Politicians & Unions Lied To Us in 1995 and Have Been Lying to Us Ever Since

As most Illinois citizens know IL passed a law in 1994(Public Act 88-0583)that required the state to make required pension contributions that would provide 90% funding by 2045. Those required payments would start July 1,1995 and thus this was a 50-year funding plan.

Over the past few years publicity has been negative in regards to the state meeting the 1995 funding mandate. Politicians of both parties, the news media of every shape and size and especially union honchos have repeatedly bombarded us with claims of shortfalls in taxpayer (state) contributions. Of course they never use the word “taxpayer” they always use the euphemism “state”. After all the “state” is a commonly disliked, amorphous entity held in high disregard by virtually everyone. The “taxpayer” on the other hand is something to be courted and protected. The last thing unions and politicians want is to anger the “taxpayer” since they ultimately control the purse strings.

But when you say the state is in arrears on its pension payments you are saying the taxpayer is in arrears. When you say it is the state’s fault you are saying it is the taxpayer’s fault.

But based upon the payment schedule presented to us in 1995 that is absolutely not true which makes the $17 billion pension bond authorizations (2004, 2010, 2011) and the entire pension system a complete scam.

Lie #1 in 1995: We need taxpayers to contribute $9 billion from 1995 to 2003.

Taxpayers paid in $9.6 billion over that period so what’s the problem?

If we paid more than we agreed to pay in 1995 why in 2003 are we considered to be behind in our payments?

In fact why is there a problem at all? Did someone else perhaps not pay their fair share?

 

State Contributions 1995 to 2003
State Payments as Projected in 1995
Versus
Actual State Payments

Year

Projected in 1995

Actual Taxpayer Payments

Overpaid or (Underpaid)

1996                 627                 682                   55
1997                 749                 761                   12
1998                 881                 932                   51
1999             1,022             1,190                 168
2000             1,173             1,313                 140
2001             1,339             1,434                   95
2002             1,516             1,549                   33
2003             1,705             1,702                   (3)
            9,012             9,563                 551
SOURCE: State Actuarial Reports 1995-2003

Lie #2 in 1995: We need $18 billion in pension assets in 2003 to be on schedule. (1)

At the end of fiscal year 2003 we had $23 billion in pension assets, five billion more than required in 1995. So what’s the problem?

How can accumulating 27% more assets than needed be the cause of a shortfall?

Lie# 3 in 2003: It’s 2003 and the state (taxpayer) is behind on its payments and we need to borrow $10 billion and charge it to the taxpayers’ credit card.

How can that be when we have over-contributed and accumulated more assets than we supposedly needed for 2003 when we were told about the 50-year funding plan in 1995?

So in spite of over-contributing and over accumulating assets the taxpayers of Illinois have to pay out another $22 billion (including interest).

Since the taxpayers over-contributed and over accumulated shouldn’t the people who benefit directly from the pension system i.e. the public employees and public retirees pay any excess amounts due? Why is this a taxpayer liability?

Lie #4 in 1995:We need taxpayers to contribute $31 billion from 1995 to 2011.

Taxpayers paid in $36 billion ($40 billion including interest) over that period so what’s the problem?

If we paid more than we agreed to pay in 1995 why in 2011 are we considered to be behind in our payments?

In fact why is there a problem at all? Did someone else perhaps not pay their fair share?

 

State Contribtuions 1995 to 2011
State Payments as Projected in 1995
Versus
Actual State Payments

Year

Projected in 1995

Actual Taxpayer Payments

Overpaid or (Underpaid)

1996                 627                 682                   55
1997                 749                 761                   12
1998                 881                 932                   51
1999             1,022             1,190                 168
2000             1,173             1,313                 140
2001             1,339             1,434                   95
2002             1,516             1,549                   33
2003             1,705             1,702                   (3)
2004             1,906             9,111             7,205
2005             2,107             1,767              (340)
2006             2,337             1,048           (1,289)
2007             2,573             1,474           (1,099)
2008             2,824             2,105              (719)
2009             3,099             2,831              (268)
2010             3,377             3,991                 614
2011             3,527             3,848                 321
          30,762           35,738             4,976
Plus bond interest>>             4,056
SOURCE: State Actuarial Reports 1995 – 2011

Lie #5 in 1995: We need $31 billion in pension assets in 2011 to be on schedule. (1)

At the end of fiscal year 2011 we had $37 billion in pension assets, $6 billion more than required in 1995. So what’s the problem?

How can accumulating 19% more assets than needed be the cause of a shortfall?

Lie# 6 in 2010/2011: The state (taxpayer) is behind on its payments and we need to borrow $7.2 billionmore and charge it to the taxpayers’ credit card.

How can that be when we have over-contributed and accumulated more assets than we supposedly needed for 2011 when we were told about the 50-year funding plan in 1995?

So in spite of over-contributing and over accumulating assets the taxpayers of Illinois have to pay out another $9 billion (including interest). That’s $31 billion total in pension bond payments.

Since the taxpayers over-contributed and over accumulated shouldn’t the people who benefit directly from the pension system i.e. the public employees and public retirees pay any excess amounts due? Why is this a taxpayer liability?

