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By: Mark Glennon*


Few things irk real pension reformers more than the constant claim by opponents that protecting pensions is about defending the little guy. The opposite is true. Let’s explain and look at some numbers.


First, we’ll start with a premise, which is that most state and local pensions in Illinois as now scheduled will not be fully paid for the simple reason that they can’t be. One way or another, whether by default, bankruptcy, constitutional amendment or whatever, cuts will come. Regular readers here know that. If you don’t accept that premise, please either study up or stop reading now, link over to this fairy tale site and continue believing what you do.


We’ve all seen countless examples of pension excess — spikers, double dippers, overpaid union chiefs who participate in government pensions and, most importantly, those with pensions that are simply too generous to be affordable.


But aren’t at least some pensions reasonably sized and genuinely needed to avoid hardship in old age? Ideally, I think most would say we should at least try to find a way to reform pensions that identifies and protects those small ones — reform that’s means-tested or progressive in some way.


With haircuts a certainty, however, each day without real reform makes protecting those little guys less likely. Unfunded liabilities are growing rapidly, even when market returns are great, as we’ve seen in recent years. The inevitable cuts likewise are growing, which means the number of modest pensions at risk also grows each day.


So, how many of those little guys with modest pensions are there? You won’t find any useful studies because nobody has cared about this topic. We can, however, get some insights by sorting in different ways using the public pension databases. I’ll use the Better Government Association’s 2015 database, which lists individually over 457,000 pensions including all Chicago area pensions and the statewide pensions. It does not include police and fire pensions outside of Chicago. (Yes, there are 457,000 pensioners beyond those police and fire pensions. No wonder we’re broke, but that’s a different story.)


Now, to get at the question of which pensions are small and which are large, you need to think on a full-career basis. A pension of, say, $20,000 per year, is pretty small unless it’s for a very few years of service. Personally, I think most people should be working at least 40 years. If they haven’t worked 40 years, they should have some additional income and source of retirement savings from their other years working. The main exceptions might be cops and firefighters. Most of them aren’t in this data anyway.


Picture2Let’s first look at the numbers on the right, which is pensioners in the database with 40 or more years of service. Notice, first, how few of those there are — just 7,066 of the 457,000 pensioners in the database worked 40 years or more.


Second, take your pick on which pensions should be considered small enough to deserve a higher level of protection and sympathy. Keep in mind that these pensions are for one person only. Married couples probably have other sources of retirement income. Also, even these pensions may include those who worked part time for some or all of their forty years. The database doesn’t break those out. Maybe you would pick $50,000 or so as the cut off, which most in the private sector would say is still mighty generous — the cash value of an annuity that size for a 55-year old is over $1 million. Using that cut-off, you find 2,033 with pensions of $50,000 and under, which is 29% of all pensioners with 40 or more years of service.



Now, let’s expand that to look at pensioners with 30-40 years of service, which is on the left. There still aren’t that many of them — 132,302, to be exact. And you still don’t find that many with pensions that might be considered meager. There are 49,146 pensioners getting annual payments of $50,000 or less with 30-40 years of service, which is just 37% of that group.


You could keep going with this analysis if you wanted to extend some kind of special protection or sympathy to workers with fewer than 30 years of service and make this as complex as you want, perhaps by adjusting all pensions to look at what they would be on a full career basis. But the primary point here would hold, which is that the percentage of pensions that might be considered meager is pretty small — roughly a third of all pensions if you deemed less than $50,000 to be meager.


All this may be academic for the purpose of pension reform because nobody has shown any interest in special help for the little guys. The record is to the contrary. The 2010 reforms stuck new hires into “Tier 2” and obligated them to make additional contributions towards the unfunded liability they didn’t benefit from. (All unfunded liabilities in Illinois are entirely for Tier 1 services already performed.) Also, under the SB-1 reform bill that was invalidated by the courts, a cap on pensionable salaries would have been imposed. But, no surprise, those with salaries that already exceeded those caps would have been excluded — a special fat cat exclusion would have protected those already fat.


And if any particular system goes into bankruptcy there is no clear means of favoring smaller pensions over fat ones if haircuts are needed. All unfunded pension claims go into one pot with other unsecured creditors.


Let’s recap with a few key points, observations and other things from the database:


• On a full-career basis, around a third have pensions of $50,000 or less.


• The numbers we are using are aggregates, and circumstances in any particular pension may vary. The extent to which even meager pensions are likely to go partially unpaid may vary dramatically depending on the pension. IMRF, for example, is almost fully funded (according to its own numbers, that is), but Chicago’s police and fire pensions are less than 30% funded. Expect the inequity of haircuts pensioners will face, depending on which system they are in, to become a big issue.


• 299,045 have pensions for less than thirty years of service, which is 65% of all pensioners. (However, that includes those who may have worked 30 years or less in one system then the same in another.)


• 13,970 pensioners in the database are getting over $100,000 per year.


Finally, just to make you sick, click this link to skim through the list of pensions for judges. Note the size and the lengths of service. Keep in mind that these are generally well off folks — successful lawyers — who no doubt had plenty of income and retirement funding in their other careers. Good luck ever getting them to sign off on pension reform that favors small pensions over fat ones.


