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By: Mark Glennon*

“Big pensions just tiny part of big pension mess” — that was the headline on a Better Government Association story widely republished across Illinois last week.

That’s an interesting if academic topic, but don’t look to that BGA article for any answers. It contained four whopping errors.

•   First, it repeated the common mistake of looking at “average pensions,” which might seem very modest — the median for general state workers is just $28,946, they concluded. The problem is that those averages include those who worked only part of their careers to earn that pension and part time workers.

Had BGA simply googled “Illinois average pension” they would have quickly seen articles on that fallacy. To judge whether pensions are big, you need to put them on a full career basis or look at how much those retiring after a full thirty year career get. The Illinois Policy Institute did that in 2012 and reported the following numbers for the five state pensions for workers retiring that year:

•   Second, the BGA repeated this common falsehood: “As a rule of thumb, pension experts generally consider a pension fund healthy if it has on hand at least 80 percent of the financial resources it needs to cover future obligations.”

Nope. The American Academy of Actuaries says flatly that’s a “myth.” 100% is obviously the correct standard because you either have the money you will need or you don’t. One actuary who writes often about pensions, Mary Pat Campbell, maintains a “Hall of Shame” for reporters and politicians who repeat the myth. I expect the BGA will be inducted.

•   Third, the BGA relied heavily on data and interpretations from Ralph Martire and his Center for Tax and Budget Accountability. Not mentioned is that they are a union funded and controlled propaganda shop who regularly peddle distortions. For some background on them, see the story linked here, and for some examples of their distortions see our earlier article linked here.

•   Finally, a BGA representative said in a radio interview that part of the moral of their story is that we’ll just have to knuckle down and pay the pensions in full. The error here is that they are entirely missing the real question they certainly didn’t answer: How?

It just doesn’t matter whether average pensions are big or small or whether it’s right to pay them in full. The harsh, overriding reality is that they cannot be paid. (Period, full stop.) To the BGA or anybody else who says otherwise, we repeat our standard challenge to show us how. There is no conceivable combination of taxes and cuts that will get them paid, which is why nobody has ever proposed one.

That’s why we need to move on to discussing the formula for reducing pensions in some progressive or means-tested way, along with cuts to other historical debt.

That means a formal bankruptcy proceeding.

*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

h&m

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nixit

I wonder what the median years of service is? Without that, the BGA numbers are meaningless.

Kathy

We’re so screwed.
What will it take for everyone to get on the same page of recognition and action? I don’t think it will ever happen unless someone goes door to door of the powers that be and says, “LOOK!”
And just for fun, I’d also go to Pritzker and Kennedy and lay it out just for their reactions. Oh, and point out that citizens just cannot afford to fix it.
It seems most everyone is plodding along in ignorance or denial.
We’re so screwed.

Crabcakes

great job Mark! wonder whats behind the BGA & Civic Federation whimpen out and deciding caving in to Madigan & Co and massive taxes are the way out?

Crabcakes

and as a Chicagoan–FERGUSON for Mayor!! wow, the guys got some balls!! his report is smoken!!

Clyde

Agree. The median pension figure of $29K is extremely misleading. Also, keep in mind that the 2017 figures are significantly higher than your 2012 figures. Many Chicago-area teachers now retire with a starting pension of around $100K. That’s way, way out of line, considering most workers get no pensions. With the three percent annual compounding, a husband and wife retired teacher duo will have a combined retirement pension of about a half million dollars in their 8os.

harold

you forgot to mention the annual compounding 3% pension increase that I believe all of the above mentioned receive. That includes a lot of municipal police and fire as well. We have a number of retired teachers in my city who have been retired for at least 24 years. Their pensions today are about $110,000. The rule of 72 doubles their pensions in 24 years at 3%. I try to explain to the average voter these facts and I mostly get just a shrug of the shoulders. Wait till they can’t sell their homes with their underwater mortgages from the early 2,000’s. Yikes

bob oriole park

We’re all underwater in the city when the automatic property taxes kick in starting in 2020 for pensions. I can easily see property taxes tripling from where they are right now, based on negative rates of return for the pension funds and the resulting unfunded liability. The CTPF CAFR on p 45 shows an unfunded pension liability of 11.01 billion dollars. Does anyone look at these?

Doug

Thanks again Mark, I come to this sight to get the real truth regarding Illinois and Chicago finances and the inevitable bk.

Michael

Do you think that the Federal judge will push Illinois over the edge into insolvency? Then budget / pension payments would have to be made.

Illinois payment strains underscored by court case
BY SOURCEMEDIA | MUNICIPAL
05/25/17 07:09 PM EDT
Yvette Shields
https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=201705251909SM______BNDBUYER_0000015c-410a-d127-ad7d-dd7baa2b_110.1