Illinois pension reform

2 responses to “Illinois pension reform”

1. 

   Leo de Bever

   July 11, 2012

   Fair enough: contribution holidays were not a smart idea.
   But if liabilities are compounding at 8.5 percent, does that not suggest contribution rates were too low to start with.
   You can only earn 8.5 percent if you put 100 percent in equity like instruments

   Log in to Reply
2. 

   Jim Philip

   June 7, 2012

   Let’s be clear the current pension problem has little to nothing to do with benefits it is instead caused by decades of governors and lawmakers from both political parties who have chosen to spend available revenues on other state programs rather than sock enough away to pay for the pension benefits workers were earning. The dollars not put into the retirement kitty in turn did not earn any return on investment or compound over the years, so the gap has grown ever increasingly larger.

   The partial pension payment holidays (SB 27) taken in FY 2006 and FY 2007 is only one example of how dramatically not contributing the required state contributions can lead to increasing the state’s unfunded liability in this case by $7.1 billion in only three years. During that period, no retirement benefits were increased but because interest on the unfunded liability compounds at between 8.0% and 8.5%, any payment shortfall, such as the pension holiday, quickly increases the unfunded liability.
   “The deadly combination of nearly 30 years of systematic state underfunding of its employer contributions to the pension systems, followed by the cataclysmic decline in asset values caused by the national meltdown in financial markets over the last year, has combined to create an all-time high in the state’s unfunded pension liability,”
   To know how to fix the problem we must first know what caused the problem. The problem has been caused by drastic underfunding of all state pensions except one, IMRF which, wait for it, has a mandatory funding provision.
   The answer lies in 1. Re-setting the actuarial clock to 100% funded in 40 years using sound actuarial assumptions of level payments. 2. Mandatory funding like the IMRF pension fund enjoys. 3. Negotiate with labor to participate in some reduction in benefits and or increases in employee contributions. The road will be rough for all but it is obtainable if all parties will look at what the problem is and then how to fix it.

   Log in to Reply