I am a retiree of a public institution. We have a retirement fund created by the State of Illinois. The contributors to this fund are the employees themselves while actively employed (8% of gross salary), employing agency, University of Illinois (8% of gross salary), and the State of Illinois. The state was supposed to pay into the fund what was actuarily required (independent actuary calculated this), and guarantee payment of all retirement benefits from taxpayer funds if insufficient pension fund balances existed.
The funds have been actively invested and managed from the beginning. The managers have done an excellent job. Often the fund earned far more than average yields of similar funds. Professional management has been super good. What has been missing are the annual deposits by the state into the funds as agreed upon and contractually established. Such decisions by the state were made by politicians in the legislature and governor’s office. Sad dereliction of duty for decades by both political parties. That’s how we arrived at an unfunded pension fund crisis estimated at $100 billion.
That’s BILLIONS. Make no mistake, the crisis is real and its cause a deplorable political football. Of course neither party agrees with this assessment, but then, they are political parties and not expected to be honest and forthright about such matters.
On the other hand, the crisis is not as bad as $100 billion. That’s because people are prone to overstate the problem for whatever motivation they have. Again, this is mostly political, but then it is also ideological for some folks. They don’t trust government so they make the problem seem larger. Hell, they don’t trust professional public servants because they see them as tainted by feeding at the public trough. But the public trough is there to fund firefighters, state troopers, local police, teachers, professors, researchers and all the other service jobs citizens of the state rely on daily. Someone has to do this job. And if we expect good results, we hire the best, pay them market compensation, provide market standard benefits, and fulfill promises made by employers.
The actuarial position of the pension funds is in dispute. I suggest we ask the actuaries. They are the mathematicians who understand the high math involved in calculated sufficiency of funds for long-term pension investment funds.
Like a life insurance policy, there are mathematical odds that a person will work until retirement for the state agency. But there is a large ‘leakage’ of employees who move on to other industries, self-employment and the like, where the original pension agreement will not be fully earned by the employee. Also, some employees die or become incapacitated and other benefits fill in those gaps, but retirement funds are not used. They accrue to the investment fund to guarantee benefits to be paid to those employees who do make it to retirement age.
A lot of benefits go unearned. There are people who work for an agency or string of state agencies for a life-time career. They are very much in the minority. Ask the actuaries for an accounting of all of these calculations and simply ask the question, ‘how much forward benefits will our plans actually have to pay for, and are present funds at appropriate levels to produce the needed funds when they are needed to pay such benefits?’ My hunch is the actual number is far lower than the $100 billion shortfall. In fact, I’ll bet the shortfall is quite manageable given the number of years needed to generate the needed funds.
The time to panic is once we know the facts and can rely on them. Then we consider options that would likely improve on the current situation. Pick the best options, choose affordability, then fulfill the promise you made when you hired these good workers.
The state needs to step up to this problem and continue to do so for the entire future. This is long-term, not short-term. So, focus on easing the pension problem using strong data, and then focus on building the economy of the state so it needs good people to work for its agencies, generates revenues from those operations, and also creates a strong financial future for the state from which appropriate tax revenues are extracted. This combination of action will most likely cure the pension crisis.
Best we get started on fixing all of the problems. They are interrelated. Like most of life.
April 12, 2019
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