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Two new numbers, one point: IL can’t afford pensions

By   /   September 4, 2013  /   News  /   19 Comments

By Benjamin Yount | Illinois Watchdog

SPRINGFIELD — Illinois taxpayers can look at two different numbers that lead to the same conclusion — the state cannot afford its pension payments.

The public policy group State Budget Solutions released a report Tuesday showing Illinois’ pension debt is more than $287 billion, nearly three times the $100 billion debt Illinois lawmakers say they are working to contain.

The Illinois Policy Institute then released its report showing the state will pay $620 billion to retiring state workers over the next 30 years.

SKYROCKETING COSTS: Illinois will have to pay $32 billion in pension benefits by 2045.

“This $620 billion is the amount that Illinois’ five state-run pension systems will pay out in retirement benefits and cost-of-living adjustments for work already completed by workers and retirees. And the bill starts getting paid next year,” Ted Dabrowksi, the Policy Institute’s vice president, said. “ The pension systems will pay out nearly $9 billion in benefits in 2014. These payouts will increase every year through 2045.”

Dabrowski said Illinois can hardly afford this year’s $9 billion pension payment, and there is no way the state can afford the scheduled $32 billion payment in 2044.

Illinois has, depending on who you believe, anywhere between 40 percent and 24 percent of the money it needs to cover future pension costs.

But those numbers are not set; Illinois has invested its pension cash and the return on those investments has fluctuated recently.

“Academics and the credit rating agencies argue that the state’s 8 percent expected investment returns are unrealistic and make the pension systems look healthier than they actually are,” Dabrowski said.

The State Budget Solutions report takes Illinois to task for expecting too much.

“We chose a lower rate (3.22 percent) because the current practice of relying on optimistic investment return assumptions obscures the true size of liabilities,” State Budget Solutions editor Cory Eucalitto said. “Plans are not guaranteed to achieve a return simply because it is assumed.”

State Budget Solutions’ 3 percent rate of return — compared with Illinois’ assumed 8 percent — nearly triples the state’s pension debt.

“The numbers that we gathered from the plans themselves showed a $99.7 billion unfunded liability. Using the lower rate shows that number to actually be $287 billion,” Eucalitto said.

Abdon Pallasch, budget spokesman for Illinois Gov. Pat Quinn, said the governor is sticking with the $100 billion pension debt estimate — for now.

QUICK COUNT: Most states assume a generous rate of return on pensions.

“The Teachers Retirement System, the state’s largest pension fund, just last year revised down its rate from 8.5 percent to 8 percent,” Pallasch noted. “In response, the governor’s Office of Management and Budget revised upward its projected pension shortfall to $100 billion.”

Pallasch said no matter the number, Quinn wants to “reform” Illinois’ worst-in-the-nation pension systems.

But reform is not a part of the equation for either the Illinois Policy Institute or the editors at State Budget Solutions. Both want a new system.

“The best solution is an immediate switch to a defined contribution retirement system,” Eucalitto said. “These systems are proven to provide retirement security in the private sector, and (offer) greater assurance that employers will make their promised contributions.”

Dabrowski has long championed 401(k)-style retirement system for public workers.

“Illinois workers and retirees are trapped in a collapsing system over which they have no control. That’s the result of the state not allowing workers to manage their own retirement savings. And as the Detroit crisis reveals, retirees can’t escape the consequences of bankruptcy,” Dabrowski said.

 Contact Benjamin Yount at [email protected] and find him on Twitter @BenYount.


Ben formerly served as staff reporter for Watchdog.org.

  • Daniel Foster

    “State Budget Solutions” is a partner of ALEC. They’re as non-partisan as Fox News is ‘fair and balanced.’

  • Joseph Shbotnick

    So for the sake of argument you are right and maybe the number is half, Illinois is still screwed and Public Employee Unions who elected the politicians that created this mess, have to accept reality and pay the piper.

  • Daniel Foster

    Joe, we ALL elected the politicians, we ALL thought it was a win-win when the deals were made and we ALL benefited from artificially low taxes made possible by re-directing revenue intended for the pension funds to general funds so now we ALL need to pay that piper. There are a number of smart ways of addressing the shortfall but they’re not getting headlines likely because they lack the added attraction (for some) of union busting.

