Your State's Pension Liability

[Greencheese]

As a young Illinois resident I can say from personal experience that the brain drain risk is quite real. More than one of my acquaintances has debated leaving or has left over the looming pension crises. While Chicago does have that big city allure that many young residents and corporations desire, I think a lot of secondary cities have done an excellent job of replicating that lifestyle through smart urban development. Whether or not we'll see any large corporations/demographics move in the future over the budget is yet to be seen. However the surrounding states have continually courted IL businesses and current state budget solution ideas such as a Chicago casino are simply not going to be the fix needed. No matter what the solution is though, it will be unpleasant for many parties sadly.

[pb4uski]

Yes, you have quite the mess in Illinois. The pension mess and four of your last seven governors have been incarcerated! (as of 2013). Not many other states can make that claim.

My sister has a home there and they can't wait to get out once my BIL retires in a couple years. I suspect that ultimately we'll hear a giant sucking sound of people leaving, which unfortunately exacerbates the problem.

[ERD50]

Quote:

Originally Posted by Greencheese As a young Illinois resident I can say from personal experience that the brain drain risk is quite real. More than one of my acquaintances has debated leaving or has left over the looming pension crises. ...

I don't doubt this at all, but it is a tough thing to quantify, since we can't separate this effect from the other positive and negative effects you mention. It would be fascinating if we could do that.

I listened to the pension news/opinion/debate on Chicago Tonight (PBS) last night. Was disappointed as even they didn't seem to clearly break down the issue between:

A) Benefits earned to date cannot be diminished, versus...

B) Future benefits (not yet earned) for current employees cannot be diminished, versus...

C) Future benefits cannot be diminished period (as one rep said - does this apply to the unborn, and the unborn of the unborn?)

AFAIK, the issue of hiring new employees into the Tier 2 system (lower benefits then the old system) was not challenged by the SC, and if so that means that my "C" above does not apply.

But then I heard more this morning on a local radio talk show - they said that the Tier 2 system benefits fall behind Social Security at some point ( a few years in - maybe some crossover point in years/benefits?), and that means that IL cannot opt out of Social Security (some legal issues here that I don't fully understand, but it looks like to opt out, the state plan must be greater than or equal to SS?). And if they have to pay into SS, that's another added expense.

Looking bleak.

-ERD50

[Chuckanut]

Quote:

Originally Posted by ERD50 But then I heard more this morning on a local radio talk show - they said that the Tier 2 system benefits fall behind Social Security at some point ( a few years in - maybe some crossover point in years/benefits?), and that means that IL cannot opt out of Social Security

The SS opt out makes me curious. I wonder if there is any correlation between the states with well funded plans and the being in the SS system? I ask that because my state is well funded and we all had the opportunity to pay into SS. I didn't care much for this in my 30's, but today I am glad that others had more wisdom than I.

What I have noticed is that both Detroit and Illinois (along with several lesser government institutions) are having pension funding problems and also opted out of SS. So, the poor workers not only have their pensions at risk, but they never had the opportunity get the one pension backed by the folks who own the money printing press. Not so good.

[ERD50]

Quote:

Originally Posted by Chuckanut The SS opt out makes me curious. I wonder if there is any correlation between the states with well funded plans and the being in the SS system? ....

I suspect there is a correlation. I also suspect that discussion of that is beyond the 'hot button' warning we are getting.

So I'll stick to the effects, not the causes.

-ERD50

[gauss]

BTW - This is the first time I have seen a "Hot Topic" thread. I am happy to see new tools to help manage discussions in addition to the pig.

Kudos to the developers/moderators/staff.

-gauss

[Mulligan]

Quote:

Originally Posted by Chuckanut The SS opt out makes me curious. I wonder if there is any correlation between the states with well funded plans and the being in the SS system? I ask that because my state is well funded and we all had the opportunity to pay into SS. I didn't care much for this in my 30's, but today I am glad that others had more wisdom than I. What I have noticed is that both Detroit and Illinois (along with several lesser government institutions) are having pension funding problems and also opted out of SS. So, the poor workers not only have their pensions at risk, but they never had the opportunity get the one pension backed by the folks who own the money printing press. Not so good.

