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Illinois pension benefits have grown six times faster than state revenues

127 points by Four_Star 9y ago

lotsofpulp 9y ago
There is a very simple solution to this problem of politicians and unions leaving future taxpayers on the hook. The state simply pays an insurance company for an equivalent annuity. Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem to fix its deficits. Either way, remove the government from these long term obligations with easily corruptible pots of money, and the problem fixes itself. And you get transparent, accurate accounting of government costs instead of the manipulable numbers we get now, which of course politicians and unions fill fight against.
- banned1 9y ago
  Or better, give the money to the people and let them take care of their own retirement.
  - rdlecler1 9y ago
    You seem to be discounting limitations of human hardware to effectively execute your program.
    - lotsofpulp 9y ago
      Seems like there are even worse limitations when pooling together everyone's assets and putting a lien on future taxpayer's funds. The best retirement plan is to raise a family and have successful children that you can depend on (and vice versa).
      - jerf 9y ago
        Whether or not it's worse... ehh... a lot of room for personal judgment in there. What it definitely does is take a lot of little problems (at least at government scale) and aggregate it into one whopping big problem bigger than all the little problems combined (because basically we're paying interest on the deferral of those small problems), thus trading a whole bunch of small problems that at least sometimes someone could have fixed or mitigated, into one huge problem that is too large for even the government to fix and for which the individuals involved have no optionality. It would be nice if there was some way to figure out how to stop governments from "solving" problems that way, as for some of those problems we're already arguably at the end of the road, and we're certainly staring down the barrel of a lot more of them that are no longer so much "decades" in our future as "years" in our future.
      - bluGill 9y ago
        I know someone who after he retired fell for a scam and lost all his savings. I know someone who because of a genetic defect has decided not to have kids (he will die at around 55 but the last 10 years he will be disabled enough that he can't work) There is no good answer that covers all cases.
        lotsofpulp 9y ago
        Yes, there are rarely solutions that can cover all edge cases. But looking at it in terms of maintaining a society, it works well...and that's all we had before the 1950s.
        toomuchtodo 9y ago
        It did not work well, and those factors contributed to the creation of social security. The only solution is beefing up social security while ensuring transparency and long term (centuries) stability. But people have to vote and care for this to work.
      - deleted 9y ago
        [deleted]
    - banned1 9y ago
      And yet, here we are discussing what happens when we see Dad Government saving for me. sigh We give all of our info to Facebook, then complain when "privacy". We give all of our money to the Government or Union, then complain "it went broke."
  - pm90 9y ago
    That is a terrible idea. Period. If its one thing that I've consistently found among my American friends, its a shocking lack of any kind of long-term financial saving/thinking (note that I say most, not all. And people in the tech industry are generally better about this but not always). Any time they come across some sort of financial windfall, its all spent in vacations, car or a new house. The house at least is a financial investment so I will give you that.
    - lotsofpulp 9y ago
      Viewing a house, assuming you only have one, as a financial investment is not a good idea. The focus should be on educating students on taking care of themselves. I'm also not sold on subsidizing financial firms with the tax benefits of 401Ks and IRAs, but it's better than nothing. But it's obvious that giving politicians a big pot of money to throw around and a lien on future taxpayers is also terrible.
      - peteey 9y ago
        401Ks and IRAs are good for retirement if and only if the economy doesn't collapse. 2008 saw +50% of the DOW's value "go away". Some individual retirement portfolios lost more.
        lotsofpulp 9y ago
        If the economy collapses, then you're going to need guns, water, a farm, and a group of people to help defend yourself. "Value" was only lost if all the assets were sold in 2008. Assuming you were diversified and just had the run of the mill index funds, you'd have tripled your "value" since then. The dollar loses value every day, and it will continue to do so, so you need to make sure you're making more and more of it. Unless you're adept at investing in cash flow businesses and maintaining them, your best bet is via the stock market. At least then you can tread water, and if another recession comes, the government will just print some more again, but at least you'll be treading water with inflation.
    - leetcrew 9y ago
  - UrukParthian 9y ago
    But you have to have the illusion that society isn't a pyramid scheme. Nobody will admit to being Chronus devouring his young.
