Quinn’s Pension Reform: Rearranging the Deckchairs on the Titanic.

Once more we see the fecklessness of Illinois politicians in their phony, unworkable so called “solutions” to the pension problem. The current flavor of the day is Gov. Quinn’s. 

There is only one solution that will work over time and will spare our children and grandchildren (at least the ones who have not moved to other states by the time they reach adulthood):RETIRE THE PENSION SYSTEMS.

By “Retire the pension systems” I mean no more defined benefit plans for any public employees. All employees must be on some version of a 401K/Social Security plan that does not force taxpayers, against their will, to increase taxpayer payments to the pensions for every penny of shortfalls caused by poor investment returns, excessive salary increases, mortality underestimation and hidden oops-what-is-that pension rules for the special few. Defined benefit plans have to go. 

Complexity is the friend of the politician and the enemy of the taxpayer.

The current pension systems are so complex not one person in 100, or perhaps 100,000, really understand them. And that is exactly why the Illinois Education Association and the politicians they pay for love the current defined benefit pension system. They love it because no one on the outside understands it and this allows the powers that be to manipulate it for their own good at the expense of the taxpaying public. In economics this is called “rent-seeking” and no one is better at it than Illinois politicians and the public sector unions that support them. 

Rent-seeking: The expenditure of resources (dues collected from teachers and contributed to politicians by the IEA for example) in order to bring about an uncompensated transfer of goods or services (pensions, health care) from other persons (taxpayers) to one’s self as the result of a “favorable” decision on some public policy (pension laws). 

By definition then rent-seeking runs rampant through the Illinois pension systems. 

To show you how complexity works in favor of the politically connected look at so-called conservative State Senator Kirk Dillard’s May 25th, 2012 law banning a pension provision that allowed one person, Thomas Sheahan, to retire with $30,000/yr. more in pension benefits than he would have if that special legislation had not be passed by the general Assembly in 2007. If this special pension deal bothers Dillard today why didn’t it bother him in 2007?

There are only two possible answers to this question; first, he voted for it just to go along and get along i.e. he didn’t care or second, he didn’t realize what he was voting for.

In his defense there is a very strong argument for the second answer because of the complexity inherent in the pension law.

More than one pension revision per day has passed the legislature since 2003.

From 2003 to 2011, there have been more than 700 revisions to the pension system passed by the legislature. That’s about80 a year for a public body that typically spends less than75 days a year in session.

Think about that statistic for a minute. Every single day for the last decade a new pension law was passed by the General Assembly. How is that even possible?

Obviously the legislators themselves with their limited staffs could not possibly have researched and written 700 pieces of legislation. So if they didn’t do it who did? Right, the organizations with unlimited funds and staff: the Illinois Education Association and other public sector unions. 

So we end up with pension law so complex as to defy understanding until some obscure provision like Sheahan’s pops to the surface catching politicians like Dillard unawares. In effect he is saying “Where did this come from?” even though he voted for the provision in 2007.

Unions hate 401K’s because they are simple and cannot be manipulated.

And politicians hate them because they cannot be sold to the highest bidder. There are no political favors to be had in a 401K type system.

That is exactly why the unions opposed Tom Cross’s pension reform bill. Note they never countered the 401K provision by asking for a higher state contribution rate or lower employee contribution rate. No, their opposition was to the entire concept of 401K’s because of the lack of complexity and the political control complexity offers rent-seekers.

In effect simplicity minimizes rent-seeking options and is therefore anathema to those who seek it. Complexity is indeed the friend of the politicians – and the unions.

More than 1000 pages of pension law can never be reformed it can only be eliminated.

Think of the current pension law as a pot of cooked spaghetti. What are the chances that you could untangle that spaghetti and put it back in the box so you could see where it started and how it got to where it is now. That of course would be impossible and so is the concept that we can “reform” the current pension system and put it back to where it was in 1970 before the Constitutional Convention guaranteed the pensions.

And it is not just the state defined benefit plans that are in trouble. Illinois has 630 other DB plans lurking like IED’s in every community large and small. So while state politicians have raised taxes to fund state pensions expect your local politicians to be asking for property tax increases too to pay for 630 unfunded local pension plans. Chicago’s Mayor has talked about a 60% property tax increase to fund Chicago’s unfunded pensions and your community will not be far behind.

It is time to “retire the pension systems” in order to guarantee the taxpayers that they “shall not be diminished or impaired” any more than they already have been.