I would suspect there is more correlation between the pension systems to rely on the legislature making yearly appropriation dumps into the system as opposed to govt systems like mine where the money is distributed to the school and then the school has to make the mandatory match contribution when it is deducted from employees check. Less chance of being tempted to delay, as it has to go in. This system simply mimics the way SS receipts are collected except it goes into a trust fund.
In my system anyways, the members (not government entity) took a one time vote in the 1950s or so on whether to opt in or not into SS and decided not to.
However, the KC and STL pension systems are a hybrid SS/Pension. Their pension sucks to put it eloquently and they rarely get COLAs while we get an annual one. Who knows....



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[Running_Man]

Moody's today downgraded Chicago 2 notches, that is reality and show the seriousness of the effects of retirement for Chicago and right behind it the state of Illinois. The city has run out of tollroads and parking meters to sell and Moody's is on lookout for further downgrades with Moody's actually stating that :

Quote:

Our negative outlook reflects our expectation that Chicago's credit challenges will continue, both in the near term and in the long term. Immediate credit challenges include potential draws on liquidity associated with rating triggers embedded in the city's letters of credit (LOCs), standby bond purchase agreement (SBPA), lines of credit, direct bank loans, and swaps. The current rating actions give the counterparties of these transactions the option to immediately demand up to $2.2 billion in accelerated principal and accrued interest and associated termination fees. Of this amount, the GO and sales tax revenue rating actions trigger $1.7 billion of potential payments; the second lien water revenue rating action triggers $99 million of potential payments; and the second lien sewer revenue rating action triggers $355 million of potential payments.

The end game for public pension plans that have not been properly contributed to is rapidly coming to a head with the aging of the American population.

[steelyman]

Moody's ratings make me think of subprime mortgages.

[aja8888]

Quote:

Originally Posted by steelyman Moody's ratings make me think of subprime mortgages.

But the subprime mortgage holders were Moody's clients and paying for the ratings on the securities.

[ERD50]

Quote:

Originally Posted by Running_Man Moody's today downgraded Chicago 2 notches, that is reality and show the seriousness of the effects of retirement for Chicago and right behind it the state of Illinois. The city has run out of tollroads and parking meters to sell and Moody's is on lookout for further downgrades with Moody's actually stating that : The end game for public pension plans that have not been properly contributed to is rapidly coming to a head with the aging of the American population.

Another discussion in that Chicago Tonight show was something about the State allowing Chicago (or other municipalities) to declare bankruptcy. The effect would be that the city could then negotiate the pensions under their control, because if bankrupt, those pensioners would be standing in line with other creditors, so the 'guarantee' would be gone.

States cannot declare bankruptcy, so no effect there. That would be a very rough thing, but it is at least being talked about.

I don't think casinos or a sales tax on service gets them far. Looks bleak. It's a shame. For all this state has to offer - a world class city, a supply of good water (the Michigan Ocean as we call it), great farmland, major transportation rivers on much of it's borders, railroad links, and fantastic weather year round (just testing if you are still reading ) - we ought to be near the top in the nation in terms of financial security.

-ERD50

[Mulligan]

Quote:

Originally Posted by ERD50 Another discussion in that Chicago Tonight show was something about the State allowing Chicago (or other municipalities) to declare bankruptcy. The effect would be that the city could then negotiate the pensions under their control, because if bankrupt, those pensioners would be standing in line with other creditors, so the 'guarantee' would be gone. States cannot declare bankruptcy, so no effect there. That would be a very rough thing, but it is at least being talked about. I don't think casinos or a sales tax on service gets them far. Looks bleak. It's a shame. For all this state has to offer - a world class city, a supply of good water (the Michigan Ocean as we call it), great farmland, major transportation rivers on much of it's borders, railroad links, and fantastic weather year round (just testing if you are still reading ) - we ought to be near the top in the nation in terms of financial security. -ERD50

Too many problems up north, but if Southern Ill wants to be annexed by MO, I am fine by that.


