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“Ask not about your retirement security.”


By: Mark Glennon*


A major turning point is coming soon that will change the pension debate, and it may be here already — a hopelessly broken retirement system driving people away from government service.


The primary argument for our public defined benefit pension system is usually this: The security it offers is needed to attract good employees, and public workers accept lower pay (arguably) than private workers in exchange for more generous retirement benefits.


Is that still true? Hasn’t it reversed and become a deterrent? Don’t public employees and potential hires now think pension promises mean little? Anecdotally, the answer seems clearly ‘yes,’ but there is some empirical evidence to the contrary, at least for now.


A Chicago teacher recently wrote an article saying this:


The chances that my pension will survive fully intact 21 years from now when I’m eligible to retire are slim to none…. I’ve had no choice but to pay up to 4 percent of my salary into a retirement system that I always feared was unsustainable. But every year, I’ve heard the Chicago Teachers Pension Fund rep recite the same mantra [about pensions never defaulting].


She explained the Ponzi math correctly. “The sky is falling in Chicago,” she wrote.


A young, former state employee I’ve never met, Patrick McGuire, contacted me last week to say he likes this site because it “catalogs the fiscal insanity currently going on” and said he has no idea how much his earned pension benefits will actually pay. He fears his contributions to it may be lost.


Younger employees I talk to are particularly bitter, though most are afraid to talk, fearing union retribution. They are saving more than they would otherwise, which is wise, but that’s telling. They know benefits cannot be paid as scheduled and they are helping fund bloated pensions for senior people. Especially bitter are those in Tier 2 — any public employee hired after 2010 except in a few Chicago pensions. They understand that all unfunded liabilities are owed to Tier 1 workers for services already performed, which they are forced to help pay for.


Heck, even the Executive Director of TRS, a Tier 2 member of Illinois’ largest pension, wrote, “I’m not really too thrilled with paying for my entire pension and paying extra to subsidize somebody who is paying less than half the cost of their pension.”


That’s all anecdotal. There’s no poll or survey I’m aware of about whether potential hires no longer value pension promises. However, we do have a bit of of empirical evidence from one state pension, and it seems to indicate that its members have not yet lost faith. The State University Retirement System, SURS, is one of the Illinois’ five statewide pensions. It’s unique in Illinois because it lets members opt out of its defined benefit pension and choose, instead, a 401(k)-style self-managed plan.


Its members are still mostly choosing to stay with the defined benefit plan. The portion choosing the self-managed plan has been increasing for five years, according to one study, and reached 18% in 2013. Based on SURS’ answer to a Freedom of Information Act Request I made, 15.78% of members chose the self-managed plan for its most recent fiscal year, which ended June 30.


Make what you want of that evidence, but can there really be any doubt about this? While some may still be attracted to public employment because they see a better retirement system, surely that’s ending fast.


Funding levels for most Illinois pensions range from horrible to catastrophic. They are worsening rapidly with no hope of reversal. Contribution levels set by statute are far less than required to stabilize them, much less fix them. Unrealistic accounting assumptions are routinely invalidated by reality. A growing number of pensions have more retirees than active participants. Even huge tax increases like Chicago is now considering won’t come close to adequately funding its pensions. Bad as perceptions are now about Illinois pensions, they will plummet further.


If JFK made his call for public service in Illinois today it would have to be, “Ask not about your retirement security.”


Union leadership continues to say pensions can be fixed by tax increases, but it’s hard to imagine they really believe that. It remains in their self-interest, however, to continue to insist on tax increases to get as much into the pot as possible.


There’s another important aspect to this — about people like that Chicago teacher who work in government despite a retirement system they don’t trust. Sure, a large portion of government employees don’t perform. But there’s another group that does the job, some of them exceptionally well. I know plenty of them. I work often with them. They gave up or could easily find far better pay in the private sector, and they sure didn’t do it for the pension. To them, our message should be frequent: Thank you. But those with enough financial means and commitment to overlook the importance of a good retirement plan surely are a small minority.


This is all just another reason why everybody of any political stripe now should be fed up with our pension system.


Times have changed. Our pension system has become a barrier to public service.


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




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“and public workers accept lower pay than private workers in exchange for more generous retirement benefits.” I hear this a lot and hereby retort: If the public sector retirement is more generous because it makes up for that lower salary while working, when are they paying taxes on that difference when they receive “payback” in retirement? I mean, if a state workers paycheck is 20% lower than his private sector counterpart, and his generous pension makes up the difference, shouldn’t we tax 20% of their retirement income? If we really want a fair and equitable tax plan in this state, either we tax whatever “discount” those state… Read more »

Younger (would-be) public employees recognize that not only is the system unsustainable but that those now retired or close to retirement with their millionaire pensions will bleed the systems dry in a decade or less – with the result that nothing will be left to pay those younger workers.

Andrew Szakmary
You talk about the defined contribution plan in SURS, and that consistently less than 20% of new employees choose it over even the Tier 2 defined benefit plan. The main reason for that is the extremely low state contribution rate, which is only 7% of salary, with no Social Security. Given that the employer portion of the payroll tax is 6.2%, this is like a private employer contributing to SS and 0.8% on top of that to a 401k plan. Contrast this with colleges in other states such as my current employer, the University of Richmond, which participates in Social Security and contributes 10% of my salary… Read more »
One major reason for SURS folks going with a defined benefit plan might be that its the default choice. If a new member fails to choose a plan within six months, they are permanently enrolled in the Traditional Benefit Package (pension). Perhaps Mark can FOIA those numbers to see who made no choice and received the pension by default. Also, whatever choice they make, it is permanent and cannot be changed. I’m guessing some young folks in the system might be spooked by that are just go with the default plan. Another important SURS stat needed here is the plan chosen by job title. SURS covers a… Read more »

No one is keeping the state employee form starting their own retirement savings.