  • marie

    I am not a union member, have not received a raise since 2003 – (and for 4 years in the 1990’s) have paid into the retirement fund – pension benefits are not generous at 1.67% per year (not what teachers, police, fire get) – please know the facts – local school districts should have been paying the retirement years ago –

  • Pete Collins

    Us Illinois taxpayers have not skipped payments as Public Unions and politicians,, want us to believe. In fact, the underfunded teachers TRS pension fund, us taxpayers have paid 1.7 times more toward saving for pension then teachers.
    In 2012 teachers contributed $0.9 billion towards their pension and IL taxpayers contributed $2.5 billion.
    In 2011 teachers $0.9 billion taxpayers contributed $2.3 billion.
    In 2010 teachers $0.89 billion taxpayers contributed $2.2 billion.
    in 2009 teachers $0.87 billion taxpayers contributed $1.6 billion.
    in 2008 teachers $0.86 billion taxpayers contributed $1.17 billion.
    in 2007 teachers $0.82 billion taxpayers contributed $0.85 billion.
    In 2006 teachers $0.79 billion taxpayers contributed $0.65 billion.
    In 2005 teachers $0.76 billion taxpayers contributed $1.0 billion.
    In 2004 teachers $0.76 billion taxpayers contributed $5.4 billion..

    Remeber that in 2009 the TRS pension fund LOST $8.6 billion in their investments, and in 2012 the pension fund only made $0.2 billion. In 2012, benefits paid to retirees was $4.5 billion and that number will be growing as babyboomers with spiked pensions are retiring.

    Google ” Letter to the Editor: Illinois Public Pension Rhetoric Mark Evenson ” for more details.
    Us ILLINOIS TAXPAYERSS are not to blame, we have paid more then our fair share.

  • Al

    Pete is absolutely correct with the numbers he has quoted, but he misses the main point completely. The reason the state’s contribution was greater during those years is because of the CHOICE the state made earlier in the 70’s, 80’s and 90’s to defer their part of their contributions or to take a “tax holiday” and spend the money, which should have gone to pensions , on other things they felt as more important at the time. The later payments to the pensions were, again, intentionally backloaded so the payments would get bigger later so the state could, one more time, make a bad decision to underfund the pension and postpone the pain of payments to a later date in the future. Well, the future has finally come. Also, since this money was not allocated to the pension system for investment, the system missed out on the largest bull market in stocks that has occurred in history from the early 80’s though the ’90’s. Using the rule of 8’s, that missing money, had it been invested, would have more that doubled, twice.
    We may not agree on a solution, but two things are for sure………. this is no way to run a business or control your household budgets and Illinois’ politicians have done the state a great disservice in the past. We need to work together to find a suitable solution that is fair to all.

  • Pete Collins

    Thanks Al for acknowledging that us tax payers and the state of illinois have made all our required payments to the TRS teacher pensions, and the other 4 state of illinios pensions.
    To find a solution you first have to define the problem, and the above article says the problem is a $287 billion problem, not a $100 billion problem that Govener Quinn and his union friends say it is.

    In the 70’s, all the way up to 1999 the union agreed pension plan was that teachers would put in 5 percent into the pension “bucket”, and the state of illinois would match the teachers contribution.
    In 1995 the unions recognized they were running short of money in their pension funds, the spiked pensions the teachers were recieving would bleed the pension fund dry. So the union folks with their government friends, agreed that in 1999 teachers would contribute 9.4 percent towards their pension, and the state of illinois would match their 9.4 percent. So us taxpayers have allready doubled down to help retired teachers.

    Also in 1995 the unions and politians agreed that the state of illinois would start contirbuting much more to the pension fund then the original agreement of matching the 5 percent that the teachers contributed. Us taxpayers have put in 1.7 times more then teachers towards the pension “bucket”.
    You are wrong AL, the money was put in the pension system, and was invested in stocks and other instruments. For example in 1981, the union managed pension fund made $246 million on the pension assets. In 2009 the TRS pension fund LOST $8.6 billion in their investments.

    A problem is, the TRS said that between 2000 and 2010 the pension fund was $22 billion short of it’s expected returns. That is their expected investment returns were $22 billion short of what they said they would make on their union managed investments.
    $22 Billion, is alot of money when you only have $45 billion in your pension bucket and the TRS says they are $52 billion short based on the assumption the pension fund will make 8 percent return on investment. This article says a more reasonable rate of return would be 3.22 percent,
    Another problem is the money is flowing out of pension fund faster then it is flowing in , especially with spiked pensions and 3 percent raises on those pensions every year, and now, baby boomer teachers that are retiring.
    For example, a 3rd grade teacher that started teaching in 1965, retired in 1995, and in 2010 that teacher collected a $120,000 pension. In 2011 that retired teacher collected 3 percent more, $123,600, and that retired teacher gets a 3 percent raise every year. That teachers 5% contribution, with the state’s 5 percent match, and the investment income, over 30 years, is not enought to cover that teachers spiked pension.
    A fair solution would not include raising income taxes on Businesses, because busineses will leave illinois, and business higher us workers. A fair solution would not include raising income taxes on us folks, we have paid our fair share.

