Illinois Pension Contributions: Taxpayers $6.2 Billion, Employees $1.5 Billion

Pension Contributions: Taxpayers $6.2 Billion, Employees $1.5 Billion
Posted: March 10, 2011



Why isn't it 50-50 rather than 80-20?



By Bill Zettler



Illinois Auditor General William Holland just released his latest cost analysis for pensions and came up with $6.2 billion state cost for the fiscal year starting July 1, 2011. Actuarial reports for the state pension funds (teachers, university and state employees) show employees will be required to contribute $1.5 billion for the same period or 24% as much as taxpayers.



Despite this overwhelming one-sided effort to fund the pensions by financially exhausted taxpayers the whining from entrenched liberal groups (unions, politicians, media) continues unabated.



The word "state" is a euphemism for "taxpayers"

You will note that the above-mentioned groups never use the word "taxpayer"; it is always the "state" that is at fault for the pension problems. If the "state" hadn't missed pension payments or the "state" hadn't shorted required contributions or the "state" hadn't dodged them then, by golly, there would not be a pension problem.



As every sentient being knows when it comes to paying bills there is no "state" there are only "taxpayers". So every time you read or hear a professional pension-whiner say the "state" is not doing its share substitute the word "taxpayer." That should get your blood boiling.



If the Teachers Retirement System loses $12 billion why do taxpayers have to pay for it?

The other dirty little secret that pension-whiners never talk about is how the taxpayer is responsible for every salary increase, every early retirement, every benefit increase and every dollar of investment loss. Which is exactly why we taxpayers (not the "state") are contributing 400% more than employees this year.



Eight members of the 13 Member TRS Board of Trustees are current or former employees of the public school system. So "teachers" are making the investment decisions for the TRS but the "taxpayer" (formerly known as the "state") is required to make up all loses via higher contributions i.e. higher taxes. Taxpayers are also required to pay 100% of the interest on all Pension Obligation Bonds, an amount now approaching $1 billion/year. Since they are in charge why aren't teachers paying instead of taxpayers?



For more than a decade taxpayers have paid more than any reasonable system should require - at least 256% more than employees. Please note every single year taxpayers paid more than employees.







Why don't we ask public employees to pay half of their pension costs just like the rest of us?

In the private sector employees pay 6.2% to Social Security matched exactly by their employers. Then add in the average matching 4.8% 401K contribution and you get 11% or 22% of salary contributed 50-50 between employee and employer. Simple, fair, affordable and easy to understand. What's not to like?



So if we apply the 50-50 rule to IL pensions as of July 1, 2011 what do we come up with for employee contributions?



Teachers - 24% instead of 9.4%

University - 20% instead of 8%

State employees 10% instead of 4%

Legislators - 32% instead of 12.5%



Why are state pensions so expensive - the "Four Rules of Too"

1. Retirement is "Too Early":
State Police can retire at 50, teachers 54 and others at 55. Compare this with Social Security full retirement at 66. A person retiring at 50 will, on average, spend more time retired that he did working. That is very expensive proposition.

2. Pensions are "Too High":
From 75% of salary for teachers to 80% for State Police and University employees to 85% for legislators plus 3%/year COLA pensions are very expensive to finance. When combined with early retirement, costs are off the charts.

3. Salaries are "Too High":
Since pensions are percentages of salaries and are without any upper limit, high salaries lead to high pensions. State police earning $175,000, Phys Ed teachers $191,000 and school superintendents $368,000 have led to 4,200 state pensions in excess of $100,000/year growing at 25%/year. This projects to 25,000 pensions over $100K by 2020.

4. Contributions are "Too low":
As you can see from the above rates about 99% of state employees pay less into their retirement system than we do into SS and 401K. But they can retire up to 16 years earlier on much higher pensions so therefore they should be contributing much more than the private sector not less. Because they are not paying their fair share the extra cost must be picked up by the taxpayers of IL.



See "Four Rules of Too" here.



Illinois pension and retiree health care costs are creating an economic dead-end.

The Census Bureau just reported that Chicago now has its lowest population in the last 100 years. Mayor Daley says the new pension requirements for Chicago pensions will raise property taxes by 60%. Do you think raising property taxes by 60% will lead to more people moving to Chicago or leaving from Chicago? Leaving, of course.



Use the same logic for the state. Will potential new employers look at Illinois and see $1 trillion in pension and health care benefits owed to retired public employees over the next 35 years as a reason to relocate here or as a reason to relocate to Indiana, Wisconsin or Ohio? Anybody with common sense would choose someplace other than Illinois to relocate.



Do you think these numbers oriented businessmen will notice that this year's $6.8 billion tax increase exactly matches this years pension cost ($6.2 billion) and retiree health care cost ($600 million)? Yes, I think they will notice.



Will the pension supporters' whining that pensions are "owed" or "promised" have any effect on these decisions? Yes, it will have a negative effect.



If Illinois wants to avoid becoming a Michigan and Chicago a Detroit then comprehensive, meaningful pension reform needs to be completed soon. Decisions to come to Illinois or leave Illinois are being made every day.



Every day we avoid making tough pension cost decisions more taxpayers leave Illinois. Who is going to pay the pensions when all the taxpayers have left?





Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this mail address. Click here to read more by Mr. Zettler.