Laying blame: union bosses also culpable for pension crisis

In case you missed it, a couple of days ago journalist Dave McKinney of the Chicago Sun-Times put together an interesting history lesson on how the state of Illinois wound up committing securities fraud.

In case you missed it, a couple of days ago journalist Dave McKinney of the Chicago Sun-Times put together an interesting history lesson on how the state of Illinois wound up committing securities fraud. McKinney comes down heaviest on former Gov. Jim Edgar and House Speaker Mike Madigan, but in his telling there are few innocent bystanders and “[e]ven the public-sector labor unions whose members have the most to lose if the pension systems go belly-up bear some culpability.”

If you’re focusing strictly on the security fraud accusation, then state politicians do bear the brunt of the blame – the unions weren’t the ones selling state bonds. But in terms of looking out for state employees, union leaders have failed miserably. Their support for the 1994 pension ramp and the 2005 pension holiday were both examples of basic economic ineptitude that should outrage rank-and-file unionized employees.

How come? It boils down to basic principles of saving and investing. If you’re putting away money for the future – whether it’s to pay for someone else’s retirement or buy that cabin in Michigan – it pays to save more money earlier. The earlier you pay money in, the longer you can earn returns on investments and the more money you have in your savings account at the end. By the same token, the longer you wait to start, the more you have to put in. As hard as it might be to save money during tough times, it’s even harder to catch up later on.

Which means that the unions, whose job was to make sure these pensions were fully funded, had no business agreeing to any proposal such as the Edgar pension ramp or pension payment holidays that delayed payment for already underfunded pensions. They should have been insisting all along that the state catch up as quickly as possible.

Here’s the American Federation of State, County and Municipal Employees’ excuse:

“… AFSCME’s chief has no regrets that it didn’t oppose the Edgar-Madigan plan or raise critical questions against it at the time. “I’m sure that if we’d have been opposed to it, maybe there would have been 10 or 20 votes against it” said Henry Bayer, AFSCME Council 31’s executive director. “If it didn’t pass, it wasn’t like there was an alternative bill that would have made things better.  If it didn’t pass, we’d still have what we had. There would have been no contribution or what they’d decide to put in it every year, which would have been even less.”

If there wasn’t a better plan, the unions should have come up with one. And when the Edgar-Madigan plan – meaning the pension ramp – failed, the unions would at least have been on record saying that the plan didn’t go far enough. And then maybe the state wouldn’t have compounded things by cutting its pension contributions again through the pension holiday without making any further changes in 2005.

That’s what the unions should have done if they were serious about preserving pensions. But that would have required that union officials have more financial sense than the politicians. Apparently they don’t. Instead they pushed for more raises and larger government without regard to how it would all be paid for. That is begging for trouble; and trouble, in the form of pensions that are underfunded by more than $200 billion under new accounting rules, is exactly what all of us, state employees included, have got. If I were a state employee, I’d be as upset with the union’s incompetence as I am at the politicians’ dishonesty.