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Illinois public pensions

Illinois public pensions
Pension system
Number of pension funds 5
State pension funds: •Teachers Retirement System *
•Judges Retirement System *
•General Assembly Retirement System *
•State Employees Retirement System *
•State University Retirement System
System:
Pension health
Estimated liabilities:* $126,435,510,000 (2011 PEW study)
Percent funded: 51%
Unfunded liabilities: $61,953,400,000 ($61.9 billion)
State employees
Number of state public employees: 158,587
Total pension fund members (active and inactive): 798,787
Beneficiaries receiving payments: 299,337


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Illinois has five state-funded pension systems,[1] including the Illinois Teachers Retirement System (TRS). The state's unfunded liability is more than three times annual payroll costs.[2]

Illinois has 158,587 total public employees as of 2010.[3] In Fiscal Year 2010, the state has a total of 798,787 active and inactive pension fund members, with 299,337 receiving periodic benefit payments. [4]

The pension systems generally get their money from three sources: the state, employees covered by the systems and investment income.[1] TRS also gets money from local school districts.[1]

The state's pension code is more than 1,000 pages of laws that govern how the pension plans are funded, set benefit levels and lay out criteria for who qualifies. Experts say healthy pension plans require stable, well-structured rules that are rarely altered, but lawmakers in Illinois have altered the code 700 times since 2003.[5]

[edit] Recent news

Illinois is facing a crisis with its publicly funded pensions. In 2010 state government was responsible for over $130 billion in pension payments, however they only had $46 billion set aside, which leaves an unfunded liability of about $85 billion. [6] In fiscal years 2006 and 2007, the state was supposed to contribute $4.6 billion to the pension systems. Instead, legislators changed the law to pay only $2.3 billion. [7]

Illinois’ unfunded pension obligations grew by about $7 billion in fiscal 2011 but its funded ratio dipped just slightly to 43 percent from 45 percent, according to the state’s latest pension figures. The latest review based on fiscal 2011 figures shows Illinois’ unfunded liabilities rose to $82.9 billion for a funded ratio of 43.4 percent from $75.7 billion for a funded ratio of 45.4 percent in fiscal 2010. [8]

On Jan. 3, 2012 Gov. Pat Quinn released a budget proposal, which includes an $800 million deficit. In the proposal Illinois in fiscal 2013 is expected to spend $33.7 billion, about $1.5 billion more than this year. By fiscal 2015, Illinois' expenditures will reach $34.2 billion, or $2 billion more than the current budget, primarily due to spending on pensions. Illinois' pension payment jumps $1.1 billion in fiscal 2013, from $4.2 billion this year to $5.3 billion. By 2015, Illinois will be making an annual pension payment of $5.9 billion. [9] The Governor's 2013 budget excludes both pension and borrowing costs in a shift similar to the federal government's classification of "mandatory spending." Without these costs, the budget purports to spend $901 million less than five years earlier. With pension and borrowing costs, however, the budget spends $3.4 billion more than five years ago.[10]

State Treasurer Dan Rutherford said the biggest financial issue facing Illinois is the unfunded liability of the pension plans. [11]

A pension reform plan unanimously passed by the House in March 2012 would require a local government who hires an ex-legislator at a high salary to pick up the costs of any automatic increase in his state pension. It was a response to a Chicago Tribune investigation that revealed former Democratic state Rep. Robert Molaro of Chicago nearly doubled his state-supported pension to more than $120,0000 a year because he worked one month as a well-paid aide to Ald. Ed Burke, chairman of the City Council Finance Committee. [12] The bill is now in the hands of the Senate.

For 2012 the state is facing a $1.2 billion jump in its pension payments from the past year to this year. In total, the state will have to kick in $5.3 billion this year to the pension system, compared to $4.1 billion last year. By fiscal 2017, the state will be paying $6.2 billion into its pension funds. The increases are, in part, meant to chip away at the $83 billion unfunded liability — how much more the state owes current and future retirees compared to assets on hand — the pension funds are facing. The state will be making payments on those bonds and ones issued by former Gov. Rod Blagojevich through 2033. Between the current fiscal year and 2033, the state will have to cough up $25.8 billion for those loans, $9.5 billion of which will be interest alone. [13]

[edit] Pew report

Illinois has the worst funded pension system in the United States. [14] The Pew Center for the States reported that as of 2008, Illinois is one of the worst states at contributing to its pension systems. If Illinois' elected leaders do not address the state's pension woes, the bulk of the state's budget will have to be used to pay for the pensions rather than go towards education or social programs. [15] In 2011 the Pew Center updated its report showing Illinois sets aside only 51 cents for every dollar it has promised to pay out. [16] There is no danger that Illinois' retired teachers, state employees and university staff will stop getting their pension checks. But the state eventually will have to come up with billions of dollars or find a way to reduce pension costs. [17] Other mishandlings in the pension system, including salary spiking, compounding COLAs double dipping, also added to the pension shortfall. [18]

[edit] Paying into the system

Under a 1995 law designed to bring the systems to 90 percent funding by 2045, the state eventually would contribute enough to cover the normal cost and the principal and interest on the unfunded liability. But the ramp-up in state payments is not complete and the unfunded liabilities are not projected to drop until 2035, according to the Commission on Government Forecasting and Accountability, the legislature’s nonpartisan research agency. The unfunded liability now stands at $86 billion. In fiscal years 2006 and 2007, the state was supposed to contribute $4.6 billion to the pension systems. Instead, legislators changed the law to pay only $2.3 billion. [19]

For the first time in two years, the General Assembly agreed to pay into its pension systems and approved to plan to pay $4.5 billion in FY2012.[20] The state had previously said that it would pay more into the system, quoting $5.4 billion, approximately 15% of its budget, as going toward pensions, higher than the national average of 4%.[21]

In fiscal 2012, the state will be required to spend $6.4 billion on pensions, which includes interest on borrowing the state did in fiscal 2003, 2010 and 2011. By 2045, the pension payment is projected to be $22.1 billion, according to the Commission on Government Forecasting and Accountability. [22]

[edit] Federal bailout

In the governor's proposed FY2012 budget, the options for “significant long-term improvements” in its five pension systems included “seeking a federal guarantee of the debt" as well as curtailing public employee retirement benefits, borrowing more and increasing annual state pension contributions were identified as other choices.[23] U.S. Rep Peter Roskam from Illinois said that there was no chance of the federal bailout of the state pension system.[23] In October 2011 Roskam sent a letter to the Illinois General Assembly reiterating there are no federal funds for a pension bailout. Roskam urged the legislature to enact pension reform on their own. "There will be no federal remedy, and so the solution must come from within the State of Illinois," Roskam wrote in his Oct. 17 letter.

