The Dumpster Fire of Illinois Public Pensions is Still Smoldering

[OldShooter]

... However this works out, my heart goes out to those who were promised and worked in good faith. Hopefully some light at the end of the tunnel.

Yes, that is the tough part. Certainly many of the pensioners relied on promises made and were/are not financially sophisticated enough to have questioned them. But they will share at least some of the pain as pension account problems are eventually dealt with.

The only place I have no sympathy is with "spiking" public employees' final years' pay, hence pension basis, with lots of overtime. This is apparently a regular practice that is still going on, with supervisors actively working to create spikes for near-retirees. I'm not sure it is feasible from a legal standpoint or even from a recordkeeping standpoint but I think the excess pensions due to spiking should be recaptured as part of a public bankruptcy settlement.

 

[Midpack]

Yes, that is the tough part. Certainly many of the pensioners relied on promises made and were/are not financially sophisticated enough to have questioned them. But they will share at least some of the pain as pension account problems are eventually dealt with.

The only place I have no sympathy is with "spiking" public employees' final years' pay, hence pension basis, with lots of overtime. This is apparently a regular practice that is still going on, with supervisors actively working to create spikes for near-retirees. I'm not sure it is feasible from a legal standpoint or even from a recordkeeping standpoint but I think the excess pensions due to spiking should be recaptured as part of a public bankruptcy settlement.

+1. I have sympathy for most who won't receive the pension they were planning on, though it seems inevitable there will have to be adjustments made to public pensions just as there have been with private systems.

What I don't have any sympathy for is "spiking" in any system, public or private. That's just consciously bilking fellow citizen taxpayers, how can those who establish and support the practice look themselves in the mirror? And how can employees who choose to do it look themselves in the mirror? Just because they can, or everyone else does? If there are adjustments made, I hope they look at spiking first and normalize the base of those pensioners to take out the effects of spiking. YMMV

 

[Chuckanut]

The only place I have no sympathy is with "spiking" public employees' final years' pay, hence pension basis, with lots of overtime. This is apparently a regular practice that is still going on, with supervisors actively working to create spikes for near-retirees. I'm not sure it is feasible from a legal standpoint or even from a recordkeeping standpoint but I think the excess pensions due to spiking should be recaptured as part of a public bankruptcy settlement.

My understanding is that most pension plans have made modifications to making spiking difficult if not impossible. Of course pension plans vary all over the place. Just because a fire chief in Lumpville CT can spike his pension doesn't mean most people can.

I would love to see some data on the percentage of public employees who are still 'spiking' their pensions, and the amount of pension increase spiking pensions provides as of 2018. Oh, there should also be a good definition of what exactly is meant by the term 'spiking'.

 

[Spanky]

Then why make them?

Well, this is a open forum, right? One should be free to express his/her views albeit controversial, unpopular or politically correct. It's plausible that some people who may agree with you.

One solution, IMHO, is to reduce the benefits of existing and new state workers or face the risk of insolvency unless they could wave a magic wand to create additional funding into the pension plan.

 

[ERD50]

Then why make them?

One of the things that is best about this board is that people try to get along. If we were standing at a cocktail party with a bunch of public pensioners, would you tell them that their pensions should be cut by two thirds? I think not. Because it would be rude, even if you thought it was a) a problem that was your responsibility to solve and b) that your suggestion would solve the problem. To maintain some semblance of harmony here, we discourage people from purposefully picking a fight with other members.

It is also wrong to be rudely dismissive, as you have just been.

I only read Spanky's post as a discussion of possible solutions, I did not read it as a personal attack against people with public pensions.

So if you read my post in that context, I don't think I am being dismissive at all, and certainly not "rudely". I might even say that you are being dismissive of Spanky's viewpoints. Isn't he entitled to his view, and to discuss it here?

He's just acknowledging that those people may not like to hear that "medicine". We are often told that we just need to pay taxes for these public pensions, when our pensions have PBGC limits - is that rude?

Just my opinion.

-ERD50

 

[Mr. Tightwad]

My understanding is that most pension plans have made modifications to making spiking difficult if not impossible. Of course pension plans vary all over the place. Just because a fire chief in Lumpville CT can spike his pension doesn't mean most people can.

I would love to see some data on the percentage of public employees who are still 'spiking' their pensions and the amount of pension increase spiking pensions provides as of 2018.

I can tell you that Los Angeles county employees are spiking in incredible ways. Getting a thousand dollars a month is just the beginning.

 

[samclem]

What I don't have any sympathy for is "spiking" in any system, public or private. That's just consciously bilking fellow citizen taxpayers, how can those who establish and support the practice look themselves in the mirror? And how can employees who choose to do it look themselves in the mirror? Just because they can, or everyone else does? If there are adjustments made, I hope they look at spiking first and normalize the base of those pensioners to take out the effects of spiking. YMMV

I would think the best approach would be to change the rules so that spiking is not possible. There are lots of ways to do this: Compute pensions based on earnings over a longer period, disregard overtime/special pay in pension computations, cap overtime hours to average of number of overtime hours worked over the previous 10 years, etc. But if the rules continue to permit "spiking" and then we ask employees or their supervisory chain to voluntarily stop it, this just punishes the "good guys" and makes them chumps who pay the bill while others will continue to spike.

