Analysis points to real pension problem: loans in lieu of belt-tightening
Headlines that scream about shockingly high pension payouts don't paint a clear picture of the real problem lllinois faces: a historic lack of employer contributions, the Better Government Association (BGA) argued recently on its website.
In the BGA's 2017 pension fund analysis, journalist Jared Rutecki explains that public entities in Illinois have often faced revenue shortcomings but opted to maintain services at the expense of retirement contributions to pension funds. Their obligations then became debt that is subject to interest, costing more in the long run.
When a pension fund operates smoothly, contributions based on the work of current employees – both from the employees and employer – flow into the fund and grows with earnings from investments. These revenue sources allow the fund to continue to cover the expenses of benefits being paid out to retired workers.
“That decidedly has not been the case with many of the largest pension funds in Illinois, where government officials have spent decades skimping on money they owed to cover the employer share of retirement benefits for public workers,” Rutecki wrote. “The result is those public bodies have rung up enormous interest debt on woefully past due pension bills and are now forced to play catch-up, in the process squeezing resources available for schools, public safety and other crucial functions of government.”
The BGA has used data from Freedom of Information Act (FOIA) requests to put out annual analyses of Illinois’ pension system since 2012. The group looks at records for 17 major pension funds in the state, covering teachers and university workers, public workers and state, Cook County and Chicago government employees. The analysis does not include small municipal funds for local police and firefighters.
Five of these funds -- covering university workers, downstate and suburban teachers, state employees, judges and legislators -- have a total of $130 billion in unfunded liabilities. With high figures like that, it might be tempting to rail against cases of outsized individual annual pension payments – $581,000 in the most extreme case – but Rutecki explains that these payments are not typical.
“Just 4 percent of all beneficiaries this year are in line for pension paydays exceeding $100,000, with the biggest checks largely going to once high-paid former school administrators as well as doctors and dentists at public teaching hospitals,” Rutecki wrote. “Payments for the overwhelming majority of pensioners, most of whom don’t qualify for Social Security, are far more modest.
The state is expected to pay pension benefits to approximately 483,000 retirees and survivors this year, with median payments of $52,016 for downstate and suburban teachers, $28,946 for state workers and $9,064 for non-Chicago municipal workers, as examples. The total payout for the 17 pension funds covered by the analysis will be roughly $17.3 billion, and while large payments to single beneficiaries are galling, they are, per the Illinois Constitution, unchangeable. More to Rutecki’s point, they are not the root cause of Illinois’ pension crisis.
Ralph Martire, executive director of the Center for Tax Budget and Accountability, told Rutecki that Illinois owed $1.6 billion to the downstate and suburban teachers pension fund last year, based on benefits earned by covered employees. Due to late payment charges, however, the state’s total contribution to the fund was pushed up to $6.8 billion.
“Pension funds in Illinois, while far from in the pink, appear to have ample resources to cover pension obligations for years to come,” Rutecki wrote. “The real problem is the mound of make-up payments those government employers are now being forced to come up with because of all those years where they didn’t appropriately pay into pension funds.”
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