[edit] Bond sale

The state hopes to raise Illinois is seeking to raise $3.7 billion through a bond issue the week of Feb. 21, 2011, in an effort to pay off some of the state's pension obligations. The state has tried borrowing to pay off pension obligations previously, and it was unsuccessful. Even if the sale is successful, the money raised will not alleviate the problem. The teacher's pension fund would see $2 billion from the sale, but that pension fund alone is underfunded by $40 billion.[24]

[edit] SEC Inquiry

The U.S. Securities and Exchange Commission has launched an inquiry into public statements by Illinois officials about the state's underfunded pension fund focused on public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system.[25]

[edit] Illinois' Pension Plans

The five state pension plans for Illinois are managed by the office of the Comptroller. Information about the funds and a daily balance in each fund account can be found at the comptroller's website. [26] The following chart is a breakdown of the five pension plans as of Jun 15, 2010. [27]

Plan Current Value Percentage funded Unfunded liabilities Total state employees Avg. pension
Teachers Retirement System $38 billion 52.1 percent $73 billion 169,158 active members $43,164
State Universities Retirement System $14.3 billion 54.3 percent $26.3 billion 45,669 $29,267
State Employees' Retirement System $70.4 million 43.5 percent $25.3 billion 65,599 $22,593
Judges' Retirement System $616.8 million 39.8 percent $1.5 billion 982 $87,398
General Assembly Retirement System $71.6 million 29.2 percent $245.2 million 400 $39,643

[edit] Teachers Retirement System

The Teachers Retirement System was created in 1939. TRS members include all full-time, part-time, and substitute Illinois public school personnel, but not including those employed by Chicago Public Schools. Chicago teachers are covered by their own pension. According to the TRS website, the pensioner's retirement annuity will not be more than 75 percent of the final average salary.

A member is eligible to receive a monthly retirement annuity when he or she terminates active service covered by TRS and meets the following age and service requirements:

  • age 62 with 5 years of service
  • age 60 with 10 years of service
  • age 55 with 20 years of service
  • age 55 with 35 years of service

As it stands now, Illinois teachers get higher benefits, on average, than government retirees in most pension plans around the country, according to an analysis by the National Association of State Retirement Administrators. Illinois' average teacher pension for retirees covered by TRS — about $41,000 — ranks seventh highest of the 101 major pension plans tracked by the association. Illinois pensions are not taxed by the state. [28]

The Teacher's Retirement System assumes an 8.5% annual return on assets, which is tied for the highest assumption among statewide pension systems nationally.[10]

[edit] Chicago Public Schools

The Civic Federation has thrown its support behind a property tax hike and proposed $5.9 billion budget for Chicago Public Schools in 2011-12, but it has concerns about the long-term financial health of the school district. But the federation warns of an impending fiscal crisis for the nation's third-largest school district in 2014, when pension contributions will jump by more than 200 percent, saddling CPS with an additional $450 million in payments. Escalating pension and health care costs have led CPS' budget team to project an $861 million deficit in 2014, and that's assuming all other costs remain the same. [29]

The Federation's 82-page analysis of next year's CPS budget endorses some painful decisions - like denying teachers a four percent cost of living increase and raising property taxes. It says such decisions are in part necessary to maintain class size.[30]

[edit] State Universities Retirement System

The State Universities Retirement System was created in 1941. SURS serves over 70 employers in Illinois including state universities, community colleges, and state agencies.

A member is eligible to retire when they meet the following requirements:

  • Age 55 with 8 or more years of service
  • Age 62 with 5 or more years of service
  • Any age with 30 or more years of service

[edit] State Employees' Retirement System

The State Employees Retirement System was created in the mid-1940s. According to the State Employees' Retirement System website, "the final average earnings is determined by comparing: (a) the average of the four highest paid consecutive academic years of employment, and (b) the average of the last 48 months of employment, using whichever is higher." [31] The pension plan includes a cost of living adjustment of 3 percent.

A member is eligible to retire when they meet the following requirements:

  • Age 55 with 8 or more years of service
  • Age 62 with 5 or more years of service
  • Any age with 30 or more years of service

The final average compensation is the 48 highest consecutive months of service within the last 120 months of service.

[edit] Judges' Retirement System

The Judges' Retirement System was established in 1941. It was originally known as Public Employees' Retirement System. The pension plan includes a cost of living adjustment of 3 percent.

A member is eligible to retire when they meet the following requirements:

  • At age 55 with 26 years of credited service.
  • At age 55 with 10 years of credited service (reduced 1/2 of 1 percent for each month under age 60). If a judge takes a reduced benefit, it is effective throughout their retirement.
  • At age 60 with 10 years of credited service.
  • At age 62 with 6 years of credited service.

The benefit is based on the final salary and total credited service of a judge. It is paid monthly for the remainder of their lifetime.

[edit] General Assembly Retirement System

The General Assembly Retirement System was established in 1947.

A member is eligible to retire when they meet the following requirements:

  • At age 55 with 8 years of credited service.
  • At age 62 with 4 years of credited service.

The maximum pension payable to a member of GARS is 85 percent of their final salary with 20 years of service credit.

