Dennis Byrne's column poses some interesting questions about the Illinois state pension system -- namely, if it goes belly up, will taxpayers be on the hook for paying those benefits? A new analysis prepared for the Civic Committee by the Chicago law firm Sidley Austin says "no":
The opinion acknowledges that the constitution creates a contractual agreement between the workers and the state's employee pension funds. But it concludes that neither the constitution nor the law say the state is a guarantor of that obligation.
The Sidley opinion argued that the state can become a guarantor only under section 2l2-403 of the Illinois Pension Code. That provision states that if a state pension fund runs out of assets "(a)ny pension payable under any law . . . shall not be construed to be a legal obligation or debt of the State . . . but shall be held to be solely an obligation of such pension fund, unless otherwise specifically provided in the law creating such fund."
So, does any law creating the pension funds "specifically provide" that the state would become the guarantor? Sidley examined the laws creating the five state pension funds and concluded that while each contains an "obligation of state" provision, none guarantees that the state will step in and pay the funds if they run out of money.
In simple language, that means if the pension funds run short of cash, public workers face the same sort of uncertainties that most workers in the private sector do.
Chances that the funds will run short of cash are high. They've already got an $80 billion unfunded liability (more, if you discount their rosy rates of return), and you may recall that the state has no plan on paying its $4 billion annual contribution this year. Read more about our Pension Funding & Fairness Act -- it would control spending excesses, require legislators to budget responsibly, and fully fund the
annual required pension payment
The opinion acknowledges that the constitution creates a contractual agreement between the workers and the state's employee pension funds.
Posted by James Morgan - Puritan Financial Advisor on 9/17/2010 8:59:26 AM
Pension systems for the private sector are underfunded due to the fact that states are allowed to underfund. The teachers pension system is a joke with guaranteed benefits put into law by the very lawmakers that benefit. The teachers have the system so rigged that their pension is based on the last 6 months of work salary. Let's see they pay in 4% and receive the highest pay in perpetuity for life and don't forget the health benefits. This system is so corrupt and fixed the whole thing needs to be overhauled. Private sector pensions are based on 401k's and market performance, so how do you guarantee state workers a pension that is exorbitant to start with forever? The system is broken and we need to face that fact and adjust the pensions accordingly. The whole system will collapse under the weight of stupidity unless we face facts.