuse not to fund varied from year to year, but the not funding part stayed the same. Whether the excuse was good investment returns, new actuarial tables, we can't afford it this year but we'll make it up next year, etc., etc., the consistent thing was failure to fund. And so be it. Today it is what it is.

I stayed up and read about the situation in Illinois late into the night last night. It turns out there is much, much more to the proposal than the players are putting out on the table for public review. This is not a surprise in Illinois politics. For example, switching to the new plan is proposed as being voluntary.......... Not switching will mean giving up subsidized retiree medical insurance but for many, say a teacher who has spousal coverage anyway, it won't matter. Or, once you hit 65, the Illinois retiree med plan is actually more expensive than Medicare plus a good supplement. Quinn says he expects only about 75% of the plan participants to switch. I imagine there are also some thoughts of a tie-in to ObamaCare since that source of med insurance would enable folks to be less concerned about giving up the Illinois retiree package. In fact, I'm wondering if the real savings aren't going to be from not providing retiree med insurance, or at least that will be an important part of it.

Another interesting tidbit mentioned but not emphasized is that the new plan shifts the cost of public pensions form the state to local taxing districts. Over several years, teacher and municipal pensions will be switched to being funded by local communities through higher property taxes. Only true state employees (less than one forth of the total) will be funded through the state income tax. While the state ledger will look more pleasing, home owners will find their property tax bills going up as the cost burden shifts from Springfield to Podunk, Ill. I was unable to find a proposed algorithm or time table for this "cost sharing." It will be a good thing to have the cost as part of property taxes as property taxes tend to get more scrutiny than income taxes. The shift in funding form state income tax to local property tax appears to be a pact between Rahm Emanuel and Pat Quinn and is related to the fact that Chicago already funds its public pensions through local property taxes. It's good news for Chicago residents and bad news for suburbanites and down-staters.

So....... there is much more to this than we're discussing here. It will be interesting to watch it unfold.

I'd suggest folks who actually have some vested interest in what's happening in Illinois do some googling and some reading. What we're discussing here is just general hogwash about pensions. If you or someone close is involved in Illinois, best to do some additional research as the devil is in the details.

If the pension funding problem is just dumped onto the school at once, yes it most certainly would cause some stress to schools finances or increased taxes. Ironically, for the teachers anyways if the contribution system had initially came from the schools in the first place instead of the state, the system would be funded significantly better. Missouri's system is set up this way where the school portion goes in immediately with the teachers contribution. There has never been the opportunity to skip a payment like Ill. has done through the years. Local property tax rates arent too bad where I live anyways about 1% of home value and that includes everything including city.

 

[youbet]

It is a little late for most older people to be DIY

That's why, earlier in this thread, I was speaking up for avoidance of cuts to pensions of folks already long retired and unable to return to work. A common response I heard was that that outcome needed to be left on the table but be avoided if possible.

so things do need to be fixed but you can't just eliminate things and say thats it. Going forward I believe the younger generation will be the DIY.

Yep, DIY will be the way to go. But I would want complete DIY, including tax incentives for retirement plans and other passive investing being eliminated.

In the meantime, we continue to play king of the mountain with one group seizing the top of the "benefit mountain" only to be knocked off by the next.

 

[Steel Rain]

While there is no uniform way to measure and compare tax rates among states, most sources I have seen put Illinois in the middle for individual income tax.

Edit: This link places Illinois at 13th at 10% vs the national average of 9.8% The Tax Foundation - State and Local Tax Burdens: All States, One Year, 1977 - 2009

I agree this is hard to do, but back of the envelope shows we have 7% sales tax, at 5% flat income tax and propery taxes similer, a tad lower, but close enough, to that of NJ. So, all in all, it would seem that we would be very high. I will look around and see if i can find the comparison, i dont recall were we ranked, but it was top 5. I think Hawaii was the highest, but let me google and i will come back.

Steel

 

[ripper1]

They could do it through saving and investing.

My point is that over the past few years, with the economy on the ropes and with private pensions, public pensions and SS all threatened, everyone is grasping for their own source of retirement funding to be spared the axe. I'm simply saying, screw it, cut 'em all. Why should political winds force one citizen to subsidize another when the favoritism is invariably politically driven?