  - njarboe 9y ago
    This would work for some people. How many stock market crashes have you lived through? I vaguely remember 1987, but did not have skin in the game at that point, so no lessons learned (but no wrong lessons learned?). I had money in the market during the dotcom crash where the Nasdaq dropped 78%. My dotcom holdings were mostly eBay at the time, so I was not as impacted as many. Then the 2008-09 madness. At some point I split investments between my long holdings and a double short SP500 fund for around a year to save my sanity. Since then a bull market and I bought a chunk of Tesla at $21. Good times. I have made out alright, but really like thinking about financial matters. I know many people in their 50's that during the dotcom and real estate crashes could not stand the losses and sold near the bottom and are still in all cash. Seems like controlling your own retirement assets is a good system to transfer money from regular people to the market makers/full time stock investors. I think some kind of annuity that you buy every year that kicks in at age 65 or 70 is what most people want. Too bad those have really high commissions and horrible returns.
    - dahdum 9y ago
      Forced 401k savings would work, but forcing annuities would cut returns through high fees, and removing too much risk too early.
    - bassman9000 9y ago
      * like controlling your own retirement assets is a good system to transfer money from regular people to the market makers/full time stock investors.* Who said you have to? Fidelity, Securian, and the likes all offer balanced, automated, diversified 401ks and IRAs. Check the plans, and tell me if there's any concentrating on a given sector.
      - njarboe 9y ago
        Maybe I was a bit obtuse but the transfer comes not from poor diversification (although that can be a problem) but market timing. When a person in control of their retirement fund and has a diversified retirement account, just like the experts say, they eventually build it up to a decent amount. Now they start to pay attention to the losses and gains. If stocks now go crazy for a few years, all the hype and past missed gains are so great they sell their bonds and buy stocks near the peak. Then the market crashes and they sell near the bottom for a 50% loss. Then they have been so burned they just keep it in cash and miss out on making it all back and then some in the next bull market. The really unfortunate (stupid?, greedy?, gullible?) people cycle through this more than once. I know I'm not immune. Not sure how one would set up a system where people can control their own retirement funds and yet not control them. Some system where you can only trade with a one month lead time? Or only allow people to buy those timed funds that mix and match highly diversified stock and bond funds depending on your age. Seems like a hard problem.
- robert_foss 9y ago
  Government granted pensions work well in other places, like Sweden for example. I'm sincerely wondering why they aren't working in the US?
  - Larrikin 9y ago
    The specific problem in this case is the massive corruption through all levels of government and politics in Illinois. http://abc7chicago.com/archive/8973798/ http://abc7chicago.com/archive/8973798/
    - dmm 9y ago
      How did corruption harm the Illinois pensions? Were governors using pension contributions to buy yachts? People keep using the word "corruption" but I think this situation arose simply because pension funding was continuously deferred. Is the deceptive? Yes, because the state is making promises it can't keep but it's not an example of corruption.
      - toomuchtodo 9y ago
        It’s fraud. Promise the benefit, but pay for it.
      - lotsofpulp 9y ago
        Governments use GASB accounting standards, and non-government entities have to use IFRS accounting standards. There are completely different and far more stringent requirements for non-government defined benefit pensions (PPA 2006), and far more lenient standards, if you can even call them that, for taxpayer funded pensions. If that doesn't scream corruption, I don't know what does.
  - ptero 9y ago
    I suspect one reason is that the teams granting pensions are usually long gone before it is time to pay for them. I strongly suspect that union leaders negotiating big pensions generally do not care much for the welfare of the people they claim to negotiate for (e.g., union workers). Negotiators almost certainly know that what they ask for is unsustainable and that a more sustainable schema will be better for the workers (their benefits wound not have to be trimmed), but negotiating for bigger future payouts brings bigger career benefits and plenty of time to not be associated with this when the system finally fails.
- jostmey 9y ago
  Of course there are solutions but that isn't the problem. The root issue is that Illinois is corrupt and short-sided. No one complained about kicking the problem down the road.
  - lotsofpulp 9y ago
    There are very few well funded state and local government pension plans, all due to the same reason (unrealistically high investment return assumptions, underfunding, and miscalculation on how long people will live). This would indicate there is a problem with the design of taxpayer funded pensions.
