Report: Illinois Pension Promises Exploded Over Thirty-Year Period

Published March 6, 2018

The rate of increase in pension benefits promised to Illinois government employees has vastly exceeded the growth rate of Illinois residents’ incomes over the past three decades, a new study reports.

The report states the pension benefits promised to Illinois state and local government employees increased by 1,061 percent between 1987 and 2016, with pension liabilities growing 127 percent faster than the median income of Illinois households over that time period.

The report, published in February by Wirepoints, Inc., a media organization providing state economic and fiscal news, was written by Wirepoints president Ted Dabrowski and policy analyst John Klingner.

According to data from Truth in Accounting, a nonpartisan watchdog group promoting fiscal accountability, Illinois’ total promised pension benefits exceed available assets by about $138.4 billion. 

‘Overpromising, Not Underfunding’

Dabrowski says the blame for Illinois’ pension problems lies with politicians, not the people.

“It has become so easy for everyone to say that underfunding of the pensions was the problem,” Dabrowski said. “We’re heavily taxed in Illinois. If the pensions were underfunded, then that would imply that politicians, and by extension, taxpayers, didn’t put enough money in. That, of course, would mean we need more tax hikes, so I wanted to challenge that assumption.”

Illinois lawmakers have overpromised and under-delivered, Dabrowski says.

“Pension funds had a lot of asset growth, but they could never keep up with the benefits doled out and promised by politicians,” Dabrowski said. “The real problem with the state pensions is overpromising, not underfunding. You hear politicians going around saying that pensions are underfunded. That narrative needs to be changed.”

Reform Needed ‘Immediately’

Dabrowski says it’s critical for Illinois lawmakers to close the state’s current defined-benefit pension programs and create defined-contribution plans similar to the 401(k) pension plans enjoyed by workers in the private sector, for new and current government employees.

“We need to move to 401(k)s for all new employees immediately,” Dabrowksi said. “We need to provide an option for 401(k)s to existing employees,” Dabrowski said. “Then, we need to look at how to restructure pension plans so that they can be sustainable both for taxpayers and for the beneficiaries.”

Uncovering the Truth

Bill Bergman, director of research at Truth in Accounting, says reforms in reporting standards are revealing problems formerly hidden by gimmicks.

“Governmental accounting standards allowed state and local governments to not report these pension obligations, which are so huge, as a liability on their balance sheet,” Bergman said. “They were not liabilities for decades, and they didn’t show up in the net position of the state. That’s finally changing.”

Bergman says politicians should tell the truth about pensions, even if it’s bad news.

“Our governments haven’t been forthcoming with the consequences, the costs, and the deceptive budgeting messages that we’ve long received,” Bergman said. “My concern is that citizens should receive truthful information in a timely manner that they haven’t received in the past.”

Dabrowski says government workers are being kept in the dark about the reality of the public-pension problem.

“Right now, public-sector employees don’t know what the true security of their retirement plan is,” Dabrowski said. “It’s not their account. They don’t know if the pension system will go bust, if the politicians are behaving properly, if they’ve been overpromised, or if things won’t pan out.”

Bergman says the fiscal problem was caused by procrastination.

“In general, pensions get ‘underfunded’ because our governments tend to push off the costs of paying bills to a future day,” Bergman said. “There’s competing demands on the cash. In the short run, you can distribute these promises as compensation with long-term consequences. People feel good about that, when they work for a government that promises to pay them in the future, even if they’re not getting cash today.”