Recently a man named Mike Fanella wrote a letter to the Daily Herald newspaper calling Illinois’ proposed pension reform plan “brash” and that public employees were being “victimized” and “steamrolled” by media and politicians.
The facts show something else – it is the taxpayers of Illinois that are being “victimized” and “steamrolled,” not the public employees.
One reason Mr. Fanella believes as he does is the unending public relations campaign of the teachers unions, most notably the Illinois Education Association (IEA). One falsity promoted regularly by union officials and politicians of both parties is that state (taxpayer) contributions have been “skipped” and taxpayers have not “made required contributions” based upon the pension funding law passed in 1995. Under this law the state was to pay a certain amount, determined by the state actuaries, over a 50 year period beginning in 1995 and ending in 2044. If the state made these payments then, according to the law in 1995, the pension funding level would be at 90% and all problems would be solved. Taxpayers would have done their job and met their responsibility under the 1995 law.
So how do those taxpayer contribution numbers presented to the taxpayers in 1995 look when compared to actual contributions made from 1995 to 2011? They show taxpayers (COLUMN A) have in fact contributed billions of dollars more than what they were told they would have to contribute in 1995 (COLUMN B). Column C shows how much MORE we contributed than we were told we would have to and column D shows how much additional interest should have been earned on the extra we paid in over and above what we were told in 1995. Unless politicians and unions were lying to us in 1995 we have more than met our obligations under the terms presented to us as facts in 1995.
State Pension Contributions to TRS | ||||
1995 Estimated 1995-2011 vs. Actual 1995-2011 | ||||
In millions of dollars | ||||
COLUMN A | COLUMN B | COLUMN C | COLUMN D | |
YEAR |
Actual State Contrib. |
Required Contributions in 1995 Per Actuaries |
Excess State Over Projected |
Extra At 8.5% ROI Compounded |
1995 |
598 |
279 |
319 |
100 |
1996 |
389 |
341 |
48 |
14 |
1997 |
421 |
409 |
12 |
3 |
1998 |
503 |
482 |
21 |
5 |
1999 |
636 |
561 |
75 |
17 |
2000 |
731 |
644 |
87 |
18 |
2001 |
821 |
734 |
87 |
17 |
2002 |
907 |
829 |
78 |
14 |
2003 |
1021 |
932 |
89 |
15 |
2004 |
5489 |
1043 |
4446 |
669 |
2005 |
1055 |
1155 |
-100 |
(14) |
2006 |
658 |
1275 |
-617 |
(79) |
2007 |
854 |
1401 |
-547 |
(64) |
2008 |
1172 |
1536 |
-364 |
(40) |
2009 |
1604 |
1680 |
-76 |
(8) |
2010 |
2200 |
1832 |
368 |
34 |
2011 |
2300 |
1300 |
1000 |
85 |
|
|
|
||
TOTAL>> |
21,359 |
16,433 |
4926 |
786 |
|
|
|
||
Pension Bond Interest |
2,072 |
|
||
Extra ROI |
786 |
|
||
Total Paid In |
24,217 |
16,433 |
7,784 |
47% |
We paid billions more than employees did too.
The following table shows all the taxpayer and employee contributions made to the Teachers Retirement System (TRS) for the period 2001 thru 2011. What they show is taxpayers (euphemistically known as the “state”) have contributed $20 billion to TRS pensions, including pension bond interest, while employees have contributed only $9 billion. That means taxpayers have contributed 230% more than the public employees. Based upon those facts it seems to me it is the employees who are behind on their payments not the taxpayers. How about a 50-50 split?
Teachers vs. Taxpayers |
|
|
|
State Pension Contributions to TRS 2001 – 2010 | |||
In millions of dollars |
|
|
|
|
|
|
|
YEAR |
Taxpayer Contrib. (Employer) |
Teacher Contrib. (Employee) |
Taxpayer to Teacher % |
2001 |
821 |
643 |
128% |
2002 |
907 |
681 |
133% |
2003 |
1,021 |
732 |
139% |
2004 |
5,489 |
769 |
714% |
2005 |
1,055 |
762 |
138% |
2006 |
658 |
799 |
82% |
2007 |
854 |
826 |
103% |
2008 |
1,172 |
865 |
135% |
2009 |
1,604 |
876 |
183% |
2010 |
2,200 |
899 |
245% |
2011 |
2,300 |
910 |
253% |
|
|
|
|
TOTAL>> |
18,081 |
8,762 |
206% |
|
|
|
|
Pension Bond Interest |
2,072 |
– |
|
Total Paid In |
20,153 |
8,762 |
230% |
|
|
|
|
SOURCE: Teachers’ Retirement System of the State of Illinois | |||
June 30, 2010 – 2011 |
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|
|
Actuarial Valuation of Pension Benefits. |
Why would anyone consider 4 times Social Security for a partial career to be modest?
Another myth is the so-called “modest” average pensions received by state retirees. We often hear about the average teacher pension of $46,000/yr. However that average is based upon only 25 years of 9-month/yr. work. If someone in the private sector begins work at age 22 and retires on early Social Security at age 62 he has worked 40 twelve-month years for a maximum Social Security pension of $22,000.Of the 184,000 state pension retirees, fewer than 1% have worked what most of us would consider a full career, 40 years.
The teacher’s average pension of $46,000 is worth 4 times what Social Security would pay for the same years and salaries. Pensions worth 8 times Social Security are common for the 5,467 state retirees with pensions of more than $100,000/yr.
Here are the numbers for all five state pension systems. Notice how on average state employees work roughly half the career a private sector employee does who starts at age 22 and works 44 years until full Social Security at age 66 where he can pull down a maximum pension of $28,000 if he has made more than $106,000 for at least 35 years of his career.
SYSTEM |
Avg. Age At Retire. |
Avg. Pension |
If Soc. Sec. |
Avg Years Worked |
Avg. Final Wage |
Teachers |
58 |
46,000 |
12,000 |
25 |
61,000 |
University |
60 |
35,000 |
11,000 |
21 |
48,000 |
State |
60 |
23,000* |
10,000 |
24 |
46,000 |
Judges |
63 |
117,000 |
20,000 |
19 |
134,000 |
General Assembly |
60 |
52,000 |
10,000 |
15 |
55,000 |
*95% of State employees get Social Security in addition to their pension. |
“In God we trust; all others bring data.”
The above quote is from W. Edward Deming arguably America’s most famous statistician, an expert in logistics (WW II) and QC (Quality Control) statistics but it applies just as well to IL pensions. We have trusted politicians in the past and now we have a tendency to trust media outlets and union bosses for information on pensions and pension reform. But what we really should trust is the actual data from certified reports such as the state pension actuarial reports. Anything else is, well, untrustworthy.
When we look at the data, without emotion or preconceived notions, we can readily see that it is unsustainable long-term without substantial changes in benefits and contributions. And we can also see that taxpayers have indeed done more than their share up to now and should not and cannot be asked to do more.
To pretend that we can just go forward as if nothing has happened since 1995 is a mistake that will be paid for by our children and grandchildren.