Public pension greed, fraud, and confusion

From a recent headline: “In Illinois, taxpayers face a $44 billion pension deficit – the worst in the nation.”

The Illinois Constitution drafted in 1970 includes this much misunderstood sentence in Article XIII:

Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

I’ve noted this before:

The 1970 Illinois Constitutional guarantee applies only to a fully funded pension system. Just as one General Assembly cannot obligate a future General Assembly, future taxpayers are not obligated to make up the deficit of a pension fund created through the political failures of today.

Let me expand on that. The enforceable contractual relationship in a fund as you go agreement is between employees who will receive benefits later on and the employer (current taxpayers) – not future taxpayers.

The “constitutional guarantee” as it is referred to, is not a mandate on future taxpayers but is instead a limitation on how the monies from a fully funded pension system would be spent.

The responsibility for the viability of the system is that of its participants. If the benefits are to be paid out, sufficient funds must be in the system. If the money isn’t put into the system, it is not the responsibility of future taxpayers to make up the unfunded portion.

As we know, for many years state legislators have chosen to spend money on other things rather than on funding the pension system. The contract wasn’t enforced when it had to be enforced – which is when it was being funded. Now it is too late, since future taxpayers were not a party to the contract and thus cannot be held liable.

State legislators ignored the contract and got away with it. To repeat, their failure cannot bind future taxpayers no more than one General Assembly can bind another.

Future taxpayers are not obligated to make up for the political failures of pension beneficiaries. A plan to pay private health care or pension benefits is not the equivalent of public debts incurred to build roads, bridges or other infrastructure. The ability of a plan to pay out private contractual benefits is only the responsibility of those who agreed to the contract, and no one else.

In fact, current state retirees should only be receiving payments in accordance with what actuaries say the pension system can afford based upon its current funding level. Anything more is unfair to future retirees.

State pensioners have no one to blame but themselves for not having accomplished politically what they needed to in order to have an adequately funded pension system. While they’ve known all along that this wasn’t happening, their assumption was that the burden would be assumed by the next generation.

At this point there is no way this $44 billion hole can be filled. The current system will have to be scrapped.

Chris Edwards and Jagadeesh Gokhale of the Cato Institute wrote this:

“The only good options are to cut benefits and move state and local retirement plans to a pre-funded basis with personal savings plans….

State and local governments also need to cut retirement benefits, which were greatly expanded during the 1990s boom.”

Edwards and Gokhale have also said that the “underfunded” retirement plans are “more accurately referred” to as “over-promised.”

In my experience, government employees (and that includes teachers) quite often lose their ability to think rationally when it comes to simple arithmetic.

If I failed to get my own pension plan funded in real time, I certainly can’t expect to receive a pension benefit larger than what the existing fund level would allow. Nor would I expect someone else in the next generation to make up the difference.

That’s how most clear-headed Americans think. Then again, we don’t work for the government, so while we may not have a bloated pension promised to us, we do have the advantage of clear thinking.

©2010 John F. Biver