Understanding the State Pension Debacle (Part 1)
There is a lot of confusion in the public’s mind about pensions in general and public pensions in particular. While the issues are complex, they are not recondite. Therefore, it might be useful to provide information about public pensions. For now, let’s just deal with the basics.
Most Illinois taxpayers are aware that the State is in arrears to its pension systems to the tune of $100B. Basically, the State of Illinois has a constitutional obligation to fund five pension funds, i.e., Teachers Retirement System(TRS), State University Retirement System(SURS), State Employee Retirement System(SERS). General Assembly Retirement System(GERS) and finally the Judicial Retirement System(JURS). [It should be noted that there are many other public retirement systems such as those covering Chicago Teachers, and local police and fire personnel for which the state has no responsibility]. Each of the five pension systems have somewhat different rules and benefit schedules. Therefore, in the interests of time and space let us just deal with one-TRS which is by far the largest.
TRS covers public elementary and high school teachers employed in Illinois, but outside the city of Chicago. The teaching personnel contribute 9.5% from each pay check to TRS together with school districts, and the state of Illinois. TRS invests these monies in a variety of investments which contribute to the pool of money used to pay retirement benefits.
For many decades the state did not made its full contribution to these funds. As a matter of fact the state even declared “pension holidays” in which no contributions were made. In doing so the legislature was well aware of its constitutional obligations, and the fact that the state had to pay interest on the moneys not contributed. The logical question is “Why would the legislature act in such a reckless fashion?” The reason is quite simple, the 3% flat tax enacted in 1970 never produced enough revenue to enable the state to pay both its vendors and it pension obligations. What the legislators should have done was to raise taxes to pay for schools, roads, prisons, etc, but that would have raised the ire of taxpayers. So what is a poor legislator to do? Voters will notice if he raises taxes, but few will care if he short changes the state pension systems. Taking the path of least resistance he used the pension funds as a credit card and pushed off repaying the funds into the distant future. The future has arrived; the bill has come due.
Al Popowits, Legislative Chair
Most Illinois taxpayers are aware that the State is in arrears to its pension systems to the tune of $100B. Basically, the State of Illinois has a constitutional obligation to fund five pension funds, i.e., Teachers Retirement System(TRS), State University Retirement System(SURS), State Employee Retirement System(SERS). General Assembly Retirement System(GERS) and finally the Judicial Retirement System(JURS). [It should be noted that there are many other public retirement systems such as those covering Chicago Teachers, and local police and fire personnel for which the state has no responsibility]. Each of the five pension systems have somewhat different rules and benefit schedules. Therefore, in the interests of time and space let us just deal with one-TRS which is by far the largest.
TRS covers public elementary and high school teachers employed in Illinois, but outside the city of Chicago. The teaching personnel contribute 9.5% from each pay check to TRS together with school districts, and the state of Illinois. TRS invests these monies in a variety of investments which contribute to the pool of money used to pay retirement benefits.
For many decades the state did not made its full contribution to these funds. As a matter of fact the state even declared “pension holidays” in which no contributions were made. In doing so the legislature was well aware of its constitutional obligations, and the fact that the state had to pay interest on the moneys not contributed. The logical question is “Why would the legislature act in such a reckless fashion?” The reason is quite simple, the 3% flat tax enacted in 1970 never produced enough revenue to enable the state to pay both its vendors and it pension obligations. What the legislators should have done was to raise taxes to pay for schools, roads, prisons, etc, but that would have raised the ire of taxpayers. So what is a poor legislator to do? Voters will notice if he raises taxes, but few will care if he short changes the state pension systems. Taking the path of least resistance he used the pension funds as a credit card and pushed off repaying the funds into the distant future. The future has arrived; the bill has come due.
Al Popowits, Legislative Chair