IL Pensions: 130+ benefit increases since 1970 are the major cause of unfunded liability.

It is interesting to note that with all of the clamor and posturing by various union and political types about the “sacredness” of the Constitutional Pension guarantee, no one has taken the time to see what pension rules were in place at the Constitutional Convention of 1970.

That is up until now.  If pension rules were the same now as when we guaranteed pensions during the 1970 Constitutional Convention, there would currently be a pension surplus not a pension deficit.

That means the current $44 billion TRS (Teachers Retirement System) unfunded AND the future $73 billion future projected unfunded by 2032 is entirely due to pension benefit enhancements passed by Springfield politicians over the ensuing years.  As politicians grabbed all the teacher union dollars they could get, the retirees inexorably became pension millionaires via evermore goodies added to the so-called “guarantee”.

Pension rules on 12/15/1970 when Constitutional pension guarantee was approved.

  • Pension accrual rate: 1.5% per year worked.
  • Maximum pension:
    Age 60 = 60% max.
    Age 61 = 61 – 2/3 % max.
    Age 62 = 63 – 1/3% max.
    Age 63 = 65% max.
    Age 64 = 66 – 2/3% max.
    Age 65 = 68 – 1/3% max.
    Age 66 = 70% max.
  • ½ year sick-leave credit allowed
  • COLA = 1.5% Not compounded
  • Years worked for maximum payout = 46
  • Early Retirement Option (ERO) – No

Current pension rules:

  • Pension accrual rate: 2.2% per year
  • Maximum Pension: age 54.5 = 75%
  • 2 years sick-leave credit.
  • COLA 3% Compounded.
  • Years worked for maximum payout = 33

Here’s a comparison of all the changes since 1970. You can see for yourself the unfunded pension liabilities, at least for teachers, has been driven by benefit increases not covered by employee contribution increases.

Here is a better way to look at the effect benefit increases have had on the cost of pensions versus the amount teachers contribute to their ever growing pensions:

The COLA (Cost-of-living adjustment) differential is so great because life expectancy at age 54 (2011) is 30 years vs. 20 years for a 66 year old (1970).

If the rules in effect in 1970 (when the pension guarantee was approved) were still in effect, we would have a surplus in the TRS fund, not a deficit.

Benefit increases were handed out every year for the last 41 years except 1976 and 1992.

The pension-pillaging of the taxpayer accelerated after the Constitution was approved on Dec. 15, 1970.

In some years there were multiple legislative dates where benefits were handed out.  For example, in 1991 new benefit provisions went into effect on Jan 1, Feb 1, July 1 and Nov 19.

Before 1970, there were few substantive changes to the pension rights granted to retirees.  Afterward, the teacher unions worked their legislative magic and got increased benefit after increased benefit passed-starting immediately in 1971.  It was like Custer at the Little Big Horn, except the taxpayers didn’t know about the slaughter until 40 years later.

Here is a partial list of the 130TRS pension enhancements passed by a compliant legislature at the expense of every Illinois taxpayer:

  • 1971 – Pension maximum raised to 75% from 60%.
  • 1971- Annual COLA raised to 2% from 1.5%
  • 1971- No pension reduction if younger than 60 with 35 years service.
  • 1972 – 85 sick days (1/2 year service) allowed for early retirement.
  • 1973 – Survivor benefits paid at age 50 instead of 55.
  • 1978 – Annual COLA raised to 3% from 2% (not compounded)
  • 1979 – ERO (Early Retirement Option) allowed.
  • 1980 – Retiree health insurance program established.
  • 1982 – Employer pick-up of employee contributions allowed.
  • 1983 – Unmarried children over 18 eligible for health insurance coverage.
  • 1984 – Sick leave credit upped to 170 days from 85 days.
  • 1990 – 3% COLA compounded.
  • 1990 – Survivors get COLA.
  • 1990 – Disability and pensions added for part-time and substitute teachers.
  • 1991 – Retiree health care premiums 75% subsidy.
  • 1998 – Waive Early Retirement cost – 34 work-years becomes 35 years for pension.

Every one of the above items added to taxpayer cost- $100’s of billions over the decades.  Just the COLA going from 1.5% not compounded to 3% compounded increases the pension payout by 30% over a 30 year retirement life expectancy.

Based upon this 130 item, 40 year rap-sheet, teachers should be paying at least 15%.

Just the pension alone demands 13%, and the benefit enhancements are not limited to just pensions.  In 1991 alone, there were enhancements for optional service credit, survivors’ annuities, disability retirement, backdating benefits by 90 days, and annual increases for revisionary annuities.  Each one of these benefits adds to the cost of TRS pensions, and in none of these cases were the teachers asked to contribute more.  Every single cost was borne by the taxpayer.  Multiply this by over 100 other benefit increases since 1970 and taxpayers liability has increased enormously.

Although union leaders complain that 8% is high enough, many 401K contributors in the private sector making $100,000 salaries can contribute 21%, including their 6.2% for Social Security.  And of course 401K’s are not guaranteed like state pensions are.

Constitutional provisions cannot be reversed, but legislative ones can be.

The problem with constitutional amendments is that they can only be revoked (maybe) by another constitutional amendment.  However, legislative public acts are reversed or revoked all the time.

If the legislature passed legislation that increased benefits over and above what was approved in 1970, why can’t they pass new legislation revoking all those increases?

What should be done.

  1. Initiate legislation reversing most or all of the above with the goal of returning to the pension rules that were in effect when the constitutional pension clause was approved on Dec. 15, 1970. The 95% of Illinois workers paying for, but not benefitting from, the State Pension System demand it.
  2. Contracts are abrogated all the time. Why should a pension contract be any different especially in the face of the de facto bankruptcy of the State of Illinois?