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A hammock, not a safety net

New pension guarantee puts public in peril

Published: Monday, May 6, 2013 1:15 a.m. CDT

A few years ago, I was talking to a new college graduate who was moving to an expensive, distant city where she didn’t have a job.

I asked, “How will you support yourself?”

She shrugged and said her parents had money and would support her whether or not she found work.

I couldn’t help but think, “Her parents aren’t doing her any favors.”

Sure enough, during the last several years, she has failed to hold steady, long-term employment.

These types of blank-check relationships often are filled with good intentions, but seldom have positive results.

And right now, the Illinois General Assembly is on the brink of creating a similar relationship with its pension funds.

The mistake is called a pension guarantee.

And several pension reform bills being considered by the General Assembly – including one introduced last week by House Speaker Mike Madigan – have guarantee language.

The legislation allows the pension funds to sue the state if the amount of money they request is not provided. The amount the funds can request is based on actuarial projections and investment returns.

No such guarantee exists now.

In fact, here is what the pension code says on the matter:

“Any pension payable under any law hereinbefore referred to shall not be construed to be a legal obligation or debt of the State, ... but shall be held to be solely an obligation of such pension fund, unless otherwise specifically provided in the law creating such fund.”

But the Madigan bill would change that.

If the state becomes legally obligated to cover the pension costs, what incentive do the pension funds have to invest well? After all, the taxpayers would be standing there with an open checkbook.

Fund managers could sit back and do nothing, and the funds themselves would become perpetual wards of the taxpayers.

Conversely, fund managers could end up making high-risk investments, knowing that no matter how much money they lose, state taxpayers would make up the difference.

I posed this scenario to Dave Urbanek, spokesman for the Teachers’ Retirement System, the largest of the state’s pension funds.

“I don’t think this would affect investment decisions tremendously,” he said.

But keep in mind, this is a guarantee for perpetuity.

While the current managers of the pension funds might not be tempted to alter investment decisions based on a state funding guarantee, who knows what a fund manager will do 20 or 30 years from now?

If we have learned anything from past pension “reforms,” kicking a problem down the road isn’t a reform at all.

Not so transparent

In February, Gov. Pat Quinn crowed about reaching an agreement with state government’s largest labor union.

Guess what – it’s May, and the governor still hasn’t let the public see a copy of the contract.

Never mind that we are the ones paying for the provisions in the contract.

For that matter, lawmakers have yet to be provided a copy of the contract from the governor.

This is ridiculous.

It’s reflective of the smarmy insider relationship between government worker unions and elected officials such as Quinn, who was endorsed by the union during the last gubernatorial race.

Negotiations dragged on for more than a year, and yet the public was kept in the dark about what was happening at the bargaining table.

I guess Quinn – and his predecessors – prefer public ignorance.

Because of some legal wrangling, the American Federation of State, County and Municipal Employees may bring the contract back for a second vote.

And still, the contract hasn’t been shared with the public.

Haven’t Quinn and the representatives of state workers forgotten whom they are supposed to serve?

Note to readers – Scott Reeder’s column is underwritten by the Illinois Policy Institute.

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