 

[Chuckanut]

I can tell you that Los Angeles county employees are spiking in incredible ways. Getting a thousand dollars a month is just the beginning.

Obviously, I worked for the wrong government organization.

Any numbers as to how many are doing it, and the amount of increased pension they are getting?

 

[Spanky]

To maintain some semblance of harmony here, we discourage people from purposefully picking a fight with other members.

The intent is not to pick a fight at all. I feel sorry that they may not receive what was promised. It's no fault of their own.

 

[ERD50]

... My response to Spanky and ERD50 is that maybe we should cut public services by 1/3 to make up for the pension shortfall while keeping taxes the same. 1/3 less public transportation, 1/3 less police and firemen, 1/3 fewer public hospitals, schools, etc. ....

Here's the problem with that, which I have discussed before:

At least in IL, the problem is that adequate contributions were not made when they needed to be made (many years ago). The correct thing would have been to make those contributions, and raise taxes at that time. In that way, the voting public would have a say in it at least. I suspect that the public would have shot down the increases, and when they realized it was required to fund these pensions, they would have asked for pension reform back then. Or accepted a cut in services, or a combo.

But it seems that the pensions relied on the IL constitution to protect these pensions, no matter what. So now, you are asking to make payments for past issues. I don't accept that - the decision should have been brought before the voters as it happened.

This would be like some bankrupt TV company coming to you 20 years after you bought a product from them, and disposed of it 10 years ago, and telling you "You know, we went bankrupt because we didn't invest enough in R&D, and that's why you got such a good deal on that TV from us. You owe us $500 now."

Not gonna fly, is it?

Remember, the private pensions of the people being asked to pay for these public pensions were set up with insurance and limits on benefits. It's a little hard to swallow that the public pensions don't have similar limits.

-ERD50

 

[OldShooter]

.... Oh, there should also be a good definition of what exactly is meant by the term 'spiking'.

I think that's easy. Pension calculations should be based on the employee's base pay rate, period.

 

[Ronstar]

My response to Spanky and ERD50 is that maybe we should cut public services by 1/3 to make up for the pension shortfall while keeping taxes the same. 1/3 less public transportation, 1/3 less police and firemen, 1/3 fewer public hospitals, schools, etc. Sure that would cause a lot of current employees to lose their jobs, but they can get new ones in the private sector that will have to take over all those functions. That way Spanky and ERD50 can get the best of both worlds - keep the promise made to pensioners while reducing the number of public employees. Of course, the final result will be higher taxes as private companies have to make a profit. In reality, nothing will be saved - you just rearrange the deck chairs. ....

I agree that cutting staff may be the only way out of this. I believe that courts have ruled that the state/ or city cannot cut pensions.

As for your thought that workers would move to the private sector resulting in higher taxes - not necessarily so. I worked as a consultant to Illinois state and city governments. My total compensation/ benefit package, combined with overhead and profit was less than that of my government counterpart’s compensation/ benefits/overhead. And when you factor in the efficiency advantage of the private sector over public, I believe that most government jobs could be outsourced to private concerns and result in a tax savings.

 

[Mr. Tightwad]

Obviously, I worked for the wrong government organization.

Any numbers as to how many are doing it, and the amount of increased pension they are getting?

I never saw anything official. For us, overtime was not calculated in your pensionable pay. The trick is to not use your vacation time, which is paid to you once you accumulate a certain amount of hours ( the amount varied). So you get paid cash in January for unused vacation time. Say you get 9000 a month pay. That would mean you get 9000 in January each year if you have excess vacation. But in your final year, that amount is added to your pay, so 108,000 + 9,000 = pensionable amount. So $750 added to your monthly pension for life if one was at 100%.

Same thing with unused sick time as well. There was one more method and I can't recall it, its been 11 years since I was there. If I remember I'll add to this.

 

[Just_Steve]

If anyone is interested this is how NYC put a stop to spiking at least for the average worker, police and fire are never treated the same.

https://www.nycers.org/sites/main/files/file-attachments/929.pdf

An explanation on pension calculation.

 

[rk911]

I'm getting ready for SS and retirement taxation in Illinois state taxes. Recreational marijuana maybe legalized and sports betting. Our roads and infrastructure are a disaster. Pot holes everywhere from the winters. Big city plans for renovations of the downtown here in Champaign. University is booming. Property taxes through the roof.
https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/
Yes, we are #50.

Just raised minimum wage. Fingers pointed in every direction. And I'm tired of this frickin weather.
Did someone mention pensions? Oh right, pensions.

well, the good news is that Illinois currently does not tax SS or retirement benefits. currently.

 

[Spanky]

I never saw anything official. For us, overtime was not calculated in your pensionable pay. The trick is to not use your vacation time, which is paid to you once you accumulate a certain amount of hours ( the amount varied). So you get paid cash in January for unused vacation time. Say you get 9000 a month pay. That would mean you get 9000 in January each year if you have excess vacation. But in your final year, that amount is added to your pay, so 108,000 + 9,000 = pensionable amount. So $750 added to your monthly pension for life if one was at 100%.

