The seemingly endless debate over public pension reform in Illinois entered a new dimension for me recently when a retired teacher grabbed me at an event in Oak Park and pleaded, “Will you please go ahead and fix the pensions? I don’t care anymore if I get less — I just can’t keep hearing about what you might do to us!”
I’ve heard from many constituents frustrated by the pace of pension reform. Some hear the drumbeat from hedge fund captains dabbling in politics and certain editorial boards — who see the only path to reform as slashing “overly generous” pension benefits to “lazy” public employees.
They can’t understand why we in the General Assembly don’t “just do it.”
On the other hand, fierce advocates of defined-benefit pension plans refuse to touch benefits and believe the only solution is to raise taxes yet again and plow the money into underfunded pensions.
Stuck in the middle are public employees, retirees and, mostly, schoolteachers who contributed to their pensions in every paycheck. Many are not eligible for Social Security benefits (because of their public pensions) and are scared to death we will shatter their already fragile notion of “retirement security.”
We need a balanced, common-sense approach to pension reform. This will include both reforming benefits and establishing adequate funding of the pension system over the long term.
We all agree that our pension systems are woefully underfunded and that the required state payments are crowding out funding for education, social services, law enforcement, transportation and other vital state programs. Beyond that, the consensus fractures and we enter uncharted policy territory, populated by strong constituencies with rigid but divergent views.
But we are going to reach our destination, likely during the current spring session. The Illinois Senate is scheduled to start moving legislation this week that will begin to address the most intractable dimensions of the pension issue.
The state’s pension funds were about as poorly funded the day I was born as they are today. So what’s different now?
Mainly three things:
We’re on the leading edge of the Baby Boomer retirement wave, which is a legitimate cause for concern about costs to taxpayers.
The rating agencies that assign risk levels to state-issued bonds are now focusing on the pension funding issue. While there are good reasons for this, it’s also a defensive overreaction by the rating agencies, whose failures triggered both the mortgage foreclosure crisis and the Great Recession. In reality, there’s very little risk associated with state bonds. Illinois has never missed a bond payment and I’m confident it never will.
The current underfunding “crisis” results in large measure from wholly arbitrary fiscal requirements enacted in response to the pension “crisis” of the mid-1990s. Republican majorities in the General Assembly “discovered” in 1995 that the pension systems were underfunded (as they had been for decades). They pushed through a plan requiring us to have on hand 90 percent of the money needed for all future obligations to retirees and current employees. That’s a fine goal, but about as realistic as a family setting aside in one lump sum all the money it needs to pay off the mortgage, provide college tuition for each child and finance retirement and long-term care in one payment.
That General Assembly delayed the pain of its plan for more than a decade by structural underfunding of the pensions and setting annual payments that weren’t sufficient even to keep pace with the growth in our pension liability.
In 2002, the year before I joined the Senate, the state’s annual contribution to the pension systems was less than $800 million. This next fiscal year, we are approaching $8 billion — a 10-fold increase.
There is no rational basis for this level of payment. It’s an arbitrary target set by Republican legislative majorities almost 20 years ago. As a consequence, annual pension payments force us to reduce funding for every other government responsibility.
One of the reasons I’m confident we’ll enact significant pension reform this spring is because of the significant progress we’ve already been making:
First, we did the easy things. We eliminated most of the pension benefit boondoggles where political insiders rigged the system to fatten up their own pensions. We stopped the practice of school districts and universities inflating salaries of administrators and teachers as they approached retirement to plump up their pensions and stick the state with the tab.
Second, we did the hard things. We enacted the most sweeping pension reforms in the nation. All public employees who joined the work force after 2010 will receive pension benefits significantly less than those provided public employees hired before 2010.
Now we are taking on the nearly impossible things: debating and negotiating a package of benefit reforms affecting pre-2010 employees.
Looming overhead is the Illinois Constitution, which says membership in any public pension system is an enforceable contractual relationship whose benefits “shall not be diminished or impaired.”
The framers of the 1970 Constitution knew the pension systems were woefully underfunded even back then. They understood that without protection, politicians would try to solve the problem by taking away benefits. By making membership in a pension system a contractual relationship, the Constitution protects employees and retirees from unilateral legislative changes — while leaving the door open for negotiated contractual amendments. Any pension reform bill that ignores these principles of contract law is not going to pass muster with the Illinois Supreme Court.
Last year, the Senate passed a pension benefit reform bill consistent with Constitutional principles that would save money — without jeopardizing security for retirees. It did not have sufficient support in the House, but the Senate is trying again.
The realities of democracy can try our patience. But I believe we will reach our destination on pension reform. And when we do, some editorial boards may call it inadequate while some public employees may call it punitive. No one will be happy.
And that will be a sign the General Assembly did its job.
Senator Don Harmon, a lifelong Oak Park resident, is a Democrat representing the 39th Illinois Senate District. He is President Pro Tem of the Illinois Senate.