More pension stuff
The pension holiday idea that I wrote about in the Capitol Fax today has some serious drawbacks, of course. From a Tuesday article in the Champaign News-Gazette:
Every dollar the state shorts the pension systems this year will cost $13 in 2045, Teachers' Retirement System Executive Director Jon Bauman told the General Assembly's Commission on Government Forecasting and Accountability.
Money invested in the pension systems generally grows at a rate of 8.5 percent a year, said Bob Knox, who runs the retirement systems for state workers, judges and members of the General Assembly.
Since state law requires that the pension systems have enough money on hand by 2045 to cover 90 percent of their obligations, paying less than required now is like borrowing at an interest rate of 8.5 percent, Knox said.
"That's a very expensive form of borrowing," said James Hacking, executive director of State Universities Retirement System. "If you have to borrow, it's cheaper to go to the credit markets and borrow."
The problem with borrowing is that it requires a three-fifths majority. A pension holiday only needs a simple majority to pass, so the Democrats could do it without Republican votes.
posted by Rich Miller @ 5/26/2005 04:13:00 AM
22 comments
22 Comments...
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"Every dollar the state shorts the pension systems this year will cost $13 in 2045, Teachers' Retirement System Executive Director Jon Bauman," the article says.
Does this mean that every dollar of additional benefits granted during the 1990's and beyond also will cost an additional $13 in 2045?
What's interesting about the state pension issue is how little interest the public has shown in it.
It's another example of taxpayers not really understanding what they are paying for in their tax dollars. And most of them aren't even covered by a defined benefit pension themselves (only 20 percent of private sector covered by defined benefit plans, and decreasing rapidly).
The governor's plan is a start but it doesn't go far enough. Make employees pay some of the freight--at the end of the day, rather than leave civil service security for
the performance-oriented private sector, employees would gladly pay more for a sure-thing govt pension.
A combination of ending abusive end of career educator pension schemes, limiting the alternative formula to police officers, raising the age at which one can get a pension (amend the rule of 85) and increasing employee contributions significantly (join the real world) would eliminate the need to worry about future costs of a pension holiday.
Let's face it, nobody cares what happens in 2045. It's too far off. It's like Soc Sec reform. The pres. just hasn't been able to get a lot of excitement going about Soc Sec going under in 50 years.
Rich,
I don't know how you can call a pension holiday a reason for "hope," as you do in today's fax.
Is adjourning on time really worth this kind of dereliction of obligations? Especially if it's passed without a single GOP vote?
The state has been on a pension holiday for over 30 years. Now they are trying to blame the problems on pension benefits. This is just more smoke and mirrors from the Gov., he does not want to fix anything, he is just making the problem worse, more borrowing, we need to reduce spending, he has added more than 2 billion in new spending. That is where our problem comes from. More spending, more spending. We can do more for people, but if you don't have the money, you don't add new spending.
9:53 is correct - the General Assembly has a long history of underfunding pension obligations in order to "balance" the budget. It was only during the Edgar years that legislation was enacted to attempt to make up for past derelictions.
Although I haven't been a state employee for years, I have to take exception to the comments that have appeared in prior posts that imply, or state directly, in some cases that state workers somehow have a much better deal overall than private sector workers because they are "civil service" and, therefore, are "protected" from dismissal, and also have this wonderful pension plan.
What those types of commentors fail to take into account, or ignore, is the fact that the state employees are generally paid less than their private sector counterparts. Also, the vaunted "civil service" protection isn't much protection - take a look at all of the layoffs over the past few years, during both the Ryan and Blago administrations. Another difference between the private sector and the government sector is that unlike the private sector, because of compensation structure under the merit comp rules, it is difficult to reward good employees financially to an adequate extent. (The current administration has eliminated salary increases for the merit comp folks since they took office.)
As to the pension, you receive a pension based on 1.67 times the number of years worked, times your final average salary. So, say you work for the state for 30 years and have a final average salary of $35,000. You would be entitled to a pension of approximately $20,400. That's not exactly a huge amount, for 30 years of service but its not bad.
Of course if you are a member of the legislative retirement system, instead of an ordinary state employee, I believe you receive a pension based on 85% of your final salary. If anyone ever wondered why certain legislators left the General Assembly to go to work in state agencies for a year or two here's your answer. Leave the General Assembly; go to a job in an agency at 100k for a while, then retire at $85k. (I believe they also get to retire at 55, rather than 60 as do ordinary state employees.)
