Illinois public workers need stable pensions, not boosted benefits
Reports that give Illinois pensions a rotten grade are not evidence government workers need better benefits. What they need is a properly managed, financially solid system. Adding more costs to a fiscal mess helps no one.
A recent Bellwether Education Partners report gave an “F” ranking to Illinois pensions for long-term teachers and some government unions have latched on to it as proof retirements for those hired after 2010 need to be reformed.
But the biggest drag on the Tier 2 pensions for those newer employees has nothing to do with benefits, but rather the fiscal instability of the whole system.
The only benefit factors included in Bellwether’s analysis for long-term employees were the cost-of-living adjustment structure, how it measured up to inflation and the plan’s adequacy at retirement. By having an automatic cost-of-living adjustment, Illinois received a full five points. For having a COLA to inflation ratio of 0.005, Illinois received 4 out of 5 points. And Bellwether confirmed retirees could expect to replace 70.1% of their salaries at retirement, meeting the 70% metric commonly set to determine retirement benefit adequacy.
Why the “F” grade? Because the other four metrics they analyzed for the importance to long-term employees are in the hands of the state. Illinois pension rankings are being dragged down by funding issues and fiscal irresponsibility, not a lower benefit value.
The state’s 10-year average investment returns of 8.3% earned it four out of five points. From there, the rankings tank. The state only pays 74% of what’s actuarially recommended, earning only two points. Unsurprisingly, the system’s funding level of 40.5% earned it zero points and the amortization costs of 34.3% – which is also a measure of taxpayer strain – also earned zero points.
Other reports have pointed to similar concerns with Illinois’ system. The Equable Institute, which separates out the value of benefits from the stability of the system, labeled the Teachers’ Retirement System “possibly distressed,” scoring it only 11 out of 27 points for solvency. The system received zero points for its ability to pay bills and manage tough times, and the plan is not estimated to be fully funded for at least 20 years in the best-case scenario.
The best way to improve these rankings and the outlook for full-career employees is to improve the plan’s funding ratios and avoid returning to the disastrous Tier 1 model, where benefits outpaced the state’s ability to pay. Inflating Tier 2 benefits risks collapsing the system.
Protecting pensions for Illinois workers requires fiscal responsibility. Lawmakers should seek to preserve the cost savings of Tier 2 for long-term workers and implement a defined contribution plan option for all state workers, such as the Retirement Savings Plan currently offered by the State Universities Retirement System. Doing so would better serve partial-career workers who stay less than 20 years and would prefer to leave with more of their retirement benefits.
Illinois employees deserve retirement security that works for everyone. The best way to achieve that isn’t by forcing everyone into a traditional defined benefit pension and increasing benefits, but through pension reform that gives more workers the freedom to choose.