[edit] Legislative actions

Finding a way to fund that $85 billion will be the focus of the 2011 general assembly. To compound the state's problem, in May 2010, the legislature amended the State Pension Funds Continuing Appropriation Act to specify that no pension fund payment is required in fiscal year 2011 until the governor and comptroller agree that adequate funds are available. [32] Gov. Quinn is in favor of selling $4 billion of bonds to pay the state's annual payment on the five pension programs it runs. [33] There has also been talk by Gov. Quinn about redesigning the five plans to cut costs. The state sold $3.5 billion in bonds to make payments for 2010. [34] Moody's Investor Services said Illinois' reliance on the sale of bonds to fund the state's pension programs could further weaken the system. [35] Crain's Chicago Business reports that Illinois already has about $13 billion in pension obligations bonds still outstanding from $10 billion sold in 2003 and $3.4 billion in January. [36]

The way the Illinois legislature has underfunded the pension plans has drawn severe criticism from watchdog organizations. One organization, National Taxpayers United of Illinois, has taken to releasing documents detailing who is drawing the highest pensions in Illinois. [37] The NTUI is one of the organizations seeking to end public pensions in Illinois for new hires and shift retirement plans to an employee contribution plan similar to a 401(k). For those employees under the current pension plans, NTUI leader Jim Tobin said he wants to see them contribute a minimum of 5 percent to defray costs.

A Better Government Association investigation found that 27 of the 286 retired office holders—or nine percent—are enjoying annual pensions of more than $100,000. In some cases, retirees draw their pensions while also working in other government-related posts or lucrative private-sector jobs. Thirty retirees, or 10.5 percent, have drawn more than $1 million each so far. [38]

Tom Morrison, a Palatine Republican who was elected to the Illinois General Assembly in 2010, made headlines when he opted out of the lucrative pension plan for members of the general assembly during his freshman orientation. Morrison said he did not want to be a financial burden on a system that needs an overhaul. He said cuts must be made and he wanted to be an example. Morrison said once a legislator's service to the state is over, they should no longer receive compensation. [39]

[edit] Collective Bargaining

Gov. Pat Quinn is supporting a bill that would limit the collective bargaining rights of for thousands of state employees, saying his proposal is a balanced approach aimed at ensuring a separation between rank-and-file workers and upper managers. Quinn's office argues the move would save the state money and make government more efficient, saying the bill would apply to high-level management positions such as attorneys, legislative liaisons and deputy chiefs of staffs for state agencies. The idea is to prevent situations where there is no clear leadership at state facilities because all the workers are union members and managers can't discipline employees under them. [40]

[edit] State Pension Reforms

[edit] 2012

In April the Illinois House overwhelmingly approved a proposal to make it more difficult to approve government worker pension increases. The measure, proposed by Michael Madigan will likely be considered by voters in the fall. The proposed Constitutional Amendment would require a three-fifths vote by state lawmakers, city councils and school districts around the state to sweeten any employee pension perks. The bill is now in the hands of the Senate, but is expected to be approved. [41]

To shore up teacher pension plans, Madigan proposed a plan to divert revenue from corporate personal property replacement taxes to bolster pension funding. However school districts and local governments, which receive millions in funding from the tax, are opposed to the plan. Madigan has introduced three amendments to House Bill 3637. One would divert about $536 million, another would divert $982 million, and the third would divert $1.4 billion. The tax brings in $1.4 billion for local governments. [42]

Public unions are gearing up to oppose proposed pension changes, including increasing employee contributions by 3 percentage points, reducing pensioners’ annual cost-of-living increases from 3 percent compounded to the lesser of 3 percent or half the rate of inflation, and increasing the retirement age to 67. Fearing those reforms will be "rammed through" the legislature, the IFT, IEA and AFSCME say they have offered concessions at the negotiating table, although they decline to detail them or offer an overall union plan to address the state’s $85 billion in debt. The IFT said labor’s ideas would cost members more money and save the state billions of dollars. [43]

[edit] 2011

In 2011, the Chicago based Civic Federation urged the state to curtail pension benefits for existing state retirees by limiting benefit increases to 3 percent a year or one-half the rate of inflation, whichever is less. It is a "constitutionally questionable maneuver" that would extend 2010 pension reforms that imposed identical limits on workers hired after Jan. 1, 2011. This move, according to the group, would help Illinois avoid a tripling of its backlog of bills. [44]

In March of 2010 the legislature passed a measure to limit the amount of retirement pay a judge or former lawmaker could collect from their state-funded pension plan.The plan caps those pensions at 60 percent of their salary from their last eight years on the job. The proposal would affect pensions from the General Assembly Retirement System and the Judge's Retirement System. The legislation pushes the age for full retirement to 67. It also caps the annual pension amount at $106,800. Lawmakers estimate the reform will save taxpayers about $1.62 billion. [45] Over 35 years the savings are estimated to be nearly $200 billion. [46]

In Gov. Pat Quinn's budget address he said the state may seek a federal bailout for the pension crisis, but his office later said that is not necessary. [47]

One way lawmakers may seek to fix Illinois' pension plans is to ask current workers to pay more into the plan. Republican House leader Tom Cross proposed to increase contributions for some workers to as much as 20 percent, which would save an estimated $25 billion. House Speaker Michael Madigan, a Democrat, floated an idea to cut pension benefits for current employees, although this would likely face legal challenges. [48] Illinois Senate President John Cullerton, a Democrat, released a legal memo stating retirement benefits cannot be altered unilaterally by the legislature because they would be unconstitutional. [49] [50] The Wall Street Journal reports that "critics say these proposals will go only part way in erasing the $82 billion unfunded pensions liability that is projected to grow to $139.8 billion in 2030." [51]

Borrowing the Way Out?