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[eytonxav]

Quote:

Originally Posted by Dash man I'm not a lawyer, but I would think this would violate the equal protection clause of the fourteenth amendment. It protects government employees but not private employee's pensions, yet the private citizens will be the ones paying for it through higher taxes. Like I said, I'm no lawyer, but this doesn't seem fair.

I really wonder if having to pick up the tab for the shortfall will accelerate the general population in Illinois to move from the state. If that occurs, who will be left to take care of this already dire situation?

[utrecht]

Most people couldn't tell you the funding percentage of their own pension fund. Alot of people couldn't tell you their 401 balance to within 10%. Do you really think people in Illinois know that much about the State pension fund that they aren't a member of? My guess is the ones who do know will just stay and gripe about it. I can't believe large amounts of people would uproot their entire lives and move just because of that.

[steelyman]

Quote:

Originally Posted by DFW_M5 I really wonder if having to pick up the tab for the shortfall will accelerate the general population in Illinois to move from the state. If that occurs, who will be left to take care of this already dire situation?

My departure from IL was wholly to be in a different place I like very much and have wanted to live in for a long time. IL (as well as other states in that region) has a lot going for it.

[JoeWras]

Illinois has so much to offer. I grew up there and loved it. I moved away in the 80s before all this blew up for different reasons than politics, that is, my job type was not in demand in IL.

In recent years I have considered a move back to be near family, but this issue of state financing has given me cold feet on the idea. I also don't like literal cold feet that I get in Chicago in winter.

I hope that IL works it out. Too much good in that great state.

That said, I also hope it doesn't become a Greek-like debacle. If IL looks for federal bail out, it could cause some animosity from state to state.

BTW, my dad retired in the late 80s with a union job not in the state system. He complained bitterly at the time about public pensions when he compared them to his non-cola'd version. I didn't understand it at the time, but this brings it to light. RIP, Dad. You were right.

[Fermion]

Quote:

Originally Posted by utrecht Most people couldn't tell you the funding percentage of their own pension fund. Alot of people couldn't tell you their 401 balance to within 10%. Do you really think people in Illinois know that much about the State pension fund that they aren't a member of? My guess is the ones who do know will just stay and gripe about it. I can't believe large amounts of people would uproot their entire lives and move just because of that.

Well, it isn't only flight of the wealthy. Potential new residents and businesses may decide against moving to the state if the debt burden overhang will be put on their shoulders via taxes. I bet we have more than a few on this forum who place a check in the negative column when making a decision to move to this state.

[ERD50]

Quote:

Originally Posted by utrecht ... Do you really think people in Illinois know that much about the State pension fund that they aren't a member of? My guess is the ones who do know will just stay and gripe about it. I can't believe large amounts of people would uproot their entire lives and move just because of that.

Probably true, but it doesn't take a large number. The ones with the most money, have the most motivation, and the most options. They're the ones paying the most taxes, and likely using the least resources, so they have a multiplier effect.

And once those people leave, taxes must be raised even higher (assuming no other changes) on the remaining people, increasing their incentive to move, and so on. Taken to it's absurd extreme - there is going to be one person left with a really, really high tax bill! It won't be me!

And then you have businesses. Large businesses might be able to swing a deal, because they need an incentive to move here (or simply use this weakness as a negotiating tool). But that deal means they aren't paying the full weight of their taxes. And other businesses may move away (for reasons stated above), and other businesses will decide to open on the border, to take advantage of some of what IL has to offer, but not have to contribute in the same way.

Those are all big negatives, with big multipliers.

And then... with fewer businesses, there is relatively large labor pool, so wages go down. This creates more push for increased minimum wages, which might hurt more businesses, and if that wage is higher than other states, drive more business away.

It's a sad downward spiral.

I think the solution to the problem is better efficiency, and some shared pain. I'm not holding my breath.

-ERD50

[steelyman]

There's a phrase often seen that seems a little cliche to me but is good advice in general: "It's better to retire TO something, not FROM something".

[Chuckanut]

Quote:

Originally Posted by ERD50 I think the solution to the problem is better efficiency, and some shared pain. I'm not holding my breath. -ERD50

+1

The idea that "Your half of the boat is sinking" never made much sense.