As mentioned above, there seems to be much more to the so-called pension "reform" in Illinois than is being headlined in the media or discussed here. Our ramblings are more about sharing the burden of retirement funding in general with each participant pulling for his/her own interest. I think we are trying the moderators' patience, but it's hard to discuss pensions without poltics, especially public sector pensions.

Hence, my feeling that perhaps rather than try to legislate pension "fairness," just doing away with gov't preferences would be best.

I believe everyone involved should pull their own weight. Like I said earlier I am ready to lose the COLA if need be. I am already being taxed in Indiana for my pension. I think taxing the pensions here in Illinois should be done absolutely. Why should someone get income free of taxation. It is not the end of the world. I feel I am also a DIY in that I have substantial savings and a 457 account. I knew early on in my heart that this thing would not or could not be sustainable at some point. But for some people this is all they got so I do understand the angst.

 

[ziggy29]

Ironically, for the teachers anyways if the contribution system had initially came from the schools in the first place instead of the state, the system would be funded significantly better. Missouri's system is set up this way where the school portion goes in immediately with the teachers contribution. There has never been the opportunity to skip a payment like Ill. has done through the years.

This is exactly how it should be. I've heard of some private sector union plans where the employer only agreed to keep the pension plan going if the union took responsibility for it -- the employer would give a pool of money to the union each year to fund the pension plan and their obligations were finished. If the union mismanaged it, it's the union's problem, not the employer's. To the employer it wasn't that much different than providing a 401K match.

I don't think it's so much the *current cost* per employee that threatens pension plans, it's the uncertainty of future obligations (especially when there are so many incentives to underfund, to overpromise with unreasonable expectations on future returns and so on). And we all know what Wall Street thinks of uncertainty.

 

[youbet]

If the pension funding problem is just dumped onto the school at once, yes it most certainly would cause some stress to schools finances or increased taxes. Ironically, for the teachers anyways if the contribution system had initially came from the schools in the first place instead of the state, the system would be funded significantly better. Missouri's system is set up this way where the school portion goes in immediately with the teachers contribution. There has never been the opportunity to skip a payment like Ill. has done through the years. Local property tax rates arent too bad where I live anyways about 1% of home value and that includes everything including city.

Interesting Mulligan. Our property tax rates are higher here, generally 2% of home value or more. And we're not paying for public pensions through property taxes, yet. So they'll be going up.

A tip of the hat to the Missouri system which insures tax contributions go into the pension fund simultaneously with the employee contribution. I sure wish we had been been doing it that way here.

Last night on the public TV show (which Ripper1 pointed us to), the spokesman representing Gov Quinn, Ty Fahner of the Commercial Club of Chicago, did readily admit that the failure to fund the pension plan over the years was a travesty and suggested that in the private sector it would have called for a Congressional investigation and likely criminal charges. No details of what those charges would have been were given. We definitely need our "reform" to include some method of enforcement causing funding to be mandatory and not "suggested."

I suppose that when the local gov'ts are paying the bill, they'll keep an eye on Springfield that they put the money in the pension fund and not in the "slush fund!"

I think the question which must eventually be answered is whether all of the money that participants gave via payroll deduction made it into the fund. Or, was some of it actually funneled away to meet other state needs? Could Illinois actually have made negative contributions?

 

[Ron0731]

Well, since my pension is just my investment portfolio, the inevitable higher taxes is very much going to impact my "Self Pension". I could turn this around and say its easy to want no change since you have yours....


Steel

Yes, but I was not allowed to take the money that the state took out of my check and put into the state pension system for the past 31 years, so I could put it in my investment portfolio

 

[Steel Rain]

Yes, but I was not allowed to take the money that the state took out of my check and put into the state pension system for the past 31 years, so I could put it in my investment portfolio

Fair enough. I dont want to be misunderstood, I am not looking to short soemeone. There are many facets to this question but among them is that the system was corrupt from day one. I am hoping you get value for what you paid in, im just hoping that I dont get to pay in for that value. That sounds fair to me.