The University of Illinois Institute of Government and Public Affairs released a report that says borrowing to cover Illinois' pension payments is unsustainable and will affect the state's long-term financial health. The report outlines the state's options, which include raising taxes, cutting spending or reneging on its past promises to employees. [52]

Bi-Partisan Plan

A new bi-partisan plan put forward in the Illinois legislature would require many state employees to pay nearly 17 percent of their salaries into the pension system to keep their current benefits. Or they could keep more of their money but receive lower benefits at retirement. A third option would be a new 401(k)-style investment plan. Officials said the savings will depend on which options employees choose. But the amount will be billions of dollars over the years to come, with employees contributing hundreds of millions of dollars more. The Illinois Constitution bars reducing retirement benefits for current government employees. [53]

The bipartisan plan would: [54]

  • A state worker now having 4 percent of his or her paycheck withheld as a pension contribution would see that amount increase to 9.29 percent under the legislation.
  • University workers now contribute 8 percent of their paychecks toward their pensions but would have to set aside more than 15 percent to retain that top benefit.
  • For judges, their existing 11 percent withholding for pension would jump to a more than 34-percent pension contribution from their paychecks, and lawmakers would go from 11.5 percent to nearly 25 percent under the plan.

Union Response

The bi-partisan plan was not without its opponents. AFSCME and teachers’ unions said they would challenge it in court on the grounds that the Illinois Constitution states that benefits of state-run pensions “shall not be diminished or impaired.” [55]

However, union officials are battling to also include a clause which would change employee pension contributions from being funded roughly 2-1 (state-employee), to being 90 percent funded by the state. The clause would take effect in 2015 and require the state collect an additional $550 million a year in property taxes.[56]

Plan Dropped - For Now

After receiving a flurry of letters, telephone calls and emails opposing the plan for state employees to pay more into their pensions, House Speaker Michael Madigan and House Minority Leader Tom Cross abruptly pulled the plug on that action. [57]

Pat Quinn rejected a pension reform plan sponsored by Cross that would not change current retirement credits. Cross' plan included three options:

  • They could pay more and keep their current level of pension benefits.
  • Keep payroll deductions the same and earn lower pension benefits.
  • Or have the state match what they pay into a 401K-type retirement fund.

Quinn said the Cross plan "laid an egg." [58]

Madigan and Cross said they plan to revisit the pension reform plan in the fall veto legislative session. In a joint statement they said they would convene hearings over the summer of 2011 in an attempt to hammer out a solution “for both those who are members of the pension systems and those who fund them.” [59] The state’s five pension systems for teachers, college professors, judges, state lawmakers and rank-and-file state employees have a combined shortfall of at least $83 billion. A report by the Pew Center on the States concluded that Illinois is the most underfunded system in the country.[60]

Union officials do not want to see the Cross/ Madigan plan resurface. Public employee unions fought the changes through aggressive lobbying and outreach, and a massive advertising campaign under the banner of the We Are One Illinois Coalition created to fight any diminishing of pensions. [61]

Culerton Takes a Shot?

Cullerton believes the pension reform plan offered by Cross and Madigan will not pass Constitutional muster due to the proposed reduction of pensions for current public employees. According to the Chicago Tribune Cullerton said he wants to work closely with unions to negotiate changes to the House plan. Cullerton suggested one path to a constitutional solution would be by following "basic contract law." [62]

New Republican Reform Plan for Chicago

In October 2011 Cross filed a bill to give more accountability to taxpayers by reconstituting the City of Chicago and Cook County pension boards. The bill will require pension boards statewide to refer any suspected fraud to the local authorities.

According to a press release issued by Cross' office House Bill 3827 will "amend the Illinois Pension Code to state that if any board member or employee of any retirement system or pension fund created under the Pension Code or the Illinois State Board of Investment has reasonable suspicion to believe that fraud is being committed or has been committed, then that individual shall either notify the board or the State’s Attorney of the county having jurisdiction of the alleged fraudulent activity."

Additionally the bill will:

  • Standardize the numerous boards of the City of Chicago Pension Funds to have seven members. All current board members’ terms will expire and going forward the board will consist of four Mayoral appointees who are not members of the fund or elected officials, two elected active members and one elected annuitant member.
  • The board of the Cook County Pension Fund will also be reconstituted. The new board will be made up of nine members, including five appointees of theCounty President who are not members of the fund or elected officials, along with two elected active members and two annuitant members.

Combating Double and Triple Pension Dipping

A Chicago Tribune/WGN-TV investigation found at least eight Chicago labor leaders who are eligible for inflated city pensions also stand to receive union pensions covering the same work period, thanks to a charitable interpretation of state law by officials representing two city pension funds. According to the article "one labor leader stands to reap more than $400,000 a year from three pensions — the city laborers fund, a union district council fund and a national union fund — all covering the same time period. During his expected lifetime, he stands to receive approximately $9 million, according to an analysis based on the funds' actuarial assumptions." [63] Union officials are accumulating these benefits even though the state pension code includes language aimed at preventing double dipping.

Gov. Pat Quinn is expected to sign into law a crackdown on public pension abuses that saw top union officials land hefty retirement packages, double dip and substitute teach for one day but win benefits for life, according to the Chicago Tribune. The law will end the practice in which some city of Chicago municipal and labor union workers have taken leaves of absence from their city jobs, moved to full-time positions with their unions and then collected pensions from both. That double-dip possibility will be eliminated for current and future union officials. The reforms also mean some current Chicago-area union leaders will be unable to base their public pensions on hefty union paychecks, but only on work performed as a city employee. The law would also prohibit someone from drawing a teacher's pension after working as a substitute teacher for a day. [64]

Government Pensions for Government Work - Period

Responding to the Chicago investigation Cross filed a bill that would "end the double dipping altogether by blocking union leaders who benefit from city pension funds from receiving any additional pensions for the same work period, regardless of where the pensions come from or how they're structured." [65]

Sen. Matt Murphy, a Palatine Republican, and former gubernatorial candidate Adam Andrejewski, founder of For the Good of Illinois, filed a pension reform bill that would prohibit union leaders who are not government employees from drawing government pensions. [66]

