5 solutions to state's pension crisis offered by think tank - WSIL-TV 3 Southern Illinois

5 solutions to state's pension crisis offered by Illinois Policy Institute

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File photograph of pension protesters courtesy of: National Legal and Policy Center (http://nlpc.org/stories/2015/06/01/can-gov-rauner-put-illinois-pension-funds-black) File photograph of pension protesters courtesy of: National Legal and Policy Center (http://nlpc.org/stories/2015/06/01/can-gov-rauner-put-illinois-pension-funds-black)

SPRINGFIELD -- As House lawmakers headed back into session Monday following a four week break, a major stumbling block toward solving this and future budget crises remains. What should they do about Illinois' pension debt?

It's now at a record $111 billion, according to the Illinois Policy Institute, which on Monday offered five solutions to fix the problem. The institute has received funding in the past from Bruce Rauner, before he became governor, and describes itself as a "free market" think tank.

Lawmakers themselves are target #1 of the new pension proposals. Ted Dabrowski, the institute's vice president of policy, believes they should eliminate their own state pensions and switch to 401(k) plans.

"It is (supposed to be) a part-time job," Dabrowski told News 3. "What happens now is that it's become such a cushy job, with pay that's over $80,000 a year and pensions that become multi-million dollar pensions --- $1 million or $2 million pensions --- yes, it's become a full-time job. And they have a lot of incentive to try to make it look like they're doing something."

Even if it means passing laws that later turn-out to be unwise, he argues.

Dabrowski would also make 401(k)s optional for current state employees, such as young teachers who may be worried about Illinois' pension system going bankrupt.

"Why should she be trapped in a plan where she knows she's putting money in but there may not be retirement there for when she retires?" he asked.

On the other side, are those who argue young state employees shouldn't have to worry about this issue, that it's not their fault in previous years Illinois politicians didn't set aside enough money for pensions. Some will also argue that 401(k)s are not guaranteed to increase in value and cite the Great Recession as an example of when many Americans' retirement plans were decimated.

"Well, gosh, it's fascinating to hear people say that," Dabrowski replied. "What we've seen since the Great Recession is, we've seen the markets come back so strongly, they're up over 100-percent, 200-percent. In that same period of time, Illinois' pension funds have gotten worse."

He believes placing retirement money in the market's hands is much more secure than placing it in the hands of politicians in Springfield.

Here are the Illinois Policy Institute's five proposals as outlined Monday to News 3:

1. Eliminate pensions for politicians: The pension fund for Illinois lawmakers is the most bankrupt of any in the state systems. It has on hand just 16 cents for every dollar it should to meet its future obligations. Lawmakers often say the reason they can¹t enact broader pension reform is because ³the unions will object. But there are no unions here. Lawmakers should lead by example by closing the pension system and if they insist on a taxpayer-funded retirement benefit ­ adopting a self-managed plan such as a 401(k).

2. Offer 401(k)s to new hires. The Illinois Supreme Court ruling only addressed benefits promised to current government workers. It has no bearing on benefits for people who haven¹t yet set their foot in the door of a government jobs. Illinois will never escape its massive retirement crisis until it follows the lead of the private sector and reform-minded states, such as Michigan, Oklahoma and Alaska. Offer new hires self-managed plans such as 401(k)-style plans.

3. Offer optional 401(k)s to current employees. Government workers shouldn't be forced to pay into an insolvent, politician-controlled pension that may not be around when it¹s time for them to retire. Give current employees the freedom to leave the pension systems and save for retirement through a self-managed plan. It¹s legal and it¹s the right thing to do.

4. Put local pension costs back where they belong. Illinois teachers are supposed to put away 9.4 percent of their earnings into their pension savings, but in most school districts across the state this doesn't happen. Instead, local taxpayers pick up that tab as a collectively-bargained contract perk. End that practice. Eliminating teacher pension pick-ups could save Illinois taxpayers about $430 million annually. Further, state government could save another $1 billion by ending the practice of paying the employer, or school district, share of teacher pension costs. Teachers should pay the teachers¹ share of pension costs, and school districts should pay the school districts¹ share. It¹s time to stop shifting these costs to others.

5. Allow municipal bankruptcy. Bankruptcy is an option of last resort that can help struggling municipalities restructure their debt, renegotiate contracts and reform their pension systems.


  • 60 percent of state pensioners retire in their 50s, many with full pension benefits.
  • More than half of state pensioners will receive $1 million or more in pension benefits over the course of their retirements. Nearly 1 in 5 will receive over $2 million in benefits
  • Almost 60 percent of all current state pensioners can expect to spend 25 or more years collecting benefits, based on approximate actuarial life expectancies. Due to automatic, 3 percent compounded COLA benefits, those pensioners can expect to see their annual pension benefits double in size.
  • The average career pensioner retired after Jan. 1, 2013, with 30 years of service or more ­ receives $66,800 in annual pension benefits and will collect over $2 million in total benefits over the course of retirement.
  • The average career pensioner will get back his or her employee contributions after just two years in retirement. In all, pensioners direct employee contributions will only equal 6 percent of what they will receive in benefits over the course of their retirements.

 To see more of the Illinois Policy Institute's analysis of pension issues, click here.

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