Steel

 

[ziggy29]

Fair enough. I dont want to be misunderstood, I am not looking to short soemeone. There are many facets to this question but among them is that the system was corrupt from day one. I am hoping you get value for what you paid in, im just hoping that I dont get to pay in for that value. That sounds fair to me.

We all pay in to the extent that public employer pension contributions are part of an overall total compensation. And as long as the total compensation is fair and relatively in line with the market, I don't much care whether 10% or 30% of the compensation is for benefits -- and in theory it shouldn't matter whether some of that compensation is "deferred" as pension plan contributions. The problem comes because even if the employer funds the pension properly year after year as part of employee compensation, they could still be retroactively on the hook if the pension plan overpromises and/or underdelivers.

 

[Ron0731]

Fair enough. I dont want to be misunderstood, I am not looking to short soemeone. There are many facets to this question but among them is that the system was corrupt from day one. I am hoping you get value for what you paid in, im just hoping that I dont get to pay in for that value. That sounds fair to me.

Steel

Believe me, I totally understand where your coming from. But the point is Illinois legislature and the governor will not quit spending. They want to cut state employee pensions but the governor just gave 10 million dollars to Chicago to clean up the river,,, for god's sake, we do have our priorities here in Illinois WTF.....

 

[Steel Rain]

Believe me, I totally understand where your coming from. But the point is Illinois legislature and the governor will not quit spending. They want to cut state employee pensions but the governor just gave 10 million dollars to Chicago to clean up the river,,, for god's sake, we do have our priorities here in Illinois WTF.....

Completey agree. The amount of sheer corruption in this state is mind boggling. Its fully bipartisan as well, as can be seen by two former governers in the slammer together as we speak. I just hope it holds together long enough for me to escape to someplace warm

Steel

 

[ripper1]

Completey agree. The amount of sheer corruption in this state is mind boggling. Its fully bipartisan as well, as can be seen by two former governers in the slammer together as we speak. I just hope it holds together long enough for me to escape to someplace warm

Steel

Better get out now before you have to pay another nickel for public employee pensions.

 

[Hamlet]

Historically, very few people have saved adequately for retirement.

Before pensions and SS, people mostly just lived with relatives in retirement. Of course, since most people didn't live into what we now consider "old age", it wasn't a big issue.

It's not clear to me that we will ever get the majority of people to think decades ahead on their own without some government force involved.

I'm forced to accept that SS is a neccessary evil.

People did actually save for retirement before there were IRAs. The idea of tax incentives for retirement saving does seem pretty compelling but the endless array of IRA permutations end up adding more complication to our already too complicated tax code.

 

[Midpack]

Here's the local PBS segment (vid) referenced earlier for anyone who might want to watch (and couldn't). Not much depth, one guest seemed a little more "defensive" than the other ('not our fault'), but both have legitimate gripes it appears which suggests compromise will be necessary (like most of the deficit/debt issues all around us). Not holding my breath, but eventually...

Illinois' Pension Fix | Chicago Tonight | WTTW

 

[youbet]

The problem comes because even if the employer funds the pension properly year after year as part of employee compensation, they could still be retroactively on the hook if the pension plan overpromises and/or underdelivers.

Thus most private employers have gotten out of the pension game. Our esteemed politicians came up with a pretty good set of rules and regs for private employers to back out of pension plans while still giving reasonable protection to employees. But they forgot to write a set of rules for themselves in the public sector leaving situations like this where folks are trying to brainstorm some unique solution to facilitate change.

Public employees need to be on SS with a 401k (match to be determined by competitive needs). But there is no defined path to get from where we are to there as was provided for private employers.

An alternative would be a hybrid plan such as Wisconsins which seems to be muddling through the current tough economic times maintaining near 100% funding. The beauty of Wisconsin's system is that payouts vary with market performance down to a floor level. With the recent poor investment performance of their portfolio, prior increases have been partially withdrawn (annuitants are actually getting smaller payments) but if/when their portfolio recovers and grows, they'll get increases again. It flexes with the market. And Wisconsin has always funded the system per requirements.

