SB1 Pension Reform bill – much ado about nothing.

SB1 Pension Reform bill – much ado about nothing.

 

The good news: about 75% of state pensions will see COLA cuts adding up to $100 million.

The bad news: that’s only about 1% of total pension payouts of $8.4 billion.

More bad news: the 1% contribution cuts are $170 million 70% more than the cuts in COLAs.

That, in a nutshell, pretty much describes the effect of the new law: not much, and not soon.

The bill cuts unfunded liability back to 2011 levels – maybe.
According to Madigan staff the UL goes to 80B from 100B. But of course the state actuaries have not actually seen the numbers so those numbers are suspect at best. Already there are rumors that 6B or so of the supposed 20B cut is an accounting gimmick that will return in 2016 after Quinn pockets the $1.2 billion in pretend savings to hand out like Halloween candy come election time. This is an esoteric arrangement few understand – changing liability accrual methods from PUC (Projected Unit Credit) to EAN (Entry Age Normal). Basically it shifts more of the liability to earlier years of an employee’s career rather than bunching most of it in the last few years of his career. PUC was picked early on for exactly this reason – to kick the liability can down the road to later years. The reason for the change to EAN is because if they kept PUC the final few years of the 30 year plan would be so huge ($20 billion plus) that everyone would realize it was a scam.

The bill supposedly saves $160 billion but $68 billion of that are new taxes.
In Madigan accounting if you continue to pay $1 billion a year in pension bond payments after the bonds are paid off that’s a savings. Huh?

And of the so-called $92B in savings about $65B come in the last 5 years of the 30 year schedule. Sounds a lot like can-kicking to me.
Ohio teachers contribution goes up 4% IL teachers contribution goes down 1%.
Two years ago Ohio realized it had the same problem that IL had – high pensions and high unfunded liability. So what did they do? They did the logical thing: raised contributions from employees to help close the gap. By 2016 teacher contributions in Ohio will be raised 40% from 10% to 14%. In IL the contributions will go down 1%.

That is the definition of insanity: lower employee contributions to solve the pension funding problem.

The math doesn’t work.
As we noted above in the first paragraph the COLA revisions in the bill will save about $100 million per year. However if it is true that all employees will receive a 1% cut in contributions that is $170 million per year based upon the current total wages of $17 billion/yr.

How does cutting $100 million in COLA save the system when contributions will be cut by $170 million?

Sounds to me like another sop to the unions – we will cut contributions more than your COLA cuts which is just the opposite story that was told to the public. The public story was contribution cuts were needed to constitutionally justify the COLA cuts.

SB1 was a 327 page bill that members only had 24hrs. to read.
I call SB1  “Obamacare lite” because we have to pass it to find out what’s in it. To say there is mass confusion about what the bill really accomplishes (or really does not accomplish) would be putting it mildly.

All Five State Pension Systems in Summary.

 

Summary all 5 State pension Systems as of Oct. 1, 2013
System  Number Retirees  Avg Pension  Annual Payout  Avg Years Worked In State  No COLA Cuts  COLA cuts  Pct. With COLA Cuts  Avg Age Number Over $100k Highest Pension
TRS     98,183     49,752  4,884,800,616      25   16,208    81,975 83%       59  4,771   289,860
SRS     52,317     31,872  1,667,447,424      24   21,463    30,854 59%       59     478   189,996
SURS     49,173     36,228  1,781,439,444      19   15,039    34,134 69%       61  2,513   443,268
JRS          759   125,100       94,950,900      18          –         759 100%       62     580   192,360
GARS          210     55,200       11,592,000      15            7         203 97%       60       39   215,808
  200,642     42,066  8,440,230,384      23   52,717  147,925 74%       60  8,381

 

Over the last several years my argument has been that pensions are not modest when years actually worked in IL are taken into account. Twenty three years is not a full career. In fact if you graduate from college at at age 21 and work until full Social Security retirement age at 67 you will have worked 46 years exactly twice what the average state retiree has worked and your maximum “pension” will be $30,000.
SB1 will be delayed for years by court challenges.And the first thing the IEA and other unions will ask for is an injunction to keep the law from being implemented on July 1, 2014 and they will almost certainly get it. So until the Illinois Supreme Court rules nothing is going to happen.

And if you look at the accompanying chart you can see that 76% of retired judges have pensions over $100,000 per year. How do you think they feel about having their COLA cut? Do you think this will be discussed by judges working and retired whenever they meet?

And on and on and on.  Much ado about nothing because nothing much is going to happen for years to come.

After all this is Illinois, what did you really expect?

 

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Comments

  1. You are absolutely correct the recent Reform is an extension of the fraud and scam on the taxpayers. There is no way a fraud of this magnitude can be reformed without eliminating it. Clearly based on any financial investment calculation model and the elimination of the inflating of the final salary by 26% to 40% and the 50% over compensation levels and exorbitant COLAs of 3% to 4% annually there should never be a payout of more than $44K annually under the best investment conditions. Here these 8% a year returns are based on no downside risk which is totally absurd in the real market except in this fraud the taxpayer is accountable for their outlandish initial fraudulent sum and the ensuing losses. The best news is that the impending bankruptcy of the state will wipe out all these obligations. The recent change to give pension payments a priority over the creditors should end any loans to this corrupt Public Sector operation. And the claim that the Judicial System will rule on these pensions is absurd since all the Public Sector office holders are part of this fraud and that includes all the judges. This Public Sector Pension fraud at the Federal, state and local levels is the biggest fraud in the history of the World to date. And the best news for the taxpayers is that this house of cards is about to fall. .

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