Any major reform entails significant legal risk, given a provision in the state constitution that prohibits diminishing or impairing the pensions earned by state workers. [67] The Illinois Education Association is preparing its members to oppose any pension reform they deem as "unconstitutional." [68] Lawmakers are continuing to discuss pension reforms, but no move to pass legislation has been made since the previous failures. [69] The legislation could be considered during the veto session, although Rep. Raymond Poe of Springfield said he believes election politics would prevent anything from happening until after 2012. [70]

Illinois Treasurer Dan Rutherford wants major changes in the pension system for public employees that would require workers to contribute more of their salary if they want a defined benefit pension. He warned that the unfunded pension liability could result in litigation against the state that would see a federal judge demand cutbacks in state spending or tax increases. He said the state has an unfunded pension liability of $140 billion, the “sleeping giant in the room.” On a recent trip to New York he said he told financiers on Wall Street, “Do not loan my state any more money, they have an addiction to debt.” [71]

Republican leaders said that the pension debt has risen from $54 billion in 2003 ($4,300 per citizen) to $119 billion today ($9,300 per citizen) — a 120 percent increase. This indebtedness, they said, has put Illinois in a shameful spot, with the second largest bond and pension debt of any state. [72]

[edit] Teacher pension reform

In order to address unfunded liabilities with the Teachers Retirement System, House Speaker Michael Madigan has not ruled out shifting billions of dollars in teacher retirement costs onto local school districts. Madigan has said there is a need to evaluate Illinois’ practice of funding pensions for local teachers and university employees. Gov. Pat Quinn’s budget office earlier this month said that it’s weighing the idea of shifting pension costs to local government. [73]

Senate President John Cullerton touted the shift idea, saying it s unfair to Chicago because the city finances its own teachers pension fund with no, or minimal state support. But Chicago taxpayers also contribute to the state Teachers’ Retirement System, which funds pensions for suburban and downstate teachers. [74] Madigan and Cullerton argue that teachers are not state employees, but are employed by local school districts. Gov. Quinn said shifting the burden to local districts would save the state more than $1.3 billion a year. [75]

The plan is running into resistance from groups including the Illinois Association of School Boards, which said Tuesday it would force local districts across the state to make an additional $800 million in contributions toward teacher pensions–likely leading to cuts in education spending, hikes in property taxes, or some of both. The Illinois State Board of Education put 94 school districts on two of its financial watch lists last year with another 203 flagged as potentially worrisome. For more than two decades, the state failed to pay its full share into the pension systems. This created an imbalance that now imperils the long-term survival of Illinois’ five pension systems, which serve the state’s teachers, university workers, state employees, judges and General Assembly retirees. [76]

One reform plan calls for university employees to pay 11 percent as opposed to the eight percent they currently pay. Shifting the pension costs away from the state would force universities to look at several options, including boosting the percentage being paid by employees, cutting programs, raising tuition or some combination of each. [77] University officials have been testifying to legislators that a shift in pension costs would cost the universities tens of millions of dollars annually. [78]

TRS Spends Millions on Money Management

Following an analysis of TRS, The Better Government Association revealed the organization paid more than $1.3 billion for money managers and brokerage firms to handle its $30 billion-plus in financial assets during a 10-year period ending in fiscal 2010. According to the report TRS’ 10-year average rate of return was 3.7 percent excluding the cost of fees, far below its 8.5 percent annual target return. Including fees, the pension’s return during that period was 3.3 percent, according to TRS, which which is just below the median of 3.4 percent. [79]

Almost 200 firms received more than $1 million in fees, while the top 10 firms averaged $38 million each during the 10-year period between 2001-2010, the BGA found. [80]

According to the report TRS said its payouts to money managers is in line with other public pensions of similar size and that its return was hurt by “steep losses sustained primarily during the 2008 and 2009 global financial crisis that pulled down the system’s 10-year average rate of return.” TRS added that its investments rebounded with 2011’s 24 percent return. [81]

[edit] Municipal pension reform

Like the state funded pensions, pension plans managed by municipal governments in Illinois are also facing severe funding issues. In December 2010 the Illinois legislature passed a pension reform bill that placed new demands on municipalities for funding police and fire pensions. The bill requires municipalities to increase pension funding to bring the retirement plans up to 90 percent solvency over the next 30 years. Chicago Mayor Richard Daley opposes the reform saying the plan will force Chicago leaders to dramatically raise property taxes. [82] The proposals passed by the legislature were also fought by police and fire unions. [83] Gov. Pat Quinn has not said if he would sign the reform bill. [84]

In Galesburg, the city has $715 in a trust fund for retired city workers that needs an estimated $8.5 million to meet future obligations. The city’s police pension fund takes 13 percent of the property tax levy, up from 7 percent just five years ago. The share of property tax revenue has risen from 9 percent to 14 percent over the same period for the fire department pension fund. The bigger bite pensions are taking out of tax revenue has meant less money for the city’s general fund, which has seen its share of the property tax levy fall from 67 percent to 56 percent since 2006. [85]

New worries over the depth of the state's pension hole is also becoming a concern for local officials who are afraid they may have to pick up the tab for some of the state's pension plans. The Teachers' Retirement System, the largest and costliest of Illinois' pension programs, is now almost $40 billion short of what's needed to cover future benefits — the deepest financial hole in 20 years of state records. [86]

[edit] County pensions

The DuPage and Will County boards voted themselves into the special Illinois Municipal Retirement Fund program that was specifically created for elected county officials in 1997. The two boards pay into 32 pension plans that will cost taxpayers in those counties almost $1.2 million this year. DuPage has the highest average pension for county board retirees among the collar counties. In Will County, the average pension payout for former county board members is $25,130. The average is $10,557, $8,656 and $3,560 respectively in Lake, Kane and McHenry counties. [87]

