February 19th, 2020
Daily Chronicle | Broken Benefits: Too heavy to bear?
By KATE SCHOTT – firstname.lastname@example.org
Public employee pensions in Illinois have been a hot topic of discussion in recent months, particularly when it comes to how the state wound up underfunding its pension systems by more than $80 billion and whether taxpayers can afford to pay for them.
The state of pensions in Illinois for public employees is a frequently discussed topic, but how the state wound up owing billions to its pension funds and what the future of pensions looks like is something that draws myriad responses.
Public employees and the unions that represent them say they have met their end of the bargain and paid their share. Therefore, they should collect the benefits due to them upon retirement.
Think tanks pushing for pension reform often say the pensions of many who already are retired are too high and think that benefits of current and future employees need to be either reduced or employees need to contribute more.
And lawmakers usually point fingers – sometimes at themselves or their predecessors – but have yet to take appropriate action that will help Illinois dig itself out of the $85 billion unfunded liability the state’s pension systems are in.
The Daily Chronicle sent out more than 20 Freedom of Information Act requests to the state pension systems and local governments to get an idea of what the public pension issue looks like in DeKalb County. We gathered data on who receives pensions after having spent some part of their career at a public agency in DeKalb County, how much those pensions pay and how much local municipalities spend to meet pension obligations.
The newspaper’s analysis found:
• In the DeKalb County area, 101 people who have retired since 2000 and worked at a public agency in the county collect six-figure pensions annually.
• Of those, 93 were employed at Northern Illinois University at some point in their careers; three worked at Kishwaukee College; and one worked at NIU and Kishwaukee College.
• The others included a former sheriff’s office employee and three former judges.
• There are 36 retirees – not included in the 101 – in the Teachers’ Retirement System who at some point worked in a DeKalb County school district – but may not have retired from a county district – with a six-figure annual pension.
• Municipalities are, for the most part, spending a larger percentage of their operating budgets to meet pension obligations – or might have reduced staffing in light of the increasing costs.
How pensions work
When a person is hired to work at a public agency in Illinois, eligible employees are put into either a state pension fund or, if they work in public safety, a local pension fund.
A person hired for the city of DeKalb, for instance, would receive a salary funded by tax dollars and other city money. From each paycheck, 4.5 percent of the employee’s earnings would go to the Illinois Municipal Retirement Fund, the public employee pension system used by more than 2,900 local governments in Illinois.
On top of the 4.5 percent employee contribution, the city pays an additional percentage of the salary to the IMRF for that employee’s retirement account – determined annually by outside actuaries. The contributions continue for as long as the employee works for the city. IMRF invests the money put into it in everything from real estate and stocks to hedge funds.
The IMRF differs from the other five statewide pension systems in that the investment risk is borne by the local governments, not the state.
Qualified hires at a state agency such as NIU, on the other hand, likely would be put into the State Universities Retirement System, one of the five pension systems the state is supposed to fund. Participants contribute 8 percent of their annual salary; the state is supposed to provide 10.14 percent into that person’s pension fund.
Anders Lindall, spokesman for American Federation of State County and Municipal Employees Council 31, said the average annual pension for members in all of the state’s public pension systems is $32,000. AFSCME represents 100,000 active and retired public employees in the state.
Most public employees have 8 to 10 percent of each paycheck deposited into their pension fund, Lindall said. Eighty percent of public employees in Illinois don’t get Social Security benefits, he said, although some members of IMRF and many members of the State Employees’ Retirement System do. But teachers, police, firefighters and university employees don’t, he said.
“Their modest pension is all they have. It is, in a very real sense, it’s their life savings,” Lindall said.
Ted Dabrowski, vice president of the free market think tank the Illinois Policy Institute, disagreed that all public employees pay into their pension funds, noting teachers in particular often get their share paid by the school district – which taxpayers fund.
Jim Tobin, president and founder of tax-relief organization Taxpayers United of America, said a reasonable annual pension for a public employee is $25,000, similar to what a person on Social Security receives. If a public employee wants more than that, Tobin said they should get an account similar to a 401(k).
With the exception of IMRF, the state-funded main pension systems are grossly underfunded. Current estimates peg the unfunded liability for $85 billion, although some argue the amount is even higher.
That’s because of several factors, including the recession and a shaky stock market that has left less-than-stellar returns on investments from the pension funds.
But one of the most prominent reasons is the failure of state lawmakers who for years did not make the necessary payments into the pension funds in order to keep them fiscally sound.
“This has been building for 30, 40 years,” said state Rep. Robert Pritchard, R-Hinckley.
The problem, Pritchard said, is the state has enhanced pension benefits without contributing the funds to provide those benefits.
Illinois does not raise adequate revenue to support services, Lindall said, but instead of raising taxes or cutting services, lawmakers have used the retirement fund as “a credit card” to balance the state’s finances.
“Now the bill is coming due,” Lindall said. “And they want to punish public employees who have served their communities and always paid in the pensions they earned. That’s wrong.”
State Sen. Christine Johnson, R-Shabbona, said on top of not making payments, the state uses old
data when estimating the rate of return on investments from the pension funds. It also uses 75 as the
age to which people live to, a number that is no longer accurate, she said.
David Yepsen, director of the Paul Simon Public Policy Institute at Southern Illinois University, said many people are upset with what they see as lucrative benefits for state employees. A study by the Illinois Taxpayer Education Foundation found that 5,294 government retirees in the state receive pensions more than $100,000.
In Illinois, the few have spoken for the many, and there’s a poor view of public servants, Yepsen said.
“I think that public employees and retirees have an image problem,” Yepsen said.
And at the same time, the state has an obligation to deliver on promised pension benefits, Yepsen said.
These benefits have been offered to attract – and keep – these employees as public servants, he said.
Lindall acknowledged that there are some who draw what can be considered high pensions or have used loopholes to get a higher pension amount. Those tend to be people at high levels of management, he said, or politicians.
“The average working person should not be punished for those types of misdeeds,” Lindall said. “… That’s not the teacher, that’s not the child protection workers, or the nurse, or the police officer.”
And some of the exceptions, he said, might be justified. Groups that point out the high benefits often don’t examine who the recipient is, Lindall said.
“I’m not here to speak for or defend them. But the chair of oncology at the University of Illinois, that person is probably a genius physician who has worked all her life curing cancer,” he said.
That person could be at a private hospital making millions, Lindall added, but instead has chosen to teach and conduct research at a public institution.
Most agree that pension reform is needed. The debate is how to accomplish that.
Proposals have ranged from having employees contribute more to reducing benefits to changing pensions to a plan similar to the 401(k)s used in the private sector.
Tobin said he would like to see public employees contribute 10 percent more to their pensions, have higher retirement ages and pay more of their health care benefits. He would also stop pensions for new government hires and put them into the Social Security system and have private accounts such as a 401(k).
Dabrowski said it would be in the best interest of everybody to shape reform that does not touch already earned benefits. But “there is no way to reform pensions” without changing the benefits that have yet to be earned by current employees, he said, and reform should include increased contributions by employees.
About 60 percent of the unfunded obligations in Illinois are from retirees and 40 percent is from current workers, Dabrowski said.
The goal should be to reduce the burden on taxpayers while providing a safe pension for public workers, he said.
Yepsen said what’s critical to solving the problem is a plan that, over time, returns the state to solvency.
“It’s like the state budget,” Yepsen said. “You can’t cut your way out of it and you can’t tax your way out of it.”
• Daily Chronicle reporter Caitlin Mullen and reporting from Shaw Suburban Media newspaper the Northwest Herald contributed to this report.