Lie #7 in 1995: If between 1995 and 2011 taxpayers contribute $31 billion and accumulate $31 billion in assets then taxpayer contribution from that point forward will be 21% of payroll. (1)

OK since we the taxpayer contributed $5 billion more than the $31 billion required ($40 billion counting interest on Pension Bonds) and accumulated $6 billion more in assets  than the $32 billion required why is our annual contribution going forward 50% more than we were told it would be in 1995 (32% vs. 21% of payroll)? And why is the average employee contribution less than 7%?

And the Big Lie in 1995: The state payments over the next 50 years will be modest because the amount we owe for pensions going forward will be modest. (1)

Each year actuaries are required by accounting standards to provide for each pension fund a number call PBO (Pension Benefit Obligation). PBO is the amount of money we owe i.e. need to have in the bank in order to pay all the pensions due as of the date of the report assuming the funds earn the assumed interest rate (ROI). Like a mortgage the higher the PBO the higher the annual payments have to be. So lower PBO lower payments, higher PBO higher payments.

As with everything else we were told in 1995 concerning the 50 year payment plan, the projected PBO’s for each of the 50 years was much lower than what actually happened. That is because the pension benefits due to be paid out turned out to be much higher than projected therefore even though we paid in more than we were told we needed and we accumulated more assets than we were told we needed neither was enough. The reason for that is the taxpayer is obligated to pay all increases in benefits. The burden is not shared by the employees actually receiving the increased benefits.

As you can see from the following chart the differences in projected PBO and actual PBO were significant. The difference has to be paid solely by the taxpayer. So the taxpayer (state) is being castigated for not paying amounts that should never have been assigned to us. We never agreed to these higher payments.

It’s as if your mortgage payment was $1,200/mo. and you (over) paid the bank $1,700/mo. for 10 years you would think you had paid down your balance. But then the bank called and said “You know what your payment was really $2,000/mo. and now you owe us back payments plus interest at 8.5% on the past due amount.” This kind of illogic is impossible anywhere except in Illinois pension politics.

Note the $10 billion difference in 2003 was exactly the amount of the bonds issued in 2004. In other words we were forced to borrow $10 billion to pay for increased benefits for teachers not including the other pension funds. They are not included because they do not have data going back to 1995.

 

TRS – 1995 Projected Pension Benefits
Vs. Actual Pension Benefits in Billions of $

1995 Projected

Actual

Benefits Increase

1996 24 26 2
1997 26 27 1
1998 27 30 3
1999 29 33 4
2000 31 36 5
2001 33 39 6
2002 35 43 8
2003 37 47 10
2004 40 51 11
2005 42 56 14
2006 45 59 14
2007 48 66 18
2008 50 69 19
2009 53 73 20
2010 56 77 21
2011 59 81 22
SOURCE: TRS Actuarial Reports 1995-2011

So if the taxpayers have done more than their share why are we $85 billion unfunded?

Mainly it is because of new benefits handed out to public employees like Christmas candy as can be easily seen in the above chart.

Here are just a few of the benefit enhancements. The “Conversion from Step Rate to Flat Formula” for all state pension systems resulted in pension increases of up to 30% guaranteed by the taxpayers. Employee contribution for these and other increased benefits were free to SURS and SERS members and cost TRS members only .5% increased contribution. On average members of the state pension systems pay less than ½ of 1 percent of their salaries for allthe pension benefit increases passed since the 1995 50-year funding law went into effect. All the other costs are paid and guaranteed by the state (taxpayer).

1995 – ERI (Early Retirement Incentive) for teachers.

  1. 2005 – ERO (Early Retirement Option) for teachers.
  2. 1997, 1998 – Increase in pensions by up to 30% by changing from a stepped rate to a fixed rate.
  3. 1998 – For certain state employees (troopers for example) change pension calculation from average salary over last 4 years to final year salary only. This change allowed 13 state troopers to retire in 2009 with pensions over $100,000/yr. at age 50 by including overtime in the final year’s salary.
  4. 2002 – For state employees rule of 85 was instituted meaning someone who started working for the state at age 19 could retire at age 52.
  5. 2002 – University employees 30 years and out meaning someone who started working for the university at age 19 could retire at age 49.
  6. 2002 – State employees working in highway maintenance would be on same plan as troopers and couldretire after 27 years at age 50 with pension based upon their  last year’s salary including overtime.
  7. 2003 – State employees have Early Retirement Incentive (ERI).
  8. 2004 – Allow up to 2 years of sick leave to be applied as service credit meaning if you worked 33 years you could receive a pension as if you had worked 35 years.

So what should be done about it?

If the “Liar’s Club” of politicians and union bosses had told us in 1995 that we would see a retired U of I professor with a $120,000 pension after 5 years employment or high-school music teacher retire at age 54 with a pension of $130,000 or a retired superintendent with a $225,000 pension after paying $29,000 for $75,000/yr. pension increase and only working 18 years in Illinois or the $108,000 pension for a the Illinois Federation of Teacher’s lobbyist who received his pension after working one day as a substitute teacher or that 20,000 public employees would have pensions in excess of $100,000 by 2020 would we have agreed to it? Of course not.

Let’s go back to the rules originally presented to us in 1995 and watch the unfunded pension liability and taxpayer pension taxes drop like a rock. We never agreed to these increased pension benefits and should not be obligated to pay for them. Let those who received the increased benefits pay for them.

(1)   TRS data was used for these items because other funds do not have data for the entire time period. TRS serves well as a proxy because it is the largest fund by far representing about 60% of the total cost.

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