Some critics don't think county board members should receive pensions at all. Collin Hitt, senior director of government affairs at the nonpartisan government watchdog organization Illinois Policy Institute, told The Daily Herald that part-time government employees don't deserve a lifetime pension. Another perk of the special county pension program is that credit is given for other government work. So a retired county board member's pension is boosted by elected or hired service at townships, municipalities, park districts or even another job at the county. Many former county board members in DuPage and Will counties have credit from other work. A bill passed by the state legislature is awaiting Gov. Pat Quinn's signature to abolish the special county pension program. [88]

[edit] State skips payments

The state payment to TRS in July 2010 was $90 million, but it was supposed to have been $196 million.[1]

In 2008, the state should have made an actuarially required payment of $3.7 billion, but it contributed less than $2.2 billion.[2] Gov. Quinn has proposed borrowing the $3.7 billion, but the idea has stalled in the Senate, where Republicans favor spending cuts instead of more debt.[89] A nonbinding advisory referendum appeared on ballot in 21 towns that asked voters if the Illinois General Assembly and governor should reform pensions for public-safety employees without further burdening local taxpayers during the 2010 elections. Over 70 percent of the voters responded "yes" to the question, with Burr Ridge supporting the measure at 86 percent.[90]

The state relied on extensive borrowing to give the impression that its pensions are well-funded, including a $10 billion offering in 2003. The state then skipped contributions into the system for several years, creating additional funding problems. A recent study by Northwestern University projects that Illinois's pension system is among a handful that could run out of money by 2018.[91] That would create a yearly $14 billion hole, requiring a projected 32% of the state's revenue for pensions.[92]

[edit] Pension Litigation

In 2005 a lawsuit was filed challenging whether the Board of Education of Chicago violated its legal duty under the Illinois Pension Code submitting a contribution that was $40,635,883.26 short of the requirement with unilateral authority. The case, Board of Education of Chicago v. Public School Teachers’ Pension & Retirement Fund is currently in a procedural battle over whether the Board must redraft its complaint to name all 3,400 teachers as defendants, in the process having to find and serve each one with a copy of the suit. [93]

[edit] Sale of assets

Because the state has not funded its share of pensions system costs, they are faced with selling assets to pay for retiree pension benefits.[1] Such sales could increase the systems' dept because they won't have either the assets or income from the state to invest.[1] The TRS has sold assets for the prior six year, the biggest sale being that of $1.68 billion in the 2009 budget year.[1] It is now looking at selling as much as $3 billion out of a fund balance of about $33 billion.[1]

In October 2010, the Executive Director of the Illinois State Board of Investments, which manages one-fifth of the state's pension funds, said it is selling $80 million of assets a month to pay pension benefits.[94]

[edit] Top pension recipients

A tax watchdog group released a list of Illinois’ top 100 pension-earners, the majority of them retired college or school district administrators. About a quarter of the pensioners are former Chicago-area superintendents, including several in the western suburbs pulling in more than $200,000 a year after retirement, according to the list from the Illinois Taxpayer Education Foundation. [95] A list of the top 100 pension earners can be found here.

A former Chicago labor leader spent one day on the city payroll which netted him an annual pension payment of $158,000. His pension is so high that it exceeds federal limits and required the city pension fund to file special paperwork with the Internal Revenue Service to give it to him. A former president of the Chicago Federation of Labor, Gannon ands to collect approximately $5 million during his lifetime, according to an analysis based on the fund's actuarial assumptions. He now draws the pension while working for a hedge fund, Grosvenor Capital Management, that does work with public pensions, including the Teachers Retirement System of Illinois. The firm also was one of Mayor Rahm Emanuel's largest campaign contributors. [96]

[edit] TRS Facts

As of June 30, 2009, there were 169,158 active TRS members with an average age was 42, 101,606 inactive members entitled to but not receiving benefits in TRS, and 94,424 annuitants and beneficiaries receiving benefits. The average age of an annuitant was 69. As of June 30, 2009, the average annual retirement annuity was $43,164.[97] In 2010, the state began offering early retirement to police officers.[98]

[edit] Retirement age

A member is eligible to receive a monthly retirement annuity when they are:[97]

  • age 62 with 5 years of service, or
  • age 60 with 10 years of service, or
  • age 55 with 20 years of service (discounted annuity), or
  • age 55 with 35 years of service.

[edit] Benefit calculation

TRS determines a member's retirement benefit by applying a statutory formula based on average salary and years of service. The salary used in the calculation is the average of the creditable earnings in the highest of four consecutive years within the last 10 years of service. For post-June 1998 service, the average salary is multiplied by 2.2% for each year of service.[97] The member’s age retirement annuity will not be more than 75 percent of the final average salary used in the calculation.[97]

A qualifying member may retire before age 60 with a nondiscounted annuity by making a contribution based on the member’s age or years of service and highest salary.[97] Members who are age 55 or older and have more than 20 but fewer than 35 years of service can choose the Early Retirement Option (ERO) to avoid a discounted annuity, under which both the member and the employer make a one-time contribution.[97]

[edit] COLAs

Annuitants annually receive 3 percent increases in their annuities.[97]

[edit] Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States[99], the American Enterprise Institute[100] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.[101]

In Thousands
PEW AEI Kellogg (2009)
$54,383,939 $192,458,660$167,300,000

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":


State Pension Funding Levels 2008 (figures are in thousands)[2]
Latest liability Latest unfunded liability Annual required contribution Latest actual contribution
$119,084,440 $54,383,939 $3,729,181 $2,156,267
State Retiree Health Care and Other Non-Pension Benefits Funding 2008 (figures are in thousands)[2]
Latest liability Latest unfunded liability Annual required contribution Latest actual contribution
$40,022,030 $39,946,678 $1,192,336 $159,751
Underfunded pension liabilities
Number of pension plans Pension assets ($bn) Stated liabilities ($bn) Funding status (% of tax revenue)
4 $65.7 $151.1 -717%

This data is based on projected data from 2008 census data.[102] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

[edit] Rate of return

Illinois presumes an 8.50% return rate on its pension investments.[2][103]

