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Pension deal: Temporary or permanent fix?

System has failed; it’s time to replace it

Published: Saturday, Nov. 30, 2013 1:15 a.m. CST

SPRINGFIELD – Hang on to your wallets. The Illinois General Assembly might soon be back in town.

House Speaker Michael Madigan has told his members to be back in Springfield on Tuesday for a special session to address the state’s pension crisis.

To quote the baseball great Yogi Berra, “It’s déjà vu all over again.”

Madigan has been a part of more than a few pension “fixes” during his more than four decades in public office.

The reality is that none of those “fixes” has solved much of anything. They have simply pushed the inevitable day of reckoning further down the road.

We saw it 19 years ago, when the speaker, along with then-Gov. Jim Edgar, pushed a measure through the General Assembly that “fixed” the state pension system.

They called it the “Edgar Ramp.”

And here is how it worked: Since politicians back then didn’t want to pay a whole lot of money toward pensions, they created a plan that said politicians in the future would pay more toward pensions.

Apparently, they thought future lawmakers would have more backbone than they possessed.

Of course, it didn’t work out that way.

As time went on, those “future” politicians said, “We don’t want to pay this much.” And “pension holidays” were taken. Lawmakers ended up paying less than their predecessors had promised, while governors kept placating government worker unions with ever-more generous pension promises.

That’s how we ended up with an unfunded pension liability of more than $100 billion and a situation that just about everyone acknowledges is a “crisis.”

What grand “fix” should we expect to be unveiled next week?

It’s being negotiated behind closed doors by legislative leaders. So we don’t know for sure what, if anything, will come up for a vote.

But after talking to a variety of people involved with negotiations, it sounds like the “fix” probably will be something pretty similar to what was proposed 19 years ago. Oh sure, there is talk about trimming back pension benefits. But these are changes on the margins.

More than likely, the new “plan” would involve promising that future lawmakers will show greater fiscal responsibility than those making the promises. And larger payments toward pensions will almost certainly be loaded on the back end of the plan.

At the end of the day, we have a fundamentally broken system.

It’s broken for a lot of reasons.

One reason is that it relies on current politicians – and also future politicians – to stick to a payment plan. Also, our state pension systems have not been above reproach when it comes to how investments have been handled.

The Teachers’ Retirement System has been mired in scandal. Former board member Stuart Levine and political insider Bill Cellini both ended up in prison because of their handling of pension dollars.

But perhaps the biggest problem with the pension system is that it forces government to predict the future and taxpayers to underwrite those predictions.

What will the stock market’s performance be over the next 30 years? How much longer will people be living in 2045? What will the annual rate of inflation?

All of these items are factored in when calculating pension payments. And yet, they are pretty hard to calculate with much certainty. And taxpayers are on the hook for those predictions.

To be blunt, the best solution is to walk away from the system.

Eighty percent of private sector employers have embraced 401(k)-type plans. In those plans, employees actually own their retirement savings, and they can make decisions on how the money is invested.

It’s time for Illinois to consider switching public school teachers, state workers, and state university employees over to such plans.

The state would still be responsible for the pensions of those who have already retired. But it’s time to move current and future employees into a more sustainable plan.

And who better to take responsibility for worker retirements than the workers themselves?

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

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