- pessimizer 9y ago
  > There is a very simple solution to this problem of politicians and unions leaving future taxpayers on the hook. The state simply pays an insurance company for an equivalent annuity. Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem to fix its deficits. I'm not sure why you think that what would be (pragmatically in Illinois) giving over state pensions to some state official's cousin to manage at their overextended insurance company that will fail at the first sign of stock weakness would fix anything, or is significantly different from what actually happened.
  - lotsofpulp 9y ago
    It would fix the problem of taxpayers being on the hook for it. It's the union and pension recipients job to ensure that their retirement money is managed properly, just like the rest of us do with our 401k.
    - oh_sigh 9y ago
      What happens when the insurance company goes out of business, because they made the same forecasting mistakes that the state government made 30 years ago?
      - lotsofpulp 9y ago
        Same thing that happens anytime insurers go bust, policy holders eat some or all of the losses. It would then get political on if they're getting bailed out or not, but at least the taxpayers in general aren't on the hook, and if they are, then at least it's explicit. But the thing is insurers are actually subject to reserving and reporting requirements such that they would more accurately price annuities, and quite frankly, no insurer is stupid enough to offer such lavish defined benefit pensions because they know it's not affordable...unless you have a lien on future taxpayer funds.
- jasode 9y ago
  >There is a very simple solution [...] I think you're vastly overestimating the simplicity. Your 2 proposed solutions and its problems: >The state simply pays an insurance company for an equivalent annuity. This requires a willing insurance company that wants to be on the hook for it. The problem is no rational insurance company with competent actuarial skills would calculate that the Illinois premiums payments would be enough to meet 100% future pension obligations. Or, you'd get the alternative scenario where you have a dishonest insurance company just taking the premium payments with no intentions of paying all the pensions and conveniently declaring bankruptcy. Therefore, you'd have the same "unfunded" liability as you have right now. >Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem Again, the union would have to agree to this. The union isn't a puppet of the state such that they would automatically agree to anything the state proposes. The union is an adversary against the state when it comes to negotiating pay and benefits. The union does not want to be on the hook for the increasing future benefits; it wants to the state to have that financial responsibility. Your "simple" solution requires self-interested actors to do what they don't want to do.
  - lotsofpulp 9y ago
    I completely agree with both of your points. But I also think it's conceptually simple. My last statement also shows that I don't believe it will be easily accomplished, or accomplished at all.
  - jeffdavis 9y ago
    If no insurance company will take the deal, that's a good sign to the constituents that it's all a lie anyway. I think there are laws requiring the insurance company to have enough assets or reinsurance to pay the claims if they come due.
- smsm42 9y ago
  You seem to be under impression that underfunded pensions is some kind of a mistake, due to the lack of a system to create funded pensions. Not at all. People know how to save for the future, have known for millenia. The purpose of the defined benefit pension scheme is to cheaply promise massive benefits and to stick the next generation - when current politicians have retired - with the bill, thus keeping the employees content and happy without busting the budget and collecting exorbitant taxes. The fact that these benefits are not funded is not some omission that nobody noticed. It is by design. They do it not because nobody came to them and proposed your scheme, they do it exactly because they want to be in control of easily corruptible pots of money, and they do not want transparent and accurate accounting of the government costs, and do want manipulable numbers. And as long as people keep voting for those fraudsters, it will not change.
  - lotsofpulp 9y ago
    I agree with you, but unfortunately there aren't enough people voting to offset the union members and government employees who are voting.
ckinnan 9y ago
Blog spam, here's the original report: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis...
ComputerGuru 9y ago
Yeah it’s a horrible mess. One generation promised itself the next generation will pay them massive, undeserved pensions. That first generation is still calling the shots (and voting avidly) and the coming generation is going to be stuck with an impossible tab, continuously rising taxes, lowered pensions and benefits, and a miserable situation all around. Or Illinois could find a way to renege without filing for bankruptcy to avoid throwing out the baby with the bathwater. Perhaps someday Madigan and his political machine will pay for what they’ve done. But likely not.
- pulisse 9y ago
  One generation promised itself the next generation will pay them massive, undeserved pensions Defined-benefit pensions are a form of deferred compensation. State employees in the past accepted lower salaries in exchange for this future benefit. Taking away that pension now would be theft from these people.
  - zeypher 9y ago
    Using a similar argument, paying yourself exorbitant over-market compensation while cooking the books to avoid accounting for the true (and unaffordable) cost to your funders and auditors (the public, for Gov't) is a form of embezzlement. I think the truth lies somewhere between here, but the obligations probably can't reasonably be met, and probably never could.
