LTE calls pension reform “brash.” I disagree.

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

 

 

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.

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