Illinois politicians are treating pension funds like pyramid schemes. What next? Published by Jane the Actuary View all posts by Jane the Actuary
15 thoughts on “Forbes post, “Are Illinois Public Retirement Systems Pension Funds Or Pyramid Schemes?””
What are your thoughts on consolidating local police and firefighter pension funds in Illinois as Dan Hynes suggested at the Civic Club of Chicago luncheon? There are a few bad actors who need better oversight and economically blighted areas in need of assistance. Most are at or above 70% funded. The thought of handing control and funds over to the state of Illinois with its track record gives most of us pause for concern. The governing statues are from the 1960’s and in need of reform. Rolling amortization and expanded investment authority would be less cumbersome than consolidation.
As long as the unions have slick CPAs and MBAs on their payroll who know how to game the system with pension spiking, COLAs, service adjustments, and other “gimmicks”…..your average elected official who can barely balance their checkbook doesn’t stand a chance.
EVERY pension plan must be 100% fully-funded on conservative investment and rate assumptions. Give them 5-7 years to get there. If not, the declare the plan bankrupty and cut benefits for the highest-paid and longest-paid pensioners first. Withhold salary and pensions for elected officials who are trustees.
Is the ROI on funds considered in determining participants payout? What is the average Anticipated ROI? Is there one for all pension funds or do they vary? Does each fund have an independent advisor or do a number of pensions have a in house committee? Do all pensions conform to the same allocation? Does state law limit types of investments?
This is quite a list. However, the mine field is complex ant there doesn’t look as though there is a one size fits all solution.
I have ask many time why pensions can not be frozen and new employees come in under a defined contribution program. I have been told it can’t be done because pensioners aren’t covered by Soc Sec. I don’t understand that. Please explain.
IMRF pension system is, and has been doing very well. One reason is unlike most Illinois state pensions, IMRF pension monies couldn’t be “swept” by former governers to balance state budgets by raiding pension funds. “Borrowing” funds but never replacing them never works out well in the long run.
Agreed, but IMRF is also the only fund in the state with mandatory employer contributions in order to achieve 100% funding at the end of every fiscal year. If that and prudent person invest rules were allowed for local police and fire pension funds we wouldn’t be having this conversation. Local funds have proven to have similar returns as IMRF despite the investment restrictions and the employer’s ability to guide the actuarial studies which dictate contribution levels. All of which is the law in Illinois. Rolling amortization and expanded investment authority would create relief to municipalities almost immediately.
Open your mind to the big picture. The richest generations in U.S. history were also the most selfish, and have left those coming after worse off across the board — in the economy, in public policy, even in the family life provided to children. Public employee pensions are just on aspect of this. It’s about values, the values of Generation Greed.
You see similar trends over in Europe and the UK, but young people aren’t organizing here to do something about tit.
The life expectancy of those born after 1957 is now falling. How damning is that? And it’s all under Omertà.
1. Have you calculated when the various pension funds in IL become insolvent?
2. Since the democrat politicians who control the governments, State and local, do not want to pay for what they promised, and the state employees do not want to accept pensions that the private industry has, do you agree that the system has virtually no chance to change?
3. Since the taxpayers are essentially powerless other than to leave IL, when do they do so to such a degree that the revenues drastically fall?
4. Will the pensions experience major portfolio value losses in an upcoming recession?
5. How much will property values fall and how will that be distributed?
Former Republican governors, as well as Democratic governors have taken public employee pension money out of the pensions and used it for other budgetary purposes so as to not raise taxes to cover shortfalls. It has been a game of “kick the can down the road” and let the next administration worry about the consequences. This practice has been used over and over by governers to get reelected. So now the pensions are short and of course the very public employees whose pension monies have been used as the “bank” for all these years are now being vilified.
The GOP isn’t blameless, but tell me the last time a Republican ran Chicago with a majority on the City Council ? Pre-Al Capone ?
In a private bankruptcy, the equity holders are wiped out. The equity holders in public finance are largely the Democratic Party elected officials. They must be PROHIBITED from holding elected office and running Chicago or Illinois.
If not ? Then let their plans go bankrupt.
I think in many ways they have made a desirable choice by electing to choose economic collapse of the state driven by pensions. It is one way to bring about the needed reforms and of course it allows those in charge to dance away from the responsibility, which may be the point. Ultimately an economic collapse that brings about caps on pension payouts, generalized pension cuts, and healthcare package reform may be far more desirable to the taxpayer than actually attempting to fund the empty promises that have been made by politicians to the union workers who put them in office.
At this point, given the mountain of unfunded pension liability, I see economic armageddon as a viable, and perhaps, desirable alternative.
Your statement that many schools pay the 9% of TRS is wrong. Where did you find the reseach to support this claim? Ive paid my 9% for the last 20 years and every school district in my requires the same for their employees.
Kevin Collins is completely correct. Your statement that most schools pay TRS pension payments (9%) for teachers is completely false so please do a bit more research. Yes it appears that districts make that payment, but the districts pull 9% from our pay and then “they” make the payment to the state. If you don’t believe us, then I can send you my paystub which shows the 9% taken from teachers. This is also a big misconception that is out there. Please edit your article.
So what is your point ? That the employees/union members are paying into their pensions ?
I don’t doubt that, but what kind of pension are you looking at and at what age ?