Pension reform is key to a more viable future

Along with the State of Illinois, many local governments confront a ticking time bomb in skyrocketing pension costs. The Village of Oak Park will not be able to ignore this silent killer.

 
Over the last decade alone, payments by the village to the Illinois Municipal Retirement Fund to cover employee pensions have more than doubled as a percentage of wages paid to those employees. Costs associated with police and fire pension funds also have escalated.

 
And it will only get worse as unfunded liabilities balloon as more and more workers retire in their 50s, with full benefits, after as little as 20 years of service. This will become one of the major drivers of escalating property taxes that threaten the very nature of Oak Park‘s prized social and demographic mix.

 
The Business and Civic Council of Oak Park recently sponsored a forum on fiscal trends pressuring Oak Park‘s tax capacity. While pension costs were not the sole subject, they emerged as the most underrated threat to municipal solvency and the one that politicians understandably are most loathe to tackle.

 
As one of the panelists noted, “Pensions is the giant monster in your closet when you’re four years old.”

Only in our case, the monster is real-and getting bigger.

Once upon a time, local governments, including school districts, compensated for relatively low employee salaries with lavish pension benefits. Those days have changed, as municipal salaries have essentially become competitive with the private sector.

Now, pension policies need to change.

As they have in the private sector, public-sector pensions need to start moving toward 401(k)-type defined-contribution plans, in contrast with the current defined-benefit plans. This will allow local government like Oak Park‘s to rein in runaway pension costs and better predict growth of future liabilities.

Consolidation of government is another area ripe for reform. With 7,000 units of government statewide, Illinois leads runner-up Pennsylvania in that category by a better than 2-1 margin. Oak Park has done its part to contribute to the proliferation.

 
Similarly, there are 642 police and fire pension plans across the state. If consolidated, they could improve investment returns with more professional investment expertise and other economies of scale.

Faced with the same disturbing pension trends, the City of Chicago already has appointed a blue-ribbon pension reform commission that, according to press reports, will recommend a shift toward a two-tiered pension system by creating a defined-contribution plan for newly hired workers.

The BCC recommends that Oak Park do the same.

A two-tiered approach would preserve defined-benefit plans for current employees. But it should not come without sacrifice to those employees. Minimum retirement ages to qualify for full benefits should be raised, and early retirements should not be permitted before age 62-just like Social Security.

 Taxpayers need to demand efficient and responsible government, and we need more candidates with courage to talk about and propose plans for the above.

Frank Pellegrini

President, Business and Civic Council of Oak Park