$85 Billion Unfunded Pension Debt Won’t Decrease Until 2042 – Best case.
The next time you see an Illinois politician ask him two questions:
- When will the unfunded pension liability decrease from the reported $85 billion? Not until 2042 when it will be $73 billion. It is projected to go up every year until 2032 when it will be $161 billion and then it will begin to decrease to $73 billion in 2042.
- How much will taxpayers have to pay into the pension system before that happens? An amazing $365 billion will be paid into the pensions, not counting pension bond payments, before the unfunded liability decreases from its current level.
It is extremely doubtful that any pol will know the answers to these questions, unless they happen to read Champion News, so you will be at an advantage when confronting them.
And as readers of CN know that $85 billion, best case scenario number, is almost certainly understated. See QUESTION: How Much Do Taxpayers Owe For Unfunded State Pensions?
Four reasons pensions are too high
1. Salaries are too high.
If we just look at the highest teachers’ salaries over the last three years we can see why there is a problem:
And these teachers are not alone – in 2010 over 14,000 K-12 employees made over $100,000, up 15% from the total for 2009. See Top 100 Teacher Salaries here.
And over 6,500 of those 14,000 plus were 9-month employees – teachers.
How does this compare to other states – say our friends to the north WI? We all remember the recent troubles in WI when pension and salary reforms were implemented by Gov. Scott Walker. Red protest T-shirts, shouting in the Capitol building, banging of drums and unethical, complicit medical doctors issuing phony sick-leave reports for protesting teachers.
So with all their problems up north – how many $100,000 teachers do they have?
Exactly one. See the WI – IL educator salary comparison here:
2. Pensions are too high.
Since pensions are a percentage of salary, higher (very high) salaries end up with very high pensions. With the example above we need to ask ourselves: “Does it make sense to pay 9-month (part-time) employees over $20,000/mo and then retire them in their 50’s on multi-million dollar pensions?”
And how do we morally justify cutting $1 million in meals-on-wheels for poor seniors while at the same time paying out more than $1 million with just 3 pensions? See Top 100 Pensions here.
Using our $189,000/yr Music teacher with the $130,000 pension as an example, his total pension payout over his expected lifetime is about $6 million. His peer in the private sector, earning the same salary but retiring at age 62 on the SS max. of 22,000, would receive about $700,000 in total pension payout. So the public employee gets 8 times what his peer in the private sector gets.
3. Contributions are too low.
Over all five of the state pensions, employee pension contributions average about 7%. This compares to 6.2% for Social Security, the pension system most of us are in.
Using the Music teacher again as an example, even though he gets 8 times more retirement payout than his peer on Soc. Sec., he actually contributes 30% less to his pension than the self-employed peer does to his Social Security pension. Pay less, get 8 times more. See Teacher Contributes Less for His $130K Pension Than You Do for Your $21K Social Security.
4. Retirement is too early.
You only need to look at our three teachers in the above table to see that retirement is too early. Why should any public employee retire before age 62, the earliest retirement age for the 95% of IL workers who are on Social Security?
Even if the music teacher had earned the same outrageous salary and pension but at age 62 instead of age 54 his pension payout would be decreased by $ 2 million a huge savings. And who in their right mind would complain about a $130,000 pension at age 62?
Teachers aren’t alone. In 2009 13 State troopers retired with pensions in excess of $100,000 at age 50. Troopers only have to work 27 years to get 80% of their final year’s salary as a pension. A $100,000 pension at age 50 will pay out more than $5 million over the expected lifetime of a 50 year-old.
Ignore the union claims of “modest” pensions.
Almost every day on TV, in newspaper articles or letters to the editor’s pension defenders pull this rabbit out of their hat: yes there are some high pensions but overall pensions are “modest.”
The teachers throw out a $46,000 average pension. What they forget to mention is that is for a part-time employee with a part-time career. The average teacher retires after only 25 years each of which represented a 9-month, 170 day year. Since this is nowhere near a full career why would they assume they are due a full pension?
In fact when compared to their peers in the private sector on Social Security the value of that “modest” average pension is 4 times the value of Social security for same years and same salary. Since when is 4 times Social Security a “modest” pension?
401K’s for all public employees solves the problem.
The long-term problem with IL pensions as currently setup is taxpayers are ultimately responsible for all unfunded liability whether from investment losses, benefit increases, mortality extension or actuarial assumption changes. The employees are never at risk.
That liability is enormous as described here: Any Pension Reform MUST Limit Taxpayer Liability.
So what is the solution to IL pension problems? All public employees on 401K’s.
This solution is actually being talked about in Springfield right now but having seen IL politicians in action before I am dubious as to a positive outcome for IL taxpayers.
The plan is called Senate Bill 512 and was put forth originally by Tom Cross. Unfortunately the 401K portion of the bill is only one of three options that employees will have rather than the only one. What we really need is just the 401K portion.
In addition to the links given above there are 8 other useful tools for gathering information for talking points:
1. Pensions by person and by government unit.
The first tab is by last name, the 2nd tab is by employer. You can enter just part of the name to get a list to choose from. Pensions are in order from highest to lowest. Find your local school district and city/county employers and print them out.
2. School salaries by individual or school district.
3. How to cut the largest single government expense – the $30 billion cost of K-12 education.
4. Worst pension examples – work 5 years get $130,000.
5. Teacher union contributions to politicians – is your rep on the list?
6. Why haven’t there been head count, salary and benefit reductions?
7. The taxpayers have contributed more than the employees by a large margin.
Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this email address.