Solving the Local Pension Crisis

Rep. Ives speaking to the Illinois
Professional Firefighters Association
On Friday I had the privilege of speaking at the Illinois Professional Firefighters Association Spring Pension Seminar in Addison about the profound crisis impacting pension systems at the state and local level. While the focus was on our hardworking and dedicated firefighters, I thought I would share the slides with you that I used, because this issue affects us all as taxpayers.

Upon being asked to give this presentation, I reached out to the Illinois Policy Institute, as they have done important work on the issue of pensions. They put together the slideshow presented HERE.

Here are some quick facts:

ü  Aggregate funding ratios for Illinois’ downstate police and fire pension funds have collapsed over the past 15 years, and are now just 50% funded. (“Downstate” for pension purposes means everything outside of the City of Chicago, which has their own pension systems).

ü  Meanwhile, taxpayer contributions to police and fire pensions have risen 9.3% a year over the past decade, while employee contributions have grown 3.7%.

ü  Despite hundreds of millions of dollars in additional taxpayer contributions over the past decade, police and fire pension debts continue to rise uncontrollably.

ü  Taxpayer contributions have not been able to keep up because police and fire accrued liabilities have grown 700% since 1987, or 8% annually.

ü  Benefits promised to police and fire workers have grown far faster than assets, the economy, inflation, population and taxpayers’ ability to pay for them.

ü  Over 30% of downstate pension funds have less than half the money they need on hand today to pay out future benefits. There are over 25 pension funds that are less than 25% funded.

Here’s an example to help put things in perspective:

As recently as 2006, a third of the city of Springfield’s property tax revenues went to things like libraries. But today, pensions consume 100% of the city’s general property tax revenues.  Devoting 100% of property tax revenues to pensions has not brought Springfield’s crisis under control. The city is considering eliminating active workers to cut costs. If you think that’s outrageous, you’re not alone.

Illinoisans want to support their local police and fire, but they’re overburdened with property taxes and the costs of other government workers. Total unfunded pension and retiree health care debt across all levels of Illinois government has grown to $267 billion. That’s $56,000 of debt per household for every Illinois family. Just six years, total pension debt per household was $43,000.

Looking at this dire reality, what, you might ask, is the solution? The best solution is this:

State and local workers deserve an alternative to the traditional pension system that offers more flexibility, portability and individual control; one that doesn’t rely on funding IOUs from the state or local governments and can provide retirement benefits on par with pensions.

Legislators can pass a 401(k)-style reform plan that protects the benefits of retirees and current workers; moves all new workers into a 401(k)-style retirement plan going forward and gives current workers the choice to join the 401(k) plan.

Illinois already has a 401(k)-style plan that works! State university workers have had access to a 401(k)-style plan for nearly two decades. Since 2012, 15 to nearly 20 percent of new university workers have chosen to enroll in the plan annually. This is a successful model!

Working together, we can achieve responsible pension reform that protects current retirees and gives greater choice, flexibility and portability to current employees and new hires – all while ensuring taxpayers are respected. It’s long past time to set politics aside and get this done. 

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