PRESS RELEASE: Most Illinois pension debt since ’95 unrelated to skipped payments

PRESS RELEASE from the ILLINOIS POLICY INSTITUTE MEDIA CONTACT: Diana Rickert diana@illinoispolicy.org or (312) 607-4977 New analysis shows that, contrary to popular belief, more than half of Illinois pension debt accumulated since 1995 not related to “skipped payments” or “pension holidays” SPRINGFIELD, Ill. (April 23, 2013) — Illinois’ massive pension debt frequently is blamed on...

PRESS RELEASE from the ILLINOIS POLICY INSTITUTE MEDIA CONTACT: Diana Rickert diana@illinoispolicy.org or (312) 607-4977

New analysis shows that, contrary to popular belief, more than half of Illinois pension debt accumulated since 1995 not related to “skipped payments” or “pension holidays”

SPRINGFIELD, Ill. (April 23, 2013) — Illinois’ massive pension debt frequently is blamed on politicians who “skipped payments” or “used the pension system like a credit card” to fund other programs. However, the numbers tell a different story, according to a special report released today by the nonpartisan Illinois Policy Institute.

Illinois’ pension debt has climbed by $76 billion since the most recent pension “fix” — the Edgar Ramp, implemented in 1995. An analysis of government financial reports shows that less than half of the $76 billion in new debt is related to the two-year pension holiday the state took in 2006 or any other “skipped payments” or pension “underfunding.” Rather, nearly 60 percent of that pension debt is the result of inherent flaws within the defined benefit-style of retirement benefits. According to the report “Lessons from the Edgar plan: why defined benefits can’t work,” these inherent flaws include benefit increases, changes in actuarial assumptions, poor investment returns and other factors. “Illinois will never solve its retirement crisis if it continues pouring money into a broken defined benefit system that is unpredictable, unaffordable and unmanageable,” said Ted Dabrowski, vice president of policy at the Illinois Policy Institute and the author of the special report. “Most of the pension proposals in Springfield keep in place this broken system. These proposals may cut the unfunded liability up front, but they won’t stop it from re-growing. The only way for Illinois to solve its retirement crisis is to follow the lead of the private sector and implement a 401(k)-style retirement for government workers going forward.”

Other key findings from the report include:

• Only $32.7 billion out of the $76 billion in pension debt accumulated since 1995 stems from contribution shortfalls or politicians skipping payments.
• Nearly 60 percent of the new pension debt is due to the inherent flaws of pensions, which promise people an increasing amount of benefits from the time they retire until they die. These inherent flaws include: benefit increases, changes in actuarial assumptions, poor investment returns and other factors.

While the narrative that politicians “underfunded” the system permeates across the state, Illinois taxpayers actually have paid $8 billion more into the pension system than they were statutorily required to under the “Edgar ramp” pension reform enacted in 1995. In addition to the special report, the Illinois Policy Institute also is releasing today a legal analysis of the “funding guarantee” in a separate report, “The pension funding guarantee: an irresponsible plan.” This legal analysis by Diane Cohen, general counsel at the Liberty Justice Center, examines a proposal that is the centerpiece of many pension proposals in Springfield, including House Bill 3411, supported by state Reps. Elaine Nekritz and Tom Cross. Because politicians wrongly think the cause of the pension debt is skipped payments, some of the most popular reform plans in Springfield include “funding guarantees.” A funding guarantee is bad public policy because 1) it would make funding pensions more important than funding health, safety or public education in Illinois and 2) it is irresponsible for the state to guarantee a benefit when it cannot control or accurately predict the benefit’s costs. “Lessons from the Edgar plan: why defined benefits can’t work” is available online “The pension funding guarantee: an irresponsible plan” is available online

### For interviews, contact: Diana Rickert (312) 607-4977.

The Illinois Policy Institute is a nonpartisan research and education organization dedicated to making Illinois a beacon for liberty and prosperity for all citizens. As a leading voice for economic liberty and government accountability, the Institute engages policy makers, opinion leaders and citizens on the state and local level by promoting free market principles and liberty-based public policy initiatives for a better Illinois. To learn more about the Institute or review policy briefs, please visit: illinoispolicy.org.