By: Mark Glennon*
How does this sound for pension reform? Pass a law forcing taxpayers to automatically fully fund them in whatever-it-takes amounts. That’s what a guest piece in Crain’s called for this week. It did that by holding up, as a model to be replicated, IMRF — the Illinois Municipal Retirement Fund.
IMRF, you see, is unique in Illinois because it has that forced taxation funding. Municipalities must raise property taxes in amounts required to keep the pension up. Consequently, it’s much better funded than other pensions at 87% (though it uses the same optimistic assumptions as many others, like a 7.5% rate of return and a 3.5% payroll growth rate despite — despite Illinois’ declining population).
IMRF also uses that forced tax to “guaranty” 7.5% annually on a savings account offered only to its members, and a special “13th payment” each year for its members. We wrote about those in an earlier article.
IMRF is a big part of why so many municipalities in Illinois are growing broke. By forcing up property taxes usable only for that pension, it siphons tax dollars away from public services. It also crowds out capacity to fund municipal pensions for police and firefighters. Actually, maybe we would be better off if all pensions did have IMRF’s funding scheme because we would have seen long ago how unaffordable pension promises are and they would have been reformed then.
And guess who would be the author who wants forced taxes for automatic funding? Why, the head of the trade association for the folks who get paid to run defined benefit public plans. Here’s a link to the list of the board of directors of the association she runs. Yes, just make taxpayers give us all the money we need, she says. That solves the pension crisis. I really don’t think there’s anybody at Crain’s with enough understanding of pensions to see the cost of what the article proposes and the bias of who wrote it.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.