Pension Games: Bad Decisions and Backroom Deals in Illinois Public Pension System

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Unheard-of in the private sector, the plans are burgeoning in the public sector, as government employers in municipalities ranging from Baton Rouge to Dallas to Philadelphia attempt to hold on to the legions of baby-boomers who are now qualified to retire.

Union officials say those greater benefits are part of a long-honored compact between governments and their workers. But that average is skewed by the fact that there is a much higher proportion of minimum-wage jobs in the private sector. When similar jobs are compared, the results are mixed: The BLS has found that private sector pay is better for many executive and managerial jobs, while the public sector pays better for many service and technical positions.

And the results can vary significantly by locality. But factor in the value of the city's pension plan, and the city workers come out way ahead, says Joe Esuchanko, president of Actuarial Service Co.


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Back in the late '90s, nobody really cared about those old-fashioned defined-benefit pension plans. As the stock market boomed, workers with k plans were the ones getting rich. Meanwhile, public pension plans, which typically invest about two-thirds of their assets in equities, were suddenly overflowing with surplus money. Politicians responded by handing out heavily sweetened pensions as if they were party favors. With their pension coffers overflowing, state and local legislators were told that the changes wouldn't cost taxpayers anything. The stock market did, of course, collapse, leaving public sector pension plans without nearly enough money to pay for promised benefit increases.

Even more troubling is that many governments continued to sweeten pension plans long after the stock market bubble burst in The benefit enhancements that drove the costs of the Houston and San Diego plans over the edge were implemented in and , respectively. In alone, pension benefits were increased in at least 17 state plans, including those in Delaware, Missouri, Nevada, and New Jersey. All this was happening at precisely the same time that those puffed-up k accounts were shriveling, leaving millions of private sector employees watching helplessly as their retirement security crumbled.

But the benefits promised to state and local employees remained rock-solid, thanks to those constitutional and legal guarantees. In other words, when it comes to state and local pension plans, the bubble never actually burst. But Bangser was hardly surprised. In fact, he expected it. The ramping-up of final salaries-a practice known as "spiking"-to produce outsized superintendent pensions is standard practice among Illinois school boards. And it's not hard to understand why. While superintendents' salaries are paid out of local school board budgets, pensions are not-they are paid out of a retirement system that is funded by Illinois taxpayers.

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So when the local boards engineer those big pensions, they're basically playing with free money. Career-end salary spikes are also commonplace for teachers. But that's hardly the norm, says Steve Preckwinckle, political director for the Illinois Federation of Teachers. While he admits that abuses of the spiking system do occur, he says the system is nonetheless necessary to "make the pensions more livable" for teachers in general.

The salary-spiking incidents certainly haven't helped, nor did the costly early-retirement package. But the major cause of today's problem dates back to the early s, when Illinois legislators began to skimp on pension contributions in order to balance their tight budgets. So, with a tax increase effectively eliminated as an option, Blagojevich has turned to borrowing. But while borrowing may have helped Blagojevich skirt his way around a short-term budget squeeze, it doesn't make the longer-term pension problem go away-it simply postpones it. It's not only tax hikes that the lawmakers in Illinois are sidestepping.

Absent from any of the proposed fixes to the massive pension shortfall is an attempt to cut back pension benefits for unionized workers. Earlier this year Illinois House speaker Michael Madigan sponsored legislation that would sharply curtail the career-ending salary hikes for both superintendents and teachers. But since then the proposed legislation has been amended to exclude the teachers entirely-only the superintendents, who are not unionized, would see the salary spiking come to an end. The truth is, even if they wanted to change the benefits of existing employees, the Illinois legislators would probably run into a brick wall.

Thanks to the widespread constitutional and legal guarantees, politicians even attempting to reduce benefits can almost surely expect protracted court challenges, like the one now being fought by the state employees of Oregon. The state's pension plan is one of the most generous in the country: A recent study by the Oregonian newspaper found that more than a quarter of employees with 30 years of service who retired in received a pension annuity greater than their salary when working. The unions are now suing, claiming that benefit changes for existing workers are unconstitutional.