 

[Midpack]

The problem comes because even if the employer funds the pension properly year after year as part of employee compensation, they could still be retroactively on the hook if the pension plan overpromises and/or underdelivers.

Thus most private employers have gotten out of the pension game.

• The demographics have become increasingly unfavorable for private employers (fewer workers per retiree) just like Soc Sec, and
• Some companies were faced with reducing costs or going out of business as the global economy has taken hold. Most people would rather lose their pension and still have a job than to lose both - unfortunately that was the real choice companies and employees faced. When pensions first began to disappear, I assume people thought they'd change jobs to a company that had a pension, and that probably worked for a while. Eventually pensions became so rare in the private sector there haven't been many choices.
  
  It's a vicious circle but I'm not sure how it could have been avoided - general statement, not saying either of you suggested it could have been avoided.

 

[youbet]

(not saying either of you suggested it).

Not saying you suggested it either.........

But yes, it's a mess. A bit of a perfect storm regarding retirement funding. All three legs of the stool; pension, SS and savings are having some tough times for most folks.

 

[ripper1]

The middle class in this country continues to erode.

 

[youbet]

My own views are that all should be treated fairly within a competitive environment which gives some level of incremental reward to the brightest and hardest working.

I suspect my background is significantly more blue collar than many on this board. Here are the words to the song by John Wort Hannam which inspired my signature and avatar.......

Blue Collar

Written by: John Wort Hannam

I wasn't born blue blood, I was born blue collar
like my dad and grandad, I'm gonna follow
there's no old money here, you gotta earn every dollar
I wasn't born blue blood, I was born blue collar

My daddy was a fireman on a locomotive train
shoveled coal to the furnace to generate the steam
out to Pictou Harbour from the Colliery Mine
Along the Tramway Line

My daddy was a farmer with acres of land
he cleared all the fields with a horse and his hands
that pile of stones at the sections edge
stands as his monument

I wasn't born blue blood, I was born blue collar
like my dad and grandad, I'm gonna follow
there's no old money here, you gotta earn every dollar
I wasn't born blue blood, I was born blue collar

My daddy was a lumberman in a shanty town
put his axe to the pines and he chopped 'em down
he floated them on the Mirimichi 'till
he rode them to the Chatham saw mill

I wasn't born blue blood, I was born blue collar
like my dad and grandad, I'm gonna follow
there's no old money here, you gotta earn every dollar
I wasn't born blue blood, I was born blue collar

 

[Goonie]

Well, clearly it was unfair that the State did not make the contributions they were supposed to make. But I throw that back to the Union leaders - where were you guys when IL didn't make their payments? Were you calling for changes so that the pension system would remain viable? It seems clear that the Union leaders were not interested in IL paying either. Because that would have required raising taxes way back then, and that would have raised attention to just how expensive these pensions are, and taxpayers would question (like they are now) why are we paying for pensions that are in general more generous than private pensions? The Union leaders did not want those Qs coming up, and they knew we had the Constitutional requirement that earned pension benefits must be paid, so they were happy to sweep it under the rug, and kick the can down the road for the next guy. So I find it far too convenient for the Union guys to now say 'it wasn't our fault, don't ask us to pay'.

-ERD50

Actually Zig, while spiking and other scams make great media headlines, the biggest problem in Illinois, by far, was the lack of funding. Yes, overly optimistic estimates of investment returns are part of the lack of funding issue, but remember that in Illinois the bottom line has been to not fund the system. That was consistent. The excuse not to fund varied from year to year, but the not funding part stayed the same. Whether the excuse was good investment returns, new actuarial tables, we can't afford it this year but we'll make it up next year, etc., etc., the consistent thing was failure to fund. And so be it. Today it is what it is.

I've been an active member of AFSCME (the public employees' union) since 1976, and I know that the Union leaders (and general membership) have been raising complaints about the non-payment by the State since they quit paying. It wasn't non-payment for a few years, but rather non-payment for decades. The problem is that the State of Illinois wears 3 hats simultaneously....bank depositor, bank guard, and bank robber. The State is "supposed to" be making deposits into the pension funds. However, instead, the State acting as a bank robber, just misappropriates those funds for other projects. And the State, acting as the "guard", not only allows it, but encourages it! The State has full jurisdiction over the entire thing, and has completely ignored ALL of the Unions complaints about he matter.