Same thing with unused sick time as well. There was one more method and I can't recall it, its been 11 years since I was there. If I remember I'll add to this.

That's sweet. Saving 4 weeks of vacations ($9k) prior to retirement will provide a payout of $270K over a period of 30 years as an example.

 

[Chuckanut]

That's sweet. Saving 4 weeks of vacations ($9k) prior to retirement will provide a payout of $270K over a period of 30 years as an example.

From what I have read there are two big problems here:

1. Allowing unused vacation pay to be included in the pension calculation.

and (or am I wrong?)

2. Only using the final year to calculate the pension benefit.

FWIW, my pension is calculated using an average of my 5 highest years earnings. Like I said, I worked for the wrong government organization.

Or maybe not, since my pension is more securely funded at about 85%.

 

[Rianne]

Rianne,
Interesting property tax info in your link. Property taxes for the medium home value in New York, New Hampshire, Connecticut and New Jersey are all higher than Illinois! New Jersey has the highest property taxes.

The medium cost for a medium home is higher in CT, but rate higher in ILL

Connecticut Medium Home Value:$270,100 5582/270,100=2%
Illlinois Medium Home Value: $179,700 4157/179700=2.3%

Medium Home in NY=$293,000 4915/293,000=1.67%

 

[hopefullyoneday]

It seems obvious that if they received 3x the payment of social security benefits, the new payment should be 1/3 of the current payout in fairness to everyone. Another method is to determine the amount to cut in order to keep the plan solvent. Raising tax or shifting money from the general fund, is not a viable or popular option.

BTW, my comments may raise a lots of angers from the public pensioners.

How is that fair to lower their pension payments to 1/3. Pension recipients don't get a matching 401k like the majority of workers get. Also allot of pensioners wont be getting a cost of living increase ever.

 

[38Chevy454]

Rianne, seems time to vote with your feet.

 

[Rianne]

Rianne, seems time to vote with your feet.

Haha. Vote? I just go to the Town Hall meetings and scream a lot. it's like voting. And it goes in one ear out the other, just like voting.

 

[hopefullyoneday]

Well, this is a open forum, right? One should be free to express his/her views albeit controversial, unpopular or politically correct. It's plausible that some people who may agree with you.

One solution, IMHO, is to reduce the benefits of existing and new state workers or face the risk of insolvency unless they could wave a magic wand to create additional funding into the pension plan.

I agree about reducing benefits for new employees because they know coming in what they have to do in order to retire, for example invest in additional retirement plans. But i don't see how you think it would be fair to reduce a existing employees benefits who now has to play catch-up. Doing so makes that existing employee work more overtime to "spike" their pension. But since benefit cuts do happen "happened to me twice so far in a 16 year career" I will take advantage of every loophole i can to increase my pension payout. But what is ironic is doing so will still give me a less pension than if no benefits cuts were made. How do you think people with 401k's with employer match would feel if people stopped using their companies service or product and the company took back all the 401k contributions they made into your account so they could stay in business and keep you employed.

 

[hopefullyoneday]

My understanding is that most pension plans have made modifications to making spiking difficult if not impossible. Of course pension plans vary all over the place. Just because a fire chief in Lumpville CT can spike his pension doesn't mean most people can.

I would love to see some data on the percentage of public employees who are still 'spiking' their pensions, and the amount of pension increase spiking pensions provides as of 2018. Oh, there should also be a good definition of what exactly is meant by the term 'spiking'.

A new ordinance just passed in Fort Worth where their employees hired as early as 2001 get a retirement based on the average high 5 years of base pay. BUT, any overtime they work they have to contribute 10% of that into the pension fund. So in a way they are forced to work overtime to invest in other retirement accounts while at the same time getting shorted on their overtime pay.

 

[hopefullyoneday]

I would think the best approach would be to change the rules so that spiking is not possible. There are lots of ways to do this: Compute pensions based on earnings over a longer period, disregard overtime/special pay in pension computations, cap overtime hours to average of number of overtime hours worked over the previous 10 years, etc. But if the rules continue to permit "spiking" and then we ask employees or their supervisory chain to voluntarily stop it, this just punishes the "good guys" and makes them chumps who pay the bill while others will continue to spike.

Dallas has a new set of rules for retirement like what you are suggesting. The result is that Dallas police officers are leaving to go to other cities with more expensive homes with a higher tax rate to help fund their pensions. Now this month Dallas has to hire 250 new police officers because of officers leaving and existing officers not willing to work overtime because it wont hep their pension. Just to get people to apply now Dallas had to increase starting pay to 60k a year. so now 21 year olds can make 60k in their first year without a degree.

 

[hopefullyoneday]

The intent is not to pick a fight at all. I feel sorry that they may not receive what was promised. It's no fault of their own.

If its not their fault then why do you want them to take a benefit cut while still giving you the same service. You cant feel that sorry if you are not willing to contribute a couple of hundred dollars a year more in taxes.