    - ebbv 9y ago
      Those workers didn’t decide their own pay and benefits. And frankly they aren’t ridiculous. They are very reasonable and frankly a joke compared to the compensation of executives and bankers who bribe politicians to undermine and kill worker benefits.
      - delecti 9y ago
        Wealth inequality is certainly an issue, but it's not relevant to the issue being discussed. That there exists private sector executives whose salaries and benefits have more commas than most people can hope to make isn't relevant to pensions of an average worker.
ataturk 9y ago
I was just in the Chicago area, drove down through Wisconsin. When I left, I had to run a gauntlet of state troopers. What do I mean by that? I mean, starting about 10 miles from the Wisconsin border, every single turnaround in the interstate had a state trooper SUV sitting in it shooting radar down the highway. There were 5-6 units plus a car on the south side. This was yesterday, 3/28 in the afternoon around 4pm. So my question to Illinois is, if you're so deep in the hole, why do you have so many cops on the payroll in the first place? Each one of those guys is another pension you have to eventually pay (but can't). And while I'm all for public safety, especially on the highways, I know blatant revenue enhancement when I see it and it pisses me the hell off!
gregorymichael 9y ago
We recently left Chicago after living there for 11 years, and this was one of the ~dozen reasons why. We had a kid, started looking at buying a place, and couldn't justify making a long bet on the city given its financial situation. Chicago has lost population for three years in a row. http://www.chicagotribune.com/news/local/breaking/ct-met-chicago-cook-county-population-20180320-story.html http://www.chicagotribune.com/news/local/breaking/ct-met-chi...
- jostmey 9y ago
  I left too and could not be happier! My situation and experiences in Chicago were awful and I couldn't see that until I moved to a new city.
- tptacek 9y ago
  Chicago is losing population from the south and west sides --- for good reason --- but has hit historic low unemployment rates. If you're in the middle class, you can safely pretend none of what's happening to low-income residents has anything to do with you.
  - rrdharan 9y ago
    Not arguing that any individual should stay or go since that's obviously a complex decision, but at some level if you believe the municipal and/or state government are broken, yet you are in the middle class and you decide to stay, are you not implicitly funding the brokenness with your continued tax dollars? A huge part of why I decided to leave California was because I lost faith in the municipal and state government and didn't feel like funding them anymore. As a high-earning non-citizen, I "vote" with my feet and my taxes. I guess the point is that you can still pretend it doesn't have to do with you until it's really staring you in the face... and also by my same argument all Americans are also funding US neocolonialism and war etc. by contributing our productivity to the nation. At any rate, I want to emphasize again I'm not saying anyone choosing to stay in Chicago is somehow making an ethically questionable decision, just wanted to bring up this line of thinking for consideration.
stupidcar 9y ago
This ties into the larger problem of Western democracies generally degenerating into gerontocracies. Older voters can form a bloc protecting pensions and pensioner-directed state-benefits that no politician dare take on. The results of this is a political trap without an easy exit: Impose punitive taxes on the working population and you'll strangle the economy and incite capital flight and outright rebellion. Form a consensus with other mainstream politicians to slash pensions and benefits, and you'll push the pensioner voting bloc into the arms of whatever extremists promise to protect their interests. And you can't allow large-scale immigration to correct the demographic imbalance and raise tax revenues, because the same pensioner voting bloc is also rabidly anti-immigration. Brexit was a first taste of this: The 1997 Labour government saw the demographic and revenue crisis coming and thought EU migration was a solution. But the long-term result was to inspire an anti-immigration and anti-EU movement amongst older voters that has forced the country out of the EU. In Germany you see the same forces at work with the rise of AFD, and in France with the FN. This is going to get a lot worse before it gets any better.
- hkmurakami 9y ago
  You've perfectly described Japan. And honestly they're more anti immigration than any western country!
- dmm 9y ago
  > generally degenerating into gerontocracies. Solution: You can't vote your first 17 years and you can't vote your last 17 years. The average life expectancy in the US is ~78 years so you can't vote after 61, periodically adjusted for changes in avg. life expectancy.
  - DINKDINK 9y ago
    Are you proposing taxation without representation or that people after 61 wouldn't be taxed?
