By Pat Hughes
When you are bleeding to death, you need a stretcher, an ambulance, and a transfusion. And you need doctors who know what they are doing. Illinois is bleeding to death through its pension system. But the quack doctors in Springfield are offering happy-talk and a gauze pad, a “make believe” cure for an expanding red stain, which is all too real.
Fortunately for Illinois, proper care—and the potential for real recovery—is being offered in the form of HB3303, which is currently working through committee. This bill meets the most important criterion for any pension reform: It recognizes that the existing system has failed and must be removed and replaced, not merely tweaked and tinkered with. HB3303 is the only proposal in Springfield which would really and truly, over time, bring Illinois’ pension crisis to an end.
Unfortunately for Illinois, many in Springfield are committed to propping up the existing system, no matter how destructive the consequences will inevitably be. Their proposed bill, HB3411, provides no reform of the pension system worthy of the name, but only nickel-and-dime modifications. When their bill passes, once the hoopla has faded, this phony reform is doomed to solve absolutely nothing and will bring on more expanding costs with no end in sight. Illinois taxpayers, at least the ones who have not already fled to more sanely-governed states, will pay dearly for it.
The lawmakers promoting HB3411 are pretending that it will solve our pension problems, and they expect us to play along. Why let them have all the fun? Let’s indulge in some “make believe” of our own. Let’s pretend we are in a better place, where political courage is not so scarce, where grown-ups face problems and make hard trade-offs, where public officials actually care about the state, about jobs, about families, and the future. Let’s pretend something really crazy can happen. Let’s imagine a world where HB3303 has just been enacted into law.
Immediately, Illinois’ unfunded pension liability will be cut by almost half—$46 billion off the projected $101 billion for fiscal year 2014. The state’s annual pension contribution will fall by more than $2 billion in the first year, and the state’s unfunded liability will to fall to zero by 2045. The perpetually increasing “pension ramp” will be eliminated, and annual payments by the state will be level going forward. Pensions will no longer be on track to crowd out basic government functions, like education and public safety.
Illinoisans have become cynical about reform proposals, and with good reason. Hearing these numbers, retirees and current workers are going to be alarmed about politicians monkeying with the money they are relying on. They will fear these savings are going to come out of their pockets. But they aren’t. Benefits that have already been earned by retirees or those still in the workforce will be protected, as the Illinois Constitution requires.
While protecting earned benefits, Illinois’ pension system will shift from its unsustainable defined benefits plan to a defined contribution plan. Current workers will control their retirement savings going forward with 401(k)-style plans. This change is not an untested leap into the unknown. Illinois State Universities Retirement System already has a 401(a) plan, which is a defined contribution plan. And, of course, most private sector employees currently have 401(k) plans. Employers would make contributions as a fixed percentage of the payroll. The plans will be portable, giving government workers more flexibility and freedom to move their plan from job to job.
Government workers will be empowered, with control over their own retirement savings. The government of Illinois has proven itself to a be rotten custodian of the people’s funds, including its egregious failure to fund its obligations to retirees. That will not be allowed to happen again. Workers will have their own funds in their own plans, not an IOU from Springfield.
As more and more workers participate in the defined contribution plan, pensions contributions from the state will become a shrinking portion of the state budget. We will be on the path to actually solving and ending the pension crisis in Illinois.
The bleeding would stop—and Illinois would start to recover—if HB3303 were voted into law. And if it is not, Illinois will continue to bleed, and the future will be much worse than it has to be.