Fixing Illinois’ Pension Crisis | WBEZ
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Morning Shift

Illinois’ Bottom Line: Pensions

If every state worker entitled to a pension retired today, Illinois would need to pay out a total of $130 billion in pension payments — money that the state says it doesn’t have.

Three weeks ahead of Election Day, Laurence Msall, president of the independent research organization Civic Federation, joined Morning Shift to explain the state’s pension crisis — and how the gubernatorial candidates plan to fix it.

What is a public pension and who gets one?

Laurence Msall: Almost all government employees in Illinois receive what is called a defined benefit pension. That means that they have a promise, after certain years of service, a percentage of their salary will be paid to them in retirement in perpetuity or until they no longer exist.

There’s hundreds of thousands of state employees in retirement, but it’s not just the state employees: it’s the city of Chicago employees, it’s the Cook County employees, the Chicago Park District employees, and all the teachers from around the state of Illinois.

What does it mean that Illinois has $130 billion in unfunded pension liabilities?

Msall: [If all state workers were to retire today,] that would be the obligation that the state of Illinois has — to make payments to them over when they retire — that it does not currently have assets to cover. It’s not likely and it’s really not realistic that all employees would retire at the same time, but it is a measurement of the liability.

What do the top candidates for governor say they’ll do?

Republican Gov. Bruce Rauner: a consideration model

Msall: The consideration model would allow the state to offer its employees or soon-to-be retirees a different benefit in exchange for a cash contribution. It is, in some ways, what the General Assembly and the governor approved this year — an experiment that says, “We’ll offer you 70 percent of the future value of your 3 percent compounded automatic increase in a lump sum, and in exchange, you’ll receive the same benefit, but not the same multiplier.” Instead of receiving the 3 percent compounded, you would receive a simple interest lesser benefit.

Democratic challenger JB Pritzker: a Tier 2 system and flattened amortization schedule

Msall: The Tier 2 system is: New employees who come into work for the state of Illinois or local governments — including police and fire — receive a less expensive pension benefit. They don’t receive the 3 percent compounded automatic increase. There is a limit on how much of their salary is going to be pensionable. So it is a much more financially reasonable benefit.

However, [this system] does not replace the obligation of the state for the existing employees who have the old benefit that is very expensive. And it doesn’t do anything to draw down the unfunded liability that has been accrued. Stretching out the repayment schedule is merely saying we’re going to take more time to honor that commitment.

This interview has been edited for brevity and clarity. Click the “play” button to listen to the entire interview, which was adapted for the web by Arionne Nettles.

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