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28 January 2011

The Daily Chronicle

To the editor:

In response to your editorial support for HB 146, introduced by Rep. Franks (D-Marengo) to impose pension reform measures on all current state employees, regardless of hiring date, let me offer some observations as a member on the NIU Annuitants Association.

First, arguments in favor of pension reform generally fail to recognize that the five state retirement systems differ substantially in their provisions. Editorials and op-ed pieces rarely mention anything other than the most extreme cases that can be found in any of the systems, whether it be the amount of a pension, retirement at some early age, or something else outside the perceived mainstream. Furthermore, it is common for arguments in favor of pension modifications to imply that all state workers belong to unions, which is false.

Second, the State of Illinois chose many years ago to create its own retirement system rather than allow employees to participate in Social Security in most cases. The state thereby avoided mandatory payments to Social Security, and in turn, routinely ignored its own legal obligations (so-called "required annual contributions") to the substituted retirement systems.

Third, the vast majority of state employees contribute a higher percentage of salary into their state retirement system than they would have paid into Social Security. For instance, the rate for participants in the State Universities Retirement System is 8%. That contribution is never missed – only the state fails to pay its promised share. It would be most enlightening to know how much the state would have had to pay into Social Security over the decades compared to what it actually has paid into its own systems, much less what it was statutorily "required" to contribute.

Fourth, because of participation in the mandatory state systems, individuals who retire with a state pension but also qualify for Social Security (typically from prior employment or spousal entitlement) have their Social Security benefits greatly reduced or even eliminated.

Fifth, according to the state pension code, a portion of employee contributions each pay period is designated to self-fund future Cost of Living Adjustments. They are not an annual gift from the state.

Sixth, state pensions are far from lavish, on average, but they are directly related to salary earned during one's working life. Those who earned the most also paid the most into the system, as there is no cap on contributions to the state systems as there is for Social Security.

Seventh, no one relishes a tax increase, but current state employees are affected by the recent hike just the same as others. In fact, most are affected more this year because they did not receive the 2% temporary reduction in payroll taxes that participants in Social Security received, which essentially offsets the state increase for 2011.

Finally, pension liabilities are only one part of the financial problems of the state. The solution requires complete reconsideration of all aspects of both income and expenditures, not a single-minded focus on pensions alone. Contrary to the Chronicle's editorial statement, the income tax increase was not "in large part" because of pension liabilities. Each year the state has tended to spend more than it received in revenue, thereby creating debts, and most of those obligations do not have the very long timeline for resolution that applies to the pension systems. Annual spending must be matched to state income, and it must include a rational plan for funding the pension systems over the long term.

HB 146's author is advocating a position most vocally espoused by the Civic Committee of the Commercial Club of Chicago, and reiterated endlessly by the Chicago Tribune. No one is likely to dispute the legality of the radical changes to the state pension plans that became law on January 1, 2011, for individuals hired on or after that date. However, there is no such agreement on the constitutionality of changing the plans for current employees (much less retirees). Prominent Chicago law firms have lined up on both sides of the question. The only certainty at this point is that HB 146, if passed and then signed by the governor, clearly will end up in the courts at indeterminate cost to the state. Is this a wise use of some of the state's already inadequate financial resources? If the state can ignore its past failures to fund the systems of its own creation (in which participation is not voluntary) and reduce its promised payments to participants, then what is to stop unilateral declarations that any and all other state obligations are no longer valid as incurred and will be paid at some lower amount, if at all? What vendors and service providers will be willing to continue to contract with the state under such circumstances? The issue comes down to whether a contract carries any meaning. If not, the very basis of our economy is undermined if not destroyed.

The underfunding of the state pension systems is not news; it has continued with alarming regularity for decades. Where were the cries of outrage in the past from news organizations and such groups as the Civic Committee? State employees did not spend this state into its current hole. In fact, it is no exaggeration to view state employees as the victims of the systematic looting of their pension funds by the legislature and governors, and now these same employees are portrayed as the cause of the problem. What a perfect example of blame the victim.

James Lockard
Sycamore, IL