[edit] External links

[edit] References

  1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Chicago Sun Times "Pension funds may sell assets to cover expenses" Aug. 28, 2010
  2. ↑ 2.0 2.1 2.2 2.3 2.4 Pew Center on the States "The Trillion Dollar Gap" Feb. 2010
  3. ↑ 2010 Annual Survey of Public Employment and Payroll, Census 2010
  4. ↑ 2010 Annual Survey of Public Employment and Payroll--Membership by State, Census 2010
  5. ↑ The Chicago Tribune "Digging a pension hole" Dec.15, 2011
  6. ↑ Illinois Issues, The Pension Chasm, November 15, 2010
  7. ↑ Carni Times, Battle over state pension funding will continue, June 6, 2011
  8. ↑ Bond Buyer, Illinois Pensions In a Pickle, Jan. 4, 2012
  9. ↑ Statehouse News, Deficits, pension weigh on IL spending; Medicaid eyed for cuts, Jan. 4, 2012
  10. ↑ 10.0 10.1 "Pat Quinn's Illinois Budget: Spending Up, Program Spending Down," Forbes.com, February 27, 2012
  11. ↑ Journal Courier, Treasurer points to pensions as state's biggest financial problem, March 24, 2012
  12. ↑ Chicago Tribune, Illinois pension reform measure passes House, March 30, 2012
  13. ↑ Jacksonville Journal Courier, Public pension worse than numbers show, March 7, 2012
  14. ↑ 'Bloomberg', Illinois Pension Funding May Weaken Even With Bond Sales, Moody's Says, Dec. 6, 2010
  15. ↑ "Rockford Register Star'. Combining Funds a Bandage for System that Needs Surgery, August 14, 2010
  16. ↑ State Journal Register, 31 States Short of Pension Funds, Illinois Farthest Behind, April 25, 2011
  17. ↑ State Journal Register, 31 States Short of Pension Funds, Illinois Farthest Behind, April 25, 2011
  18. ↑ Rockford Register Star, Mistakes in Illinois' strategy for funding pensions pile up, July 9, 2011
  19. ↑ Suburban Life, Battle over state pension funding to continue, June 6, 20111
  20. ↑ Illinois Statehouse News"Pensions to be paid without borrowing, first time in two years" April 19, 2011
  21. ↑ McClatchy "Illinois pensions devotes 15% of budget to retirement systems" March 7, 2011
  22. ↑ Carmi Times, Battle over state pension funding will continue, June 7, 2011
  23. ↑ 23.0 23.1 The Chicago Sun-Times "Top U.S. House Republican rejects federal guarantee for Ill. pensions" Feb. 23, 2011
  24. ↑ The Washington Post "Illinois seeks to borrow $3.7 billion to shore up pension shortfall" Feb. 22, 2011
  25. ↑ The Wall Street Journal "Illinois Confirms Inquiry by SEC" Jan. 25, 2011
  26. ↑ [1]
  27. ↑ 'State Journal Register', Mismanagement Has Turned State Pension Systems Into Morass, June 15, 2010
  28. ↑ Chicago Tribune, Illinois Teacher Pension System Nearly $40 Billion in the Hole, March 22, 2011
  29. ↑ Chicago Tribune, Civic Federation endorses CPS budget but fears future problem, Aug. 22, 2011
  30. ↑ WBEZ, CPS faces enormous budget gaps, Aug. 22, 2011
  31. ↑ [2]
  32. ↑ 'Commission on Government Forecasting and Accountability', Fiscal Impact of a FY 2011 Pension Holiday, May 2010
  33. ↑ State House News, November 4, 2010
  34. ↑ 'Bloomberg', Illinois Passes Pension Fix for Cities, $3.7 Billion State Crises Lingers, Dec. 3, 2010
  35. ↑ 'Bloomberg', Illinois Pension Funding May Weaken Even With Bond Sales, Moody's Says, Dec. 6, 2010
  36. ↑ 'Crain's Chicago Business', Bond Sale Not Enough to Help Illinois, Moody's Says, December 6, 2010
  37. ↑ 'National Taxpayers United of Illinois', Illinois Top 100 Pension Payouts, August 2010
  38. ↑ Better Government Association, Sticker Shock, April 28, 2011
  39. ↑ 'The Daily Herald', Newly Elected Palatine Republican to Forgo Pension, November 17, 2010
  40. ↑ Chicago Tribune, Quinn defends push to limit unionizing of state workers, July 1, 2011
  41. ↑ Chicago Tribune, House OKs Illinois public pension perk restriction, April 19, 2012
  42. ↑ State Journal Register, Madigan proposes diverting local funds to pensions, May 15, 2012
  43. ↑ State Journal Register, Unions gear up to oppose state pension changes, May 16, 2012
  44. ↑ "State action urged to stop pension debt from ballooning," Chicago Sun-TImes, January 30, 2012
  45. ↑ 'State House News', Illinois House OKs Judges, Lawmakers Pension Reform, March 19, 2010
  46. ↑ 'KWQC'. Illinois Pension Reform Signed into Law, April 20, 2010
  47. ↑ Wall Street Journal, Illinois' Pension Crisis Eludes Easy Solutions, March 16, 2011
  48. ↑ Sun Times, Madigan open to discussing cuts in state pensions, Feb. 9, 2011
  49. ↑ Wall Street Journal, Illinois' Pension Crisis Eludes Easy Solutions, March 16, 2011
  50. ↑ Chicago Sun Times, State worker pension cuts not constitutional, Senate prez says, Feb. 10, 2011
  51. ↑ Wall Street Journal, Illinois' Pension Crisis Eludes Easy Solutions, March 16, 2011
  52. ↑ Crains Chicago Business, Illinois Plan to Borrow Money for Pension Payment a Bad Idea, U of I Report Says, April 11, 2011
  53. ↑ Business Week, Workers face tough pension choices under Ill. plan, May 26, 2011
  54. ↑ Sun Times, House Panel OKs Changing Pension System for Current Public Workers, May 27, 2011
