Years of ignoring the pension problem has put Illinois at the bottom of the list. Moody’s Investor Services rated the state dead last for its pension debt compared to its revenues.
Dean of the UIS College of Business and Management Ron McNeil said this has been a gradual problem over three decades.
“It’s like saying, ‘Oh well, the roof leaks but not very much. We got a barrel under it. That’s good enough,’” McNeil said.
But those barrels overflowed in the past five years when the recession hit and many more employees started to enter the pension pool.
“And we’re saying, ‘Uh oh. We are going to have to swim to get out of our house,’” McNeil said.
After 30 years of not making full payments to the pension fund, the state’s pension debt is three times the state’s annual income.
“Now the question is how do we pay in the future without harming the state?” McNeil said.
The state has begun creating new standards for employees entering the system now, and has even phased out traditional pensions for some state employees. The first attempt at reforming pensions already on the books is failing in the courts and McNeil said lawmakers will have to look at taxes and spending.
“How do we take care of those who we agreed to do certain things, and who pays what?” he said. “It’s going to have to be a compromise.”
Policy expert Ted Dabrowski, of the Illinois Policy Institute, a conservative research group, says the government needs to put retirements in the hands of workers.
“What we’re seeing is proof that Illinois politicians shouldn’t be running government worker retirements,” Dabrowski said.
He said private retirement funds including 401K’s and other retirement savings accounts can offer employees more freedom and are more economical for the state. He said full pensions are no longer feasible.
“Most workers are retiring in their 50’s,” Dabrowski said, “so it’s no longer sustainable for the city and state budgets, and for taxpayers.”
The state is expected to defend the rest of its pension reform bill in the coming months at the Illinois Supreme Court. But, if the court’s first decision is any indication, the rest of the law’s future is in doubt.