"Of course if you are a member of the legislative retirement system, instead of an ordinary state employee, I believe you receive a pension based on 85% of your final salary. If anyone ever wondered why certain legislators left the General Assembly to go to work in state agencies for a year or two here's your answer. Leave the General Assembly; go to a job in an agency at 100k for a while, then retire at $85k. (I believe they also get to retire at 55, rather than 60 as do ordinary state employees.) "
11:55 is also correct. Not only does the General Assembly get the above pension benefits. If they have 20 years of service at age 55, and work until they are 60. They will receive a 18 % increase after being retired for one year. They accumulate the 3% COLA increase if they meet the 20 years service requirement. LOL
You can review all state retirement systems benefits at the following site. http://www.state.il.us/srs/
my math was wrong at 11:55 with regard to the regular state employee pension calculation - the $20,400 amount was based on a final average salary of $40,000 at $35,000 it would be $17,850 I believe.
Thanks 11:55. Funny how the pension-cutting crowd gets quiet when confronted with facts.
Speaking of which--the average retired state employee today gets a pension of about $15,000. Doesn't sound too fat and happy to me.
It's always good to get all of your information from totaly un-biased sources.
Kudos to John Chase of the Tribune for a very in-depth interview and profile of Tony Rezko.
>on a final average salary of $40,000
>at $35,000 it would be $17,850
>Funny how the pension-cutting crowd
>gets quiet when confronted with
>facts.
And then the pensioner lives another 30 years, costing the taxpayers $535,000, plus medical.
What is the average state salary? I daresay higher than $35,000/year.
There was a time when state employees were paid less than
others in equivalent positions in the private sector, even including health and pension benefits.
However, the value of those health and pension benefits is considerably higher than it used to be....through no fault of anyone, it's just the way the socioeconomic trends evolved.
Public sector employees are probably, overall, at an advantage compensation-wise, if you take health and pension into account, except the (very few) highly talented and skilled employees who could command more money in the private sector. If they were that employable, why didn't more of them take the early retirement
offered this year, or, if in fact they haven't gotten any raises (and, remember, all the unionized staff got good raises) why haven't they left as most marketable employees would do.
If Blago has really frozen MC raises since he was elected (I think I heard some high-level staff did get substantial increases) he is doing the right thing. Taxpayers shouldn't have to pay more than the market pays for their public employees.
the pension holiday is a done deal among the Dem leaders, this should get interesting
30 years * 0.0167 = 50.1% of my annual $50,000. My pension will be $25,050 per year. That is what I have to look forward to when I am 65 years old. Then pension crisis is the result of years of underfunding a benefit of State of Illinois employees. How dare any of you who think that the average state employee is living off the fat of the land. People with my field with my experience and tenure are making upwards of 15% more than I an making. Don't blame the pension crisis on us. Blame it on the legislature and the governor whether it be dem or rep for not properly funding the pension. Blogo has repeatedly slap us in the face even when our unions supported him. How would you like to work for 2 1/2 years without a raise on top of a 4% deduction for blogo trying to balance the budget.
We should scrap the pension systems entirely, start over and keep these grubby state employees from tugging so hard on the taxpayer teat
Are you aware that state employees contribute to their pension fund?
why hasn't anyone challenged the pension holiday as a borrowing scheme simple to the JRT mortgage?
"If Blago has really frozen MC raises since he was elected (I think I heard some high-level staff did get substantial increases) he is doing the right thing. Taxpayers shouldn't have to pay more than the market pays for their public employees."
Maybe so, but there's a limit to how long this can go on. For example, IDOT is losing 3 to 5 career engineers a WEEK to other, better-paying career opportunities due to no raises for 3 years, pension contribution hit, no promotions, etc. The administration's highly paid "appointees", not knowing the right answers to questions from the public and the legislators, need to go to the engineers and technicians. If there are no professionals left to do the work and answer questions, how well are these "appointees" going to function?
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The only high-level employees getting raises are the ones the Virility King forced agencies to accept as employees - political kiss-asses who don't know anything about the work done by the agency they are sent to. Idot man was right - they come to work, pick a long-term employee's brain for answers or ideas and then present them as their own. The people who have worked there for years and know how to do their job are reduced to cleaning up after these dumkopfs.
If the IDOT engineers are leaving for better opportunities, they are doing the right thing. Eventually, unless IDOT was overstaffed (always a possibility in state government) the state will contract out the work or raise the salaries. The engineers aren't
doing their profession any favors
by staying in jobs with inadequate compensation.
However, most state employees are not highly skilled engineers. In the human service agencies, for example, such as DHS, DCFS, et al, the bar for employment is very low.
These "bottomless pit" social agencies, as someone on the blog called them, are full of lifers who could never get similar salaries or benefits in the private sector, so they rely on public employee unions to protect them from any type of accountability. And they are managed by individuals who are
blatantly unqualified and political.
These agencies will remain overstaffed and expensive to taxpayers under the governor's current budget plan. And the taxpayers, few of whom receive any benefits from what these agencies do, will continue to pay above-market prices for the questionable services these agencies provide.
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