The Oregon supreme court will hear the case in July, but state attorney general Hardy Myers has already indicated in a written opinion that he believes the key elements of the legislation will be thrown out for being an "unconstitutional impairment of contract rights. But the issue for the year-old Wood, who retired in after working 31 years for the city of San Diego, isn't the dollar amount of his pension.

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His main worry is that the retirement system is going to run out of money. Wood's concerns date to the mids when, under intense budget pressures, San Diego began a policy of deliberately contributing less to the employee pension plan than the amount recommended by the system's actuary. Sound familiar? In , with the plan's finances severely weakened by a combination of the funding policy and a collapsing stock market, the city council voted once again to continue underfunding the plan. That was bad enough, says Wood.

The only way things could possibly get more bizarre is if Trump hired Bernie Sanders and put him in charge of shrinking the size, spending and scope of the U.

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Reach him at jwaters freedomkentucky. Read previously published columns at www. Universities also face a different funding model in the future that likely will be tied to graduation and retention rates. The governor duly noted the source of all this funding pain: a public-pension crisis on a downward spiral reminiscent of the rate of descent experienced recently by the University of Kentucky Wildcats, who blew a point lead en route to a frustrating loss to arch-rival Tennessee on a basketball court in Knoxville. The system is selling assets to cover payments to retirees.

KTRS retirees usually choose a retirement plan that allows spouses to continue collecting the benefits when retirees die. In this particular case, either the retiree or his spouse, currently age 46, will receive the entire Cadillac pension benefits as long as either lives.

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He noted that if either the beneficiary or spouse lives to age 87 — the life expectancy in this case — they will collect taxpayer-backed pension checks for 41 years, 14 years longer than the retiree actually worked in the system. The KTRS plan, including annual 1. Thielen gets a percent raise to lead a system that includes the Kentucky Employees Retirement System, which has only 17 percent of the funding needed to meet its future obligations to pensioners.

Public retirees and state workers should be very concerned that so many dollars in the troubled Kentucky Retirement Systems are being sucked up just in spending related to investing their retirement dollars. She ranks Kentucky No. The big banks just got a new rule that they are going to hate. They either have to increase their reserves or reduce their size.

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The rule comes via the Federal Reserve and flows from reforms adopted in the post economic collapse Dodd-Frank legislation. It looks as though Senate Majority Leader McConnell is having his way with a strategy aimed at getting all the juicy stuff done this year so that he can concentrate on getting a lot of campaign related stuff done next year, just prior to the elections. For months there have been rumors and blogs about how the package of some 55 tax loopholes known as extenders would be a vehicle used to make permanent some big tax breaks for the corporate oligarchs. This week the Senate Finance Committee rolled out and passed a bill that is a simple, straight two-year extension of these loopholes.

Nothing permanent. This will probably avoid a protracted fight over this stuff. It also eliminates a possible vehicle that many advocates were hoping to have in order to make improvements in the Earned Income Tax Credit and the Child Tax Credit. Mike, a professor of Lit down in Portland, writes to point out that I got a bit beyond my headlights with the agony metaphor in the last Weekly. Our word for agony does however come from this source, so we were mostly right.

I report on this to you because the Daley Weekly intends to set a high standard for itself. How can we be so bold as to suggest that the world is filled with liars and cheats if we are not ourselves clear about stuff? Big debate starting in Congress over the nuclear pact negotiated between the U.


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The central idea that Iran is not now able to make a bomb does not seem to be the issue. Obama immediately vowed to veto any Congressional act that tried to undo the deal. It looks like he probably will hold enough votes to prevent an override. The agon is the portion of the Greek Tragedy where the heroes and heroines confront their fate.

It is the origin of our word agony. The Greek agony came last week when they submitted to austerity imposed largely at the insistence of the Germans in return for a bail out of their economy.