The State of Illinois might possibly be able to blame the current economy for their inability to fund the pensions, but that doesn't excuse their blatant disregard of their obligation to pay for the last couple of decades. I'd love to hear just one single Illinois politician have the intestinal fortitude to stand up and admit just one time, that one of the major contributing factors to the present state pension woes, has been (and still is) the State's failure to pay for YEARS!!!

And yet the politicians and the media keep trying to spin it that somehow it's really not the State's fault, and they want the employees and retirees to make up for State's incompetence. Though I'm not covered by any of the State's faltering pensions, my heart goes out to those who are. (I'm covered by IMRF, which fortunately isn't run or mismanaged by the State of Illinois!!!)

 

[Midpack]

The middle class in this country continues to erode.

Welcome to globalization...

 

[youbet]

I've been an active member of AFSCME (the public employees' union) since 1976, and I know that the Union leaders (and general membership) have been raising complaints about the non-payment by the State since they quit paying. It wasn't non-payment for a few years, but rather non-payment for decades. The problem is that the State of Illinois wears 3 hats simultaneously....bank depositor, bank guard, and bank robber. The State is "supposed to" be making deposits into the pension funds. However, instead, the State acting as a bank robber, just misappropriates those funds for other projects. And the State, acting as the "guard", not only allows it, but encourages it! The State has full jurisdiction over the entire thing, and has completely ignored ALL of the Unions complaints about he matter.

The State of Illinois might possibly be able to blame the current economy for their inability to fund the pensions, but that doesn't excuse their blatant disregard of their obligation to pay for the last couple of decades. I'd love to hear just one single Illinois politician have the intestinal fortitude to stand up and admit just one time, that one of the major contributing factors to the present state pension woes, has been (and still is) the State's failure to pay for YEARS!!!

And yet the politicians and the media keep trying to spin it that somehow it's really not the State's fault, and they want the employees and retirees to make up for State's incompetence. Though I'm not covered by any of the State's faltering pensions, my heart goes out to those who are. (I'm covered by IMRF, which fortunately isn't run or mismanaged by the State of Illinois!!!)

Nicely said Goonie. Yes, employee organizations, union representatives and individual employees have been vigorously waving the red flag for decades. But, it's hard to fight "Da Machine."

There are multitudes of reasons for today's issues with the Illinois pension system. But the constant denial of the state's refusal to deposit the required funds into the account year after year after year seems lame. Perhaps the "silver spoon" crowd just doesn't get it.

I only hope that folks who contributed 9% - 10% by direct paycheck deduction for decades and didn't benefit from the scams, double dipping, etc., that a few politically connected crooks did, come out of this OK. And, of course, I hope those crooks die early, painful deaths.......

 

[ripper1]

Nicely said Goonie. Yes, employee organizations, union representatives and individual employees have been vigorously waving the red flag for decades. But, it's hard to fight "Da Machine."

There are multitudes of reasons for today's issues with the Illinois pension system. But the constant denial of the state's refusal to deposit the required funds into the account year after year after year seems lame. Perhaps the "silver spoon" crowd just doesn't get it.

I only hope that folks who contributed 9% - 10% by direct paycheck deduction for decades and didn't benefit from the scams, double dipping, etc., that a few politically connected crooks did, come out of this OK. And, of course, I hope those crooks die early, painful deaths.......

+1....Thank you, Youbet, that would be absolute poetic justice. One of the best posts yet.

 

[Chuckanut]

I don't even think it's the level of funding so much as it is systemic problems with some plans. You can't allow spiking, promise benefits based on assumed investment returns of over 8% and give 90% of base pay for 30 years of service at age 50 and remain solvent through all foreseeable economic cycles. And you can't look at a good year in the stock market and say "we don't need to fund the pension plan this year".

+1!! Amen! So Say We All!!