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Illinois Policy Institute opposes Nekritz-Biss pension plan
Yes, pensions must reformed, but the Nekritz-Biss bill would worsen the pension crisis, not fix it
SPRINGFIELD, Ill. (Jan. 8, 2013) – Illinois lawmakers are rushing to pass a pension bill before the next General Assembly is sworn in Wednesday, but the most popular plan on the table would fail to fix the crisis and would put taxpayers on the line for more tax increases.
The Illinois Policy Institute opposes the pension bill proposed by state Reps. Elain Nekritz and Daniel Biss, and is urging lawmakers not to support it.
"Illinois is suffering from a pension crisis, and is in severe need of reform. But the plans on the table would not reform pensions; they simply would pop the balloon of political pressure facing lawmakers, and would delay real reform for years to come," said John Tillman, CEO of Illinois Policy Institute. "In both the Nekritz-Biss bill and the Cullerton bill, politicians are merely tinkering at the margins, leaving in place a system that has failed before and will fail again."
Here is why the Nekritz-Biss plan falls short, and lawmakers should vote against it:
- PRESERVES BROKEN PENSION SYSTEM: This Nekritz-Biss plan preserves Illinois' broken pension system, and keeps government workers' retirement security in the hands of politicians. It's time to get politicians out of the retirement business.
- KEEPS UNFUNDED LIABILITY AT CRISIS LEVELS: The Nekritz-Biss plan does not erase the unfunded liability. During a committee hearing Monday, state Rep. Daniel Biss said the plan would only reduce the $95 billion unfunded liability to $70 billion, which would cost the state $15 million a day. This would leave the pension systems less than 50 percent funded. Under new pension accounting rules that will go into effect during the next few years, the unfunded liability will be even worse.
- PUTS TAXPAYERS ON THE HOOK THROUGH STATE GUARANTEE: The Nekritz-Biss plan proposes that the state – and by extension, taxpayers – becomes the guarantor of the state's pension systems. This means the state must legally fund pensions first before it can allocate money to education, health care and other core services.
In addition to naming pensions as a higher funding priority than education, health care and public safety, the guarantee would result in more tax hikes. State taxpayers would be on the hook for shortfalls when pension investment funds do not meet investment targets. Bottom line: Under the Nekritz-Biss guarantee, state taxpayers would be on the hook for these poor investment returns through higher taxes.
- EDGAR PENSION RAMP TAKE 2: In 1995, when Gov. Edgar implemented his 1995 pension reform, the state pension systems were in crisis and underfunded by almost $20 billion – equivalent to a 50 percent shortfall. His plan proposed to end the crisis by creating a secure funding plan by 2045. The plan failed within 10 years.
The Nekritz-Biss plan proposes another funding ramp – this time to fully fund the pensions by 2043. The state's contributions will continue to quickly grow year after year, even if the pension systems are able to earn the 8 percent returns they expect each and every year.
THE SOLUTION: ALLOW GOVERNMENT WORKERS TO PARTICIPATE IN A 401(K)-STYLE PLAN.
Currently, most government workers have no choice but to participate in the state's broken pension system and allow politicians to control their retirement. But workers at Illinois' community colleges and public universities have the option of joining a 401(k)-style plan that puts them – not politicians – in charge of their retirement. Approximately 10,000 workers already participate in this plan.
The state's 401(k)-style plan for community college and state university workers was established in the mid-1990s. It's similar to the retirement plans used by 85 percent of the private sector, and states such as Rhode Island, Alaska and Michigan that have enacted pension reform.
"Politician-controlled pension systems are a failure. We simply can't trust them to manage this crisis moving forward. Government workers deserve to control their own retirement savings in ways that meet their own needs, not the needs of the political leaders in Springfield," said Tillman. "A 401(k)-style plan is the only moral solution that delivers a reliable retirement for government employees and liberates taxpayers from funding a failed system."
For interviews, contact: Daniel Anthony or Diana Rickert (312) 607-4977
The Illinois Policy Institute is a nonpartisan research and education organization dedicated to making Illinois a beacon for liberty and prosperity for all citizens. As a leading voice for economic liberty and government accountability, the Institute engages policy makers, opinion leaders and citizens on the state and local level by promoting free market principles and liberty-based public policy initiatives for a better Illinois. To learn more about the Institute or review policy briefs, please visit: illinoispolicy.org.