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The JouralStar reported yesterday that the new Tier 3 pension plan can’t be implemented before next fiscal year for TRS, the state teacher’s pension which represents over 60% of the state pension system. Tier 3 is for newly hired workers in TRS and SURS and for their Tier 2 workers who opt in.

But the article didn’t connect the dots and missed the real impact.

The new state budget, recently passed along with the Tier 3 changes, assumed $500 million dollars in savings from the change this year. That clearly won’t happen (though some minor changes may be realized if SURS can implement the changes this year).

The Better Government Association  wrote a piece a couple weeks ago questioning whether the savings would materialize, and we wrote about that in our earlier quicktake: “Oh, come on. The budget with the Tier 3 changes was passed six days after the new fiscal year had already started. It takes no pension expert to know that complex changes can’t be implemented immediately.”

The biggest lesson here is one you should already know: Don’t believe anything about savings from a pension reform proposal until some credible professional analyzes and scores it.

Blame both Rauner and the General Assembly for the lie.

And don’t expect the changes to save $500 million next year, either. We need more data to say for sure but that, too, looks grossly inflated to me.

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

 

 

 

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Mike

The amount in the title of the blog post could be changed, the post dated 1971, and ditto marks used through 2017.
Illinois public sector pensions are a legislative and budget hellhole.

Steve-Oh
These types of pension plan changes are called a “soft freeze”, meaning future hires won’s be in the plan. But the problems right now and for the next 10-20 years are caused by current retirees and current employees and the pensions they’ve already earned. Massive unfunded accrued liabilities, essentially unaffordable to even get CLOSE to getting them funded. And soft-freeze has NO impact on the disaster that currently exists. None. The situation is so dire, that even a ‘hard freeze’ where actives earn no additional pension in future years and would only have their currently earned pension at the freeze date, has the disaster that interest and… Read more »
nixit

A soft or hard freeze would impact the plans greatly because they reduce the incoming contributions that the pension systems require to stay theoretically afloat. That is the main reason why pensioners adamantly fight any sort of pension shift, not because they altruistically want current/future workers to have a well-funded retirement, but rather to protect their own withdrawals.

Steve-Oh
No, what I’m saying is that a soft-freeze that keeps the plan the same for EVERYONE covered by the plan now……….but prevents future hires from getting in………does VERY LITTLE to reduce costs. It would take 10,20 years to start reducing actual cash contribution requirements. So a soft freeze does not solve the crisis, not even close. Cash contribution requirements stay GINORMOUS and unaffordable for at least a decade, and by then it’s already game over. The current Liabilities keep growing because of all the current employees in their 30s, 40s, 50s. New hires in their 20s who would not get in the plan, are not the driver… Read more »
Erik

And the beat goes on and on and on. Look how fast we’re sinking under a republican governor. Imagine what things will look like under our next democrat governor.

We’re now on the back slope of the Laffer Curve and clearly in a death spiral. What will be the catalyst for final financial collapse? What will Illinois look like as it lurches into default? Like so many others, I hope to be long gone.

Bross

Can we get to tier zip. As in get out of the retirement business? 401k for all.

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