Defusing the Pension Bomb: A Proposal to Save Illinois
Illinois hasn’t saved enough money to fund the pensions promised to government employees who are in or near retirement. Official estimates calculate Illinois’s unfunded pension liability at $86 billion, while other academic studies put the real problem north of $210 billion. Bold action is needed to balance the state’s pension funds while keeping Illinois from falling into an economic death spiral.
As pension reforms advance, the conversation is being weighed down with rumors and misinformation. Of utmost importance is clarifying how the state wound up in this mess.
Three factors led to this crisis. First, lawmakers diverted pension funding to make new hires and expand state programs. Second, they hushed state employee unions by promising even sweeter pension benefits. Third, they relied on unrealistic investment earning expectations and cloudy accounting.
The tab for mismanagement is finally coming due. Taxpayers will have to make up the difference – unless the government employee pension system is reformed.
The state’s pension funds could run dry unless their projected long-term payouts are reduced. The state may not reduce pension benefits that public employees have already earned. However, the state can change the way benefits are earned from this point forward. Such reforms would create a more affordable system.
House Republican Leader Tom Cross has introduced HB149, a bill that would adjust the future benefits current workers could earn. To be clear, this legislation would not change benefits for those who are retired, nor would it take away benefits already earned by current employees.
Cross’s proposal applies to current public employees in the state’s pension funds, such as teachers and state workers. It secures their retirement earnings to date and offers three choices for earning additional retirement income:
- Option 1: Employees can keep accumulating generous pensions but must contribute more in order to cover these future benefits.
- Option 2: Employees can accumulate slightly smaller increases to their pensions while contributing at current rates.
- Option 3: Employees can “bank” their current pension earnings and begin to contribute to personal savings accounts, of which the state will match with contributions up to 6 percent of payroll.
Why This Works
If passed, HB149 would decrease the state’s future pension debt significantly. How? The state will receive higher contributions from employees who opt to receive generous retirement benefits, while paying less than currently anticipated to those who opt not to contribute more. Early estimates from reformers suggest that this approach could save state government about $2 billion annually.
Without this reform, the state’s pension funds will run dry. Two disastrous scenarios then could follow: taxpayers would be forced to bail out the pension funds, or thousands of pensioners would see their retirement dollars disappear.
Pension reform is needed to create a more stable financial future for government employees and private sector workers whose dollars make Illinois’s public sector possible.