The State Journal-Register published this op-ed from the Institute's Ted Dabrowski:
Ted Dabrowski: Quinn plan for pensions inadequate
For the past three years, Gov. Pat Quinn has avoided fundamentally reforming the state’s broken pension systems. So it’s no wonder that many have heralded the plan he finally unveiled as a major step toward ending the state’s $83 billion pension debacle.
Among his proposals are cuts to retiree benefits, increases in employee contributions and local pension accountability. With Quinn finally at the negotiating table, it might be tempting to get behind this plan. But it contains two major faults.
First, Quinn keeps in place the same flawed defined-benefit system that has been controlled and abused by the legislature for decades.
Legislators love this system because it’s a slush fund they can tap. Take, for example, the “pension holidays” the legislature passed in 2006 and 2007. Those incomplete payments shortchanged the pension systems by more than $2.3 billion.
This pension system is also susceptible to compensation abuse.
Quinn’s plan essentially forces civil servants to continue placing their retirement savings into the black box that is Illinois’ pension system. As long as the defined-benefit model remains the linchpin of state government retirements, it’s simply not reform. Retiree and taxpayer security will remain in the hands of those who bankrupted the system: politicians.
The second flaw is that retiree health-care benefits are used as the bait to compel public employees to accept Quinn’s pension plan. Don’t accept my pension reforms, the governor says, and you’ll lose your very generous retiree health-care benefits and increases in your pensionable salary. Do, and you can keep them.
But that’s not a trade Illinois can afford to make. State retiree health care is a ticking time bomb that today totals an additional $54 billion in unfunded liabilities. The state has set aside no money to pay for retired state workers who contribute little to nothing toward their premiums.
While leveraging health-care benefits to coerce government workers to embrace pension reform may seem like a clever “consideration” tactic, Illinois can’t afford to reform one failed system and not the other.
What’s the better plan?
Quinn doesn’t need to trade for anything. He needs no permission to reform health-care retiree benefits since its constitutionality is not questioned. He should embrace existing proposals that reduce the state’s liabilities by half and eventually sunset this expensive benefit.
Moreover, besides reforming retirement costs, Quinn has found leverage for broader pension reform by proposing to freeze pensionable salaries. Acting on both immediately will go a long way to closing the gap in the state’s liabilities and bring employees to the negotiating table.
With that leverage, Quinn can finally offer state employees and taxpayers a retirement system they can trust. Those plans exist, and Illinois should adopt one centered heavily on a defined contribution plan, commonly known as a 401(k).