Illinois Pensions

1. Illinois Pensions Gold Plated Cadillac Or Cadillac Clunker ? Addison Woodward, UIC Forum, 9/14/10

2. Table developed by SURS indicating that had Illinois paid into SURS the shortfall for the years 1982-1986, that amount would have grown to $6.96 billion by the end of 2004. The average rate of return was 11.60% for the years 1982-2004.

3. Number of members, annuitants, and total participants in each of the five retirement systems: State University R.S., Teacher R.S., State Employee R.S., Judge R.S., and General Assembly R.S. Current Annuitants Total SURS 159,795 45,346 205,141 TRS 265,735 91,497 357,232 SERS 87,916 56,111 144,027 JRS 982 956 1,938 GARS 257 395 652

4. Misleading Generalizations from Outliers The highest 100 SURS pensions represents 2/10ths of one percent The highest 500 pensions across all pension systems except judges and lawmakers is 3/10ths of one percent. The point is with over 190,000 annuitants there will be instances of unusually high pensions, but those are the exception, not the rule. The pension system that is in the worst shape financially is GARS. Perhaps this is because there are only 395 retired lawmakers, lawmakers can retire at 85% of highest salary after 20 years of work, and because for lawmakers the critical determiner for one�s pension is the last highest salary in any state position. There is life after the General Assembly. Remember, for most lawmakers their legislative job is part-time.

5. 2005 Pension Modifications Capped end of career salary increases at 6%. Ended money purchase formula. Allowed comptroller�s office to independently determine SURS interest rate Eliminated lump sum awards for unused sick leave to boost pensions Placed a moratorium on any new benefits without a full funding source Removed positions from the alternative formula that do not meet criteria Created a cost neutral ERO paid for by the beneficiaries, paid by local employers, not the state Created a task force to develop additional pension reforms

7. Highlights of Preceding Table. That table reflects pension system changes made in2005 Top pension for judges and lawmakers is 85% of last highest salary after 20 years. Top pension for SURS, TRS and SERS employees is 75% after nearly 35 years of employment. Pension determined by average of highest four years for SURS, TRS and SERS. Not so for judges and lawmakers. Pension modifications of 2005 pension law applied only to SURS,TRS, and SERS employees. Law did not apply to judges or lawmakers. End of money purchase formula means SURS employees must work 35 years to be eligible for the maximum pension of 75% of final four year average.

8. SB1946-PA96-0889A reflexive action or carefully thought out?Actuarial data? Premise: Reasonable people can come to some agreement on pension changes. Worst Provisions of PA96-0889 Excessive early retirement penalty (see following table). COLA changed to 3% or 1/2 of the C.P.I., whichever is less. The new COLA does not compound. Artificially low cap to top pensions. Eight year final average to determine pension base.

9. Effects of 6% per year early retirement penalty on retirees as a function of years of work. (Final average salary used is $50,000.)

10. Notes on Preceding Table The typical SURS employee retires at 62, after 20 years of work, with a pension of $31,300. The prior table was based on a SURS employee whose final salary average was $50,000. The retirement formula is: number of years worked x 2.2% x Final Average. The new pension law does not permit anyone to collect their earned pension before 62.

11. Economic Benefit to Illinois Economy of Pension Dollars Approximately 150,000 pension recipients live in Illinois Benefits paid to these recipients are more than $4 billion. The pension benefit multiplier is $1.50 for every $1.00 of benefits paid. This means $4 billion to annuitants generates about $6 billion in economic benefit for Illinois.

12. Possible unintended consequences of PA98--0889 Harder to recruit and retain education and research leaders for Illinois public universities and community colleges. Hiring entities may be forced to pay higher salaries to compensate for non-competitive pension. Potential teachers may not chose teaching as a profession when considering what retirement options exist. Drain and strain school resources and property tax payers as teachers work 40 or more years. Inability of state agencies to attract and retain dedicated work force. New employees encouraged to select SMP, thus exacerbating the viability of traditional pension plans.

13. Letter from Thomas J. Weisner, Mayor of Aurora and Pension Task Force Member

14. Comment on Mayor of Aurora letter. The PMTF report was balanced and fair. The PMTF report included a minority report representing the views of the Civic Federation and the Commercial club. It is not at all clear why Mr. Msall claimed to have the Mayor�s proxy, when he did not. The fact that he did make such a claim strains the credibility of the constituencies which he represents.

15. Summary and Conclusions For nearly three decades lawmakers have willfully underfunded Illinois� pensions. They have ignored the need for increased revenue with one exception, and used funds due the pension systems to pay current expenses. Paul Krugman of the NYT would call this� starving the beast.� Illinois� pensions have been reformed twice. Each time that became an excuse to use savings yet to be realized to offset current payments. PA96-0889 is seriously flawed, and its unintended consequences need to be addressed. Our lawmakers need to address the larger issue now--the need for increased revenue. So in answer to the question � is it a gold plated Cadillac or a Cadillac clunker,� it�s neither, at least for those already retired. It�s a Ford or Chevy pension plan. New hires will get the Cadillac clunker.