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



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S Moderation Douglas
Where to begin? First, I am not opposed, if reductions in pensions is absolutely unavoidable, to protecting the “little guy”, defined in this and similar articles as those with a full career pension of $50,000 or less. The logic of progressively larger haircuts for the higher pensions is clear. First, they can more easily afford the loss of (part of) their retirement income. Right? If you are a retired attorney or doctor with a pension in the $100,000 and above neighborhood, a reduction of 5 or 10%, or more, will not leave you destitute. Plus, it is these exorbitant pensions that caused the huge liabilities any way,… Read more »
S Moderation Douglas
Wrong. According to the Biggs study, and every other major study comparing public and private pay, the biggest compensation advantages are at the lower end of the scale. With benefits, a public sector janitor or laborer, makes MUCH* more than one in the private sector, and a public sector lawyer makes much less than one in the private sector. That’s right, in many cases, those with the highest pensions are the most UNDERPAID. And we want to cut them more? Two caveats, as Mr. Glennon noted: 1. The numbers we are using are aggregates, and circumstances in any particular pension may vary 2. It does not include… Read more »
S Moderation Douglas

Please excuse me for answering myself.

My two comments above do not mean that I think lower educated public sector workers are “overpaid”. (Or that their meager pensions and healthcare should be cut.) There are some other dynamics going on here that people don’t recognize because they are caught up in buzzwords and dogma.

As fate would have it, just today I saw an appropriate quote in a pension article by David Crane:

“The worst, the most corrupting lies are problems poorly stated.”

Daniel Patrick Moynihan, citing French theologian Georges Bernanos


Just one comment on your 40 year bright line, you seem to overlook the fact that most people who receive a govt pension do not work their entire career at that employer. Govt. jobs are often desirable and competitive enough to attract people with years of prior experience. While it may be appropriate for people to work 40 years, many who do still may only have 15 or 20 years of pensionable experience with a public sector employer.

S Moderation Douglas

This article is the epitome of irony.

What we need here is a little Tough Love.

I wonder what percentage of people who hold the $20 Trillion or so of bonds issued by the Federal government, and by state and local governments, actually are of modest means and really “need” to receive the coupon interest payments and principal payments that they have been promised? Indeed, given the logic of the tax clientele effect, I think it is virtually certain that the average bondholder has both substantially greater income and net worth than the average recipient of a public pension. So why, then, this constant drumbeat to default on pensions but not on bonds, when both are roughly equal contractual obligations legally? I think… Read more »
mark glennon

That’s a perfectly fair point about treatment of pensions relative to other general unsecured creditors. But keep in mind that most state and local bondholders bargained for and got either a secured position or a payment priority. In bankruptcy, in the case of municipalities, unsecured general obligation bonds should indeed be cut like anybody else. In Detroit, they were cut more. I don’t know what Treasuries and other bonds have to do with this. They do not face the certainty of triage — the assumption stated in the article.

Jim Palermo

Recent history has shown that in municipal bankruptcies the bondholders take large losses and, but for the rarest cases (Detroit), pension benefits are untouched. For example, in San Bernardino, Calif., the city’s bankruptcy exit plan pays the Pension Obligation Bond holders (the bonds issued to investors to refill the retirement coffers) just a penny on the dollar while benefits are undisturbed. Why should the bond investors treated so much worse than the pensioners?

Tough Love

Quoting … “So why, then, this constant drumbeat to default on pensions but not on bonds, when both are roughly equal contractual obligations legally?”

Why ? Because the grossly excessive PUBLIC Sector pensions & benefits were “negotiated” in collusion between the Public Sector Unions and our self-interested Elected Officials, with NOBODY looking out for Taxpayer interests.

S Moderation Douglas

Two rhetorical questions:

Is that libel, or slander?

Or do you have verifiable evidence?

It’s also worth noting that the top 3 ‘Legislators/Judges’ with $200,000+ pensions in the link above also collect another pension from MEABF/IMRF/etc. Small pensions, but big enough to pay a good chunk of your property tax bill. I would wager that a good percentage of the smaller pensions could be rolled up under one person. Lots of folks move across govt entities over their career. Also, I wonder how many dual income households are dual public sector households? That would be an interesting stat as well. Mark, no one in the public sector wants to be progressive with their own money. Mention that they should redistribute some… Read more »
mark glennon

You are right on all points (as usual).

Tough Love

Well said, and I like your suggestion the pension generosity (i.e., formula factors) should decline as income rises.

S Moderation Douglas

I’m somewhat confused. When I suggested (sarchasm) that we could take benefits from the lower paid employees and use that money to increase pay for the undercompensated public attorneys, I thought you were in agreement.


“I’m fine with raising the compensation of Public Sector workers now under-compensated.”

“I’m NOT going to feel sorry for the lower paid …….. Public Sector worker that would have to give up their Platinum+ healthcare and rich pension formula …. “


The State is obligated to make pension payments regardless if the individual funds run out of money. Why talk about cutting pension benefits for those who earned them and not talk about cutting and reforming welfare for those who have not earned it?

Tough Love

Obligated ?

I got a bridge to sell you …………….. Interested ?

S Moderation Douglas
I think your governor already sold that bridge. Anonymous is correct. There is an obligation. Non lawyer that I am, I have heard that there is a precedent that a contract can be terminated when something unforeseeable occurs that prevents the parties from following through with the contract. (“impossibility of performance.”) Be interesting to see what the courts might say if the state says it’s “impossible” to perform. Meaning, in this case, that “we have the money, but, like, there’s other things we would really rather spend it on.” As I understand it, your feeling is more like the contract can (should?) be terminated due to “fraud… Read more »