  55. ↑ Northwest Herald, Pension Bill Advanced by House Panel, May 27, 2011
  56. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named hinz
  57. ↑ Chicago Sun Times, Unions Win as Illinois Lawmakers Put off Pension Reform Until Fall, May 31, 2011
  58. ↑ Fox, Illinois Gov. Pat Quinn Seems to Reject Pension Reform Bill, Aug. 10, 2011
  59. ↑ Northwest Herald, House leaders pledge to revisit 
pension reform, June 1, 2011
  60. ↑ Northwest Herald, House leaders pledge to revisit 
pension reform, June 1, 2011
  61. ↑ Illinois Retirement Security Initiative, House Leaders Pledge to Revisit Pension Reform , June 7, 2011
  62. ↑ Cullerton wants shot at a state pension fix, Jan. 4, 2011
  63. ↑ Chicago Tribune, State GOP leader files bill to stop union leaders' pension double dipping, Oct. 12, 2011
  64. ↑ Chicago Tribune, Quinn to sign landmark pension abuse reforms into law, Jan. 4, 2011
  65. ↑ Chicago Tribune, State GOP leader files bill to stop union leaders' pension double dipping, Oct. 12, 2011
  66. ↑ For The Good of Illinois, Cracking Open... Corruption, Oct. 15, 2011
  67. ↑ Chicago News Cooperative, Greising: Pension inaction blights legislative session, June 8, 2011
  68. ↑ Illinois Education Association, Pension talks to resume in Springfield, Aug. 24, 2011
  69. ↑ Peoria Journal Star, Finke: House pension plan in works, Aug. 16, 2011
  70. ↑ Journal Standard, Illinois House leaders discuss pension benefit changes for state employees, Aug. 17, 2011
  71. ↑ Galesburg Register Mail, Illinois Treasurer preaches fiscal restraint, July 12, 2011
  72. ↑ South West News Herald, GOP Leaders Say State Has To Quit Spending, Aug. 26, 2011
  73. ↑ Daily Herald, Dillard: School pension plan a ‘realistic threat’, Feb. 16, 2012
  74. ↑ Southtown Star, Kadner: Cullerton defends state teacher pension shift idea, Feb. 15, 2012
  75. ↑ St. Louis Today, Quinn looks to shift teacher pension funding to local school districts, Feb. 2, 2012
  76. ↑ Chicago News Cooperative, Schools Say They Can’t Absorb Pension Costs, Feb. 15, 2012
  77. ↑ Quad City Times, Quinn pension shift could mean smaller paychecks for university employees, March 1, 2012
  78. ↑ Bloomington Pantagraph, University chiefs worry about pension shift, Feb. 29, 2012
  79. ↑ Chicago Sun Times, Teachers pension fund paid a whopping $1.3 billion in fees . . . for what?, April 18, 2012
  80. ↑ Chicago Sun Times, Teachers pension fund paid a whopping $1.3 billion in fees . . . for what?, April 18, 2012
  81. ↑ Chicago Sun Times, Teachers pension fund paid a whopping $1.3 billion in fees . . . for what?, April 18, 2012
  82. ↑ 'Bloomberg', Illinois Passes Pension Fix for Cities, $3.7 Billion State Crises Lingers, Dec. 3, 2010
  83. ↑ 'Illinois Statehouse News', House Okays Cop, Firefighter Pension Changes, Dec. 3, 2010
  84. ↑ 'Illinois Statehouse News', House Okays Cop, Firefighter Pension Changes, Dec. 3, 2010
  85. ↑ Galesburg Register-Mail, Sunday Focus: City pension trust woefully lacking, July 10, 2011
  86. ↑ Chicago Tribune, Illinois Teacher Pension System Nearly $40 Billion in the Hole, March 22, 2011
  87. ↑ The Daily Herald, Part-time county board pensions go big-time, June 8, 2011
  88. ↑ The Daily Herald, Part-time county board pensions go big-time, June 8, 2011
  89. ↑ Chicago Sun Times, Pension Borrowing Plans Stall in Senate, Nov. 5, 2010
  90. ↑ My Suburban Life, Commentary: Voters want pension dilemma fixed, Nov. 3, 2010
  91. ↑ The Wall Street Journal "How States Hide Their Budget Deficits" Aug. 23, 2010
  92. ↑ Yahoo! Finance "11 State Pension Funds that May Run Out of Money" Oct. 20, 2010
  93. ↑ Find Law, Board of Education of Chicago v. Public School Teachers’ Pension & Retirement Fund
  94. ↑ Bloomberg "Illinois Pensions Dwindle as Candidates for Governor Skirt Budget Crisis" Oct. 27, 2010
  95. ↑ Suburban Life Publications, Suburban superintendents again among top pension earners, July 12, 2011
  96. ↑ Chicago Tribune, One-day rehiring nets former Chicago labor leader a $158,000 city pension, Sept. 21, 2011
  97. ↑ 97.0 97.1 97.2 97.3 97.4 97.5 97.6 "Essential Facts About TRS: Public Information Summary" April 2010
  98. ↑ Chicago Daily Observer, What Pension Problem? The State of Illinois Offers Early Retirements, Dec. 8, 2010
  99. ↑ "State Pensions and Retiree Healthcare Benefits: The Trillion Dollar Gap,” Pew Center on the States, accessed January 4, 2011
  100. ↑ Biggs, Andrew, “The Market Value of Public-Sector Pension Deficits,” AEI Outlook Series, no. 1 (2010)
  101. ↑ Novy-Marx, Robert and Joshua Rauh, 2010, "Public Pension Promises: How Big Are They and What Are They Worth," Journal of Finance (forthcoming)
  102. ↑ Northwestern University, The Liabilities and Risks of State-Sponsored Pension Plans, May 2010
  103. ↑ The Wall Street Journal "Pensions Wrestle With Return Rates" Oct. , 2011
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