Why Defined Benefits Can’t Work

by Ted Dabrowski | Illinois Policy Institute

Flaws of the defined benefit system are really at the core of the state’s pension problems.

Introduction

Jim Edgar's Pension Ramp has forced billions of debt on every man, woman, and child in Illinois.

Jim Edgar’s Pension Ramp has forced billions of debt on every man, woman, and child in Illinois.

One of the most common narratives regarding the pension crisis in Illinois is that the state’s five pension systems are underfunded because politicians “skipped” pension payments. This narrative has prompted legislators to add to pension reform proposals a “funding guarantee” they say will prevent the pension crisis from repeating itself in the future.

Policy Group Proposes State Pension Go To 401k

By Benjamin Yount, Illinois Watchdog

Illinois’ $90B pension debt can either be paid by reforming the system or long-term tax increases.

As Illinois lawmakers struggle to find a way to manage a nearly $8 billion pension payment, $9 billion in unpaid bills and a $130 billion pension debt, one policy group this week said it had some simple solutions. The biggest change in The Illinois Policy Institute’s proposed budget would immediately switch Illinois’ five pension systems from defined benefit plans to a 401(k) style retirement system, where the employee manages his own money.

“Everything (public employees) have earned up until today they would keep,” said state Rep. Tom Morrison, R-Palatine, who wrote the pension proposal at the heart of the institute’s budget. “This makes so much sense to people back home. It is a simple plan; it doesn’t need to be a 300-page piece of legislation,” Morrison said Thursday.

Illinois has been trying to contain the skyrocketing costs of its pension plans, but lawmakers can’t agree on a single plan. There is also the question of which plan would survive a court challenge. Illinois has a constitutional guarantee that pension benefits will not be reduced.

Illinois Policy Institute CEO John Tillman said anything that passes the Legislature will end up in court, anyway, so he’s not worried about the Institute’s plan.

Four Illinois pension solutions we ought to be pushing

By

In a recent post, I focused on the fact that we still have the worst pension debt among all U.S. states and yet there seems to be little focus on trying to do something about that this spring in Springfield.

Don’t get me wrong. A budget deal with cuts, purchasing reforms, efficiencies and an actual balance without gimmicks would be welcome.

Open The Books Finds Billions In Wasteful Government Spending

by Ulysses Arn | Illinois Review

Open the Books.com Founder Adam Andrzejewski spoke Tuesday night in Ottawa to the Lasalle county Tea Party about the multiple examples of government waste that he and his small team of government watchdogs have found over the last 5 years.

From the myriad of scandals at the College of DuPage, to the EPA spending millions on military equipment and public relations, to the VA giving out millions in bonuses to the very same people responsible for the lack of care and access to our nations veterans, which cost some of them their lives, to farm subsides going to people living on the island of Manhattan or in downtown Chicago, the waste, fraud, and abuse of our money is everywhere.

Only in Illinois (10-23-2015 )

Here’s why you should care about Illinois’ credit rating getting knocked
by Matt Dietrich and Madeleine Doubek | Reboot Illinois

What does this mean to you?

Mainly it means that more of your tax dollars now will go toward paying interest on state borrowing.

With the worst credit rating in the nation, Illinois is like the home buyer whose credit score is so bad that he gets his mortgage through a payday lender.

Moody’s downgrades rating on $26.8B in Illinois bonds

Associated Press | 10/22/2015

CHICAGO — The Moody’s credit rating agency downgraded $26.8 billion in Illinois’ general obligation bonds on Thursday, prompting another round of finger pointing over the condition of the state’s finances.

In lowering the bond rating to Baa1 from A3, Moody’s Investors Service pointed to what it called the Illinois’ weakening financial position as the year progress.

“The downgrades reflect weakening of the state’s financial position during 2015 and our expectation that an ongoing budget stalemate will lead to further deterioration,” Moody’s said in a statement.

Fitch Ratings on Monday downgraded its rating on the state’s outstanding bonds for the same reasons. The result of such action means it will be more difficult and more expensive for the state to borrow money.

In a statement released by spokeswoman Rikeesha Phelon, Democratic Senate President John Cullerton contended that under Republican Gov. Bruce Rauner, the state’s revenue has declined, services have been cut and job growth has slowed.

“President Cullerton joins the chorus of Republican leaders and rating agencies in asking the Governor to set aside his personal agenda in favor of a budget plan that reverses the damage and dysfunction of the last year,” Cullerton said in the statement.

In response, a Rauner statement issued by spokeswoman Catherine Kelly, said Moody’s action is confirmation that years of unbalanced budgets, deficit spending and mismanagement have damaged Illinois’ fiscal health and major, structural reforms are needed to restore it.

“This is more proof that instead of blocking all reforms and passing a broken budget that was $4 billion in the hole, the Super Majority in charge of the legislature should partner with the governor to enact real reforms that will grow jobs and free up more resources to balance the budget,” Rauner said.

House Speaker Michael Madigan noted in a statement that everyone wants economic growth, more business investment and more good-paying jobs in every part of Illinois. That is not in question.

“These priorities can be achieved through a state budget that takes a balanced approach with some spending cuts and some new revenue, not by slashing services and programs that families count on,” Madigan said.

Trib: Getting around Salaries Cap and Pension Spiking Law

By Chicago Tribune Editorial Board

Turns out that boosting public employee pensions isn’t only about the laws awarding those guaranteed, 3 percent annual cost of living increases. It’s also about timing.

In some communities where workers pay into the Illinois Municipal Retirement Fund, soon-to-be retirees have been relying on a little trick to increase their retirement income. They cash out for severance, unused vacation or sick days, or recoeive bonuses — yes, bonuses — in the months leading up to their retirements. That way, their overall salary for that final year is bigger, and that’s a key factor in calculating the pensions they’ll receive for the rest of their lives.

These public servants avoid laws that aim to stop so-called pension spiking by timing those payments just right — near their retirement date but not in the last three months leading up to it. That way, they can get around laws that cap salaries in the final three months of employment — the laws that were designed to stop pension spiking.

What’s the saying, that rules are made to be broken? That’s glib — if often disastrous for others. This is a case study. And the others in question are, yes, taxpayers.

Why won’t Illinois lawmakers reform their own pensions?

by Ted Dabrowski and John Klingner | Illinois Policy Institute

The pension fund for Illinois lawmakers is the state’s most insolvent system. Taxpayers bail it out every year. If they didn’t, the General Assembly Retirement System, or GARS, would only have enough assets to pay retired politicians for another 2.5 years.

Illinois politicians face no obstacles to reforming their own retirement system, so why haven’t they?