Illinois public pensioners range from the deserving, borderline impoverished to the undeserving, shameless pigs, yet those disparities are all but ignored in pension reform discussions.  The premise here is that haircuts are unavoidable and the haircuts will be large — many pensioners will not get benefits nearly as big as they are scheduled to get, and no tax increases or other reforms will solve the problem, however unfair or immoral that result may be.  That premise is unassailable, as we’ve documented repeatedly on this site.

 

A nice article in the Chicago Tribune today profiles some have nots. It highlights a woman who retired from teaching 41 years ago and is now 105 years old.  Her initial pension of $6,327 per year might have been reasonable in 1972, but it’s now $20,796, which borders on poverty and is about half of the average teacher pension.  Remember that if she is a typical municipal pensioner she is entitled to no Social Security and could not participate in a 401(k) similar program.  Her example is extreme but many other older pensioners are in the same fix.  If they are in the Illinois teachers’ pension they have been getting automatic 3% cost of living increase.  That fixed increase is too high and unaffordable today, but it clobbered retirees who were around during high inflation years of the 1970s and 1980s, which is what happened to that teacher.

 

Particular sympathy should also apply to many lower wage, unskilled workers who work to a true retirement age.  They might spend their whole careers as, say, maintenance workers, and retire on pensions of $30,000 per year.  Only that pension separates them from true poverty.  But be careful with those numbers about “average pensions” being that low.  Those averages include people who worked for the state for only part of their career or retired before a true retirement age.  They should have other retirement benefits.

 

Contrast those categories with those who need or deserve much less protection. Those horror stories are myriad, well covered, and need not be repeated here.  Retirement ages in most Illinois pensions are too low, salaries get spiked just before retirement to spike the pension, double dippers abound, union leaders and political hacks abuse the system, and most scheduled benefits are simply too high. A couple of retired school teachers might easily get a $200,000 pension for the rest of their lives, and remember that those payments, like other retirement income in Illinois, are entirely free from Illinois taxes.

 

Progressives see salvation and fairness in a progressive income tax, but where’s that progressivism in how they would treat pensioners themselves?  Some proposals to cut out the 3% COLA would maintain it for smaller pensions, which is good, but hardly sufficient. Unions have offered to pay more into the system, but at a fixed percentage — like a flat tax. No union leader in line to get a $150,000 – $200,000 pension — and there are plenty — has stepped up and said “cut me more than the little guys who really need it.” They want it all and they want it tax free.

 

How this calamity ultimately will resolve is conjecture for now because no reform proposal under discussion in Springfield comes even close to dealing with the real numbers. I would hope, however, that we end up addressing it the way insolvencies are traditionally addressed.  That means setting up different classes of claimants whose claims are reduced in different percentages.  In this case, the classes should be defined by variables that include need, how much the pensioner paid in, whether the pension was artificially spiked, whether it started at a true retirement age and whether the payment is reasonable. Heck, there may even be an opportunity to really stick it to the the abusers — double dippers and spikers collecting pensions vastly disproportionate to the work they did.  And those adjusted claims should be on an entirely different system not centered on defined benefits, but that’s a topic for another day.

 

Just don’t expect that approach to come from political or labor leadership because they would be the ones facing the biggest haircuts.

 

Mark Glennon

 

 

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Mark Glennon

Prairiejane-

Yes, I think you can. It’s generally agreed that one constitutional approach is to leave the existing pensions as they are but set up an alternative for pensioners to opt into. That alternative plan could have the elements I suggest or whatever else the state decides. An option to cash out of one’s interest in the old fund might also be offered. The state would then proceed to properly fund the new plan but starve they old one (though they might not say that expressly). Rational pensioners would then opt out of the old one, thereby replacing it.

prairiejane

you can’t possible set up classes and make cuts that way in light of the constituional prohibition.

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