  • Well done, Mr. Collins.

  • Ed

    Dabrowski asserts that this situation is a “result of the state not allowing workers to manage their own retirement savings” when in reality this situation is a result of criminal acts purposely committed by Illinios lawmakers. A 403 with employer paid Social Security payments will cost the state more. Illinois doesn’t have a pension problem…it has a bought government problem.

  • Ed

    Criminal acts of IL government and a flat tax is the source of the problem. Illinois is one of the few states left in the U.S. that has a flat tax. Pete….most of the monies paid by the taxpayers above is misleading. Most of it was to make up for previous years that went unpaid or were underpaid. Why didn’t you list those years??????

  • Ed

    The Illinois Chamber and the Illinois Policy Institute both have been caught gaming the system to satisfy their own selfish needs while putting Illinois taxpayers on the short-end of the stick. Be leary of their rhetoric.

  • Pete Collins

    Here you go Ed, some earlier years, the state has allways matched the contribution teachers have made as required.
    Remember teachers only started contributing 9.4 percent of their income to penions in 1999. Before that teachers contributed 5 percent. Also remember, that the original deal is that the state would match the teachers contribution.

    Public unions and politians want us IL taxpayers to believe we have skipped paying money to TRS and other pension funds, and that is why there is a huge unfunded liability today. NOT TRUE.
    for more info, , google ” Affect of Past Salary Spiking on Pension Finances Mark Evenson ”

    In 2003 teachers contributed $0.732 billion towards their pension and IL taxpayers contributed $1.02 billion.
    In 2002 teachers $0.681 billion taxpayers contributed $0.9 billion.
    In 2001 teachers $0.643 billion taxpayers contributed $.82 billion
    In 2000 teachers $0.6 billion, taxpayers contributed $0.7 billion
    In 1999 teachers $0.86 billion , taxpayers contributed $ 0.63 billion.
    In 1998 teachers $0.44 billion, taxpayers contributed $0.5 billion.
    In 1997 teachers $0.41 billion, taxpayers contributed $0.42 billion.
    Looking at data all the way back to 1981, Illinois taxpayers have contributed 1.7 times more $ to TRS teachers pensions then the teachers themselves. Missed payments from us taxpayers is not the reason the teachers pension fund will run out of money.

  • Pete Collins

    ED, Could the public union negotiators, and spiked pension be responsibe for this pension crisis??

    The teachers are good. The taxpayer matched the teachers contributions, AND 1.7 time more.

    The public union contract negotiators forced deals upon local school boards that us taxpayers could not afford. If the school did not agree, the union negotiators forced the good teachers to strike against the schools, holding our kids hostage.
    For example, earlier this year, the Dixon IL school board wanted to reduce the last 4 years of automatic, extra 6 percent raisies before a teacher retires. ( in addition to normal annual raises). But obvioulsy the teacher union negotiators said NO, and then the Dixon public teachers union went on strike ,
    How do we hold the public unions and thier negotiators responsible??? The teachers are not resposible and the taxpayers are not responsible.


  • Pete Collins

    ED, the reason pension money is flowing out faster then expected is SPIKED pensions. Public union negotiators are responsible for spiking teachers pensions.

    To illustrate the practice OF PENSION SPIKING, I will provide the following examples from my (mark evenson) local school district, CCSD15. In 2004 82 educators retired with an average ending salary of $123,364, a 66% increase from their $74,116 average three years prior. In 2006, the last year before the cap took affect, 26 educators retired at an average of $130,753, a 71% increase from their $76,317 average four years prior. By 2010, with the caps in full effect, 41 retirees had an average ending salary of $104,276, only a 26% increase over their average of $83,055 four years prior.


    Only public union folks want to RAISE IL taxes,
    and only union folks blame a flat tax for IL unfunded pension problems.

  • No, sir, they have not.

  • Otto

    Let’s make things real simple amidst all the talk-you can cut the pensions and the funding all you want…but the State still owes the systems at least 100 billion dollars. It’s not the pensions; it’s the revenue. How many times are you going to ignore that?

  • Otto

    You are full of crap. The Illinois Chamber and Illinois Policy Institute have one political and economic philosophy: Cheap Labor…any which way they can get it.

  • Otto

    That may be the case, but there you go again, shoulding all over us.

  • Mark G.

    You said they have been “caught gaming the system.” Be specific. Which of their numbers are wrong and why? Or are you just a name caller?