At least one state in the US is acting on the need for epic reform of its pension system, but the political difficulty associated with such reform – something all states are wary of – was demonstrated in the violent outburst by Illinois representative, Mike Bost, last week (see video) and the inability of representatives to agree to the reform package before the state assembly broke last week for summer.
Pension reform is the reform of our lifetime, according to Illinois governor, Pat Quinn, who is determined to fundamentally change the system.
“We must enact bold reform that eliminates the unfunded liability,” he says.
The state is facing $83 billion in unfunded liabilities and Quinn is worried about ratings-agency suggestions they will lower the state’s credit rating if the state assembly doesn’t take action.
The reform agenda includes increasing employer contributions so the funding ratio will reach 100 per cent in 2042. It also proposes that members increase their retirement age to 67.
The eruption of Mike Bost in the Springfield assembly last week is indicative of the frustration that policy makers, fund trustees and staff are experiencing with regard to the dire pension situation in the US.
Bost, who reacted strongly to the amount of time he had to discuss a pension-policy reform agenda, launched into a soliloquy about the adverse control of the state speaker and the inability to effect reform.
“I feel like someone escaping from Egypt: let my people go,” he yelled in the assembly last week. “I’m trapped by the rules being forced down my throat. We live in a democracy, but not here. The speaker has too much control.”
A few days after his outburst, the Illinois House of Representatives broke for the summer but pension reform was not passed due to disagreement on a provision to shift the pension costs from state to local school districts.
Now the governor is calling for a special legislative session in the summer to deal with the reform.
“We are racing the clock,” he said.
The Illinois State Board of Investments manages the $11.5 billion in assets of the pension funds and has a fairly aggressive allocation: US equities 30 per cent, international equities 20 per cent, fixed income and cash 20 per cent, private equity 5 per cent, real estate 10 per cent, infrastructure 5 per cent, hedge funds 10 per cent.
While the state politicians could not agree on the “reform of our lifetime”, they did pass a law called the “skin tax”, which will charge strip-club patrons $3 each – the money going to sexual-assault-prevention services.
Who would be a politician?