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The Ghosts of Illinois Pensions Past

Last Thursday night, 57-year-old Dick Ingram, a bald guy in a dark suit, stepped onto the stage in a cramped, muggy auditorium at a south suburban high school. In his remarks to an audience full of teachers, Ingram repeated the same message he's been delivering for months: Be afraid. Be very afraid.

Ingram is in charge of Illinois’ biggest pension fund, called the Teachers Retirement System. With $52 billion in unfunded liabilities, it’s arguably worse off than any state pension fund in Illinois – which is saying something, considering Illinois has the worst-funded pensions in the country.

“I don’t think it’s any secret that finances in the state of Illinois are a train wreck,” he told the crowd of about 350 working and retired teachers.

“We cannot, today, feel secure in telling a 45-year-old or a 25-year-old teacher in Illinois that they’re gonna get their pension,” he told the crowd. “We face the possibility, and the real likelihood, of insolvency.”

Several teachers at last week’s meeting excoriate Ingram for talking too much, saying he’s just providing fodder to politicians who want to cut teachers’ retirement benefits.

But if you stop and consider what’s going on here, it’s pretty radical: Ingram, the guy in charge of the retirement savings for 370,000 people, is telling anyone who will listen that the money may not be there when they quit working – that teachers, in his words, have “been getting screwed for decades.”

The projected shortfall in the Teachers' Retirement System is just about half the nearly $97 billion problem Illinois faces for all five of its pension funds. And pension experts, watchdog groups, even politicians and unions all agree the story is not primarily about gold-plated benefits for state workers, or public officials gaming the system.

It’s because, for decades, Illinois wanted a pension system, but didn’t want to pay for it.

Shorting the piggybank

You can think of Illinois’ pension funds as a piggy bank. The piggy bank gets contributions from three sources: state workers, investment returns and the employer – in this case, the State of Illinois.

But the state, led by governors and General Assembly members, has never really paid its fair share.

“It’s a matter of never quite putting enough money into the piggy bank,” said Sandor Goldstein, who has been a public pension actuary in Illinois for more than three decades.

You can think of an actuary as an accountant with a crystal ball: They use statistics to try and project how much stuff is going to cost ten, twenty, thirty years down the road – stuff like retirement benefits.

But in Illinois, the state’s pension contributions are discretionary, so governors and lawmakers can basically contribute whatever they feel like. And lawmakers have been ignoring guys like Goldstein for decades.

“I have some reports from these pension commissions that complain about the underfunding back as early as 1945,” he said, before plucking a shopworn paperback report from the shelf of his downtown Chicago office.

There’s actually a whole stack of these reports from something called the Illinois State Employees Pension Laws Commission. And if you can stomach the wonky language, you’ll find that the commission didn’t just sound the alarm about pensions in 1945.

In 1949, the commission warned about “the tremendous, ever-increasing and disproportionate liabilities being imposed upon present and future generations of taxpayers.” Ten years later, it bemoaned the state’s “large unfunded accrued liabilities,” which came mostly from “the inadequacy of government contributions.”

And in 1973: “[T]he pension obligation still remains almost wholly obscured or ignored by some public officials.”

Between 1985 and 2007, 70 percent of the growth in the state’s unfunded liabilities was due to poor government funding, according to a report from Illinois Senate Democrats.

The politics of the piggybank

The politics of shorting the pension piggybank are pretty easy to figure out.

For decades, governors and legislatures chose to spend money on things like education, roads and payroll, rather than stashing it away for retirement benefits.

“Part of the reason was … people in the state didn’t want to pay more taxes,” said former Republican Gov. Jim Edgar.

But the problem wasn’t just about a lack of political will, Edgar said. He argues Illinois has never taken in enough revenue to pay the true cost of the services it provides – an argument that’s been echoed for years by labor unions.

“It doesn’t make any sense if you believe that the services that are provided in, let’s say, December of 2012 should be paid for in December 2012 and not shifted to our kids and our grandkids,” said Hank Scheff, who was the point man on pensions for the American Federation of State, County and Municipal Employees before retiring earlier this year.

1994 and the birth of 'The Ramp'

The 1994 gubernatorial race pitted Edgar against Democratic state comptroller Dawn Clark Netsch.

And back when she was a State Senator, a few years earlier, Netsch had been one of the few Illinois politicians who actually tried to do something about the pension problem.

“I swear I remember the number of the bill – Senate Bill 22,” said Netsch, now 86, during a recent interview with WBEZ. “I always thought it was one of the less sexy, but most important things, I did at that time.”

Netsch says her bill would have given Illinois the very thing all those actuaries had been clamoring for since 1945 – an honest-to-goodness payment plan to get the pension piggybank back on track.

But at the time Netsch’s law was pretty much ignored.

Stilll, during Edgar's 1994 re-election campaign, he says he didn’t want Netsch to make pensions an issue.

So just a few months before the election, he worked with Illinois Democratic House Speaker Michael Madigan and pushed through a funding plan of his own – the funding plan Illinois still uses today.

It’s sometimes called the “Pension Ramp” – and if you put it in a graph, it actually looks a bit like a skateboard ramp. Payments climbed gradually over 15 years, then continue to increase at a faster clip until 2045, when the funds are supposed to reach a 90 percent funding level. Currently we're at the point on the ramp where it starts to get steep quickly.

But by design, the ramp back-loaded the state’s required contributions, kind of like an adjustable-rate mortgage.

Today, critics accuse Edgar of kicking the can down the road. That’s not how he remembers it.

“I don’t think we kicked the can down – I disagree with that,” Edgar said. “We did more than what had been done in the last 30, 40 years.”

But you can’t blame Illinois’ pension nightmare on Jim Edgar alone. Pensions had been underfunded for decades, and were consciously underpaid during the tough budget days of the 1980s, when unions and politicians opted to short the piggybank rather than deal with steep cuts or layoffs.

Through the last decade, there were recessions, budget shenanigans and skimpy contributions from the state.

Still, actuaries like Goldstein say Edgar’s plan was flawed from the get-go. It sets payments artificially low, and the plan only hits a 90-percent funding level, so it would never even fill the whole piggybank.

All this means the unfunded liability is six times what it was in 1999 – and it’s only growing.

So now, politicians and labor unions are frantically looking for possible fixes.

‘Why isn’t everybody mad?’

And that brings us back to where we started – with those teachers at the town hall meeting – who are wondering: What’s taking so long? One frustrated teacher at last week’s Teachers Retirement System town hall meeting complained loudly to Dick Ingram about the decades of inaction.

“There was some talk about it, but at the time I’m looking around – why isn’t everybody mad about it? It was in the 90s!” 

And despite all the facts and figures, this is the one question Dick Ingram – the head of that teachers’ pension fund – doesn’t really have an answer for.

But Ingram seems to take this all in stride.

“I really wish that that had been so, because you’d be less ticked off at me today,” Ingram said.

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