    - PurpleBoxDragon 9y ago
      Only to the same extent those under 18 are taxed.
anilshanbhag 9y ago
The public pension system is flawed. Unions hold significant political sway and no politican will want to go against them. There was a multi-year standoff between the governor of Illinois and the house on this. The governor of Illinois tried to balance the budget and adjust compensation to market rates; he failed. Here is an article on it: https://www.nytimes.com/2015/10/27/us/illinois-budget-stalemate-rauner-and-democrats-divided.html https://www.nytimes.com/2015/10/27/us/illinois-budget-stalem....
ryandrake 9y ago
There’s got to be some happy medium between this insanity and the insanity of “you’re on your own—here’s a crappy 401(k), figure it out!”
- DubiousPusher 9y ago
  "Try not to get screwed buying funds you have no hope of understanding everyone who didn't study finance in college."
  - ryandrake 9y ago
    I studied finance and still am the world’s worst stock picker. Every time I’ve experiment with investing in individual stocks I’ve lost money. Yet we ask every Tom, Dick, and Harry out there to manage their own asset allocation. It’s madness. I dump my meager savings 1/2 into a savings account and 1/2 into a low fee diversified mutual fund, since that option “sucks less” than all the other shitty options available to us normal people. My parents (and their generation) who enjoy robust defined-benefit pensions are laughing at me and my generation for sure.
- leetcrew 9y ago
  imo it would be best to just not have these benefits. just increase salaries by the amount that would have been added to the pension fund, let them choose between a Roth or traditional IRA and increase the tax deductible contribution limit. then they are free to allocate the funds at an appropriate level of risk and choose low-fee institutions. idk why you wouldn't want to be able to do that. if you really can't understand the basics of personal finance, then maybe you could pay into a third party pension service. but in general, i think it is fair to expect guaranteed benefits to be less than the expected value of market appreciation if you just invested that money yourself. if that were not the case, it would be too risky to offer the benefit!
- nradov 9y ago
  The happy medium would be a good 401(k) or 403(b) plan with employer matching contributions which defaults to a low-fee target date mutual fund with options for low-fee equity and debt index funds. Many employers already offer something like that.
pessimizer 9y ago
This (or the original, rather: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis...) is a lot of graphs and percentages with very few absolute numbers, and all of them deceptive, with endless spurious comparisons such as comparing the percentage rise in "promised pensions" to the rise in average income. Literally inviting you to think that retired state workers make 11x the average salary of working people in Illinois. They do this by comparing the total pensions committed to be paid over a lifetime to people to a bunch of yearly metrics, and most deceptively of all, comparing the rise in total promised pension payments to the rise in inflation during the time that the promises were made. The people who wrote this report are terrible people who were paid to sell a conclusion, not to study anything. The reason that everything was pushed to pensions was simply a way to pay employees less. If they simply paid their workers, they wouldn't have to promise such a luxurious retirement.
- mglennon 9y ago
  Your claim that the authors were paid for it is just a lie you made up, right? That's why you have no specifics about who paid them.
LorenPechtel 9y ago
When you "pay" workers with delayed benefits like pensions it doesn't break your budget, it becomes someone else's problem. Hence high, unfunded pensions with government jobs.
selleck 9y ago
Honestly, this is one of the reasons I am looking to move out of state. Eventually somethings gotta give and I am assuming it will be much higher state and property taxes.
- Leader2light 9y ago
  My parents pay 15k taxes on a 280k home. Get out while you can even still sell your home.
- concrete-faucet 9y ago
  > Eventually somethings gotta give and I am assuming it will be much higher state and property taxes Well since y'all refuse to consolidate governmental units, it will be higher property taxes. A typical suburb with 50,000 people has its own police department, its own fire department, its own library system, its own parks department, road department, etc. Two school systems (K-8 and high school), each with a full administration! Drive your car, cross an intersection, and now you are in some other identical suburb of 50,000 people with all those same governmental units. I know you want your community to feel like a little village, and your community is better than the one next door, so you'll never vote to combine into one. This is how much it costs. Someone pays $15000 per year tax on a $280000 house. I pay $9000 per year on a $650000 condo. I share the cost of a police chief with 2.7 million people and you share it with 50,000.
  - sol_remmy 9y ago
    > I share the cost of a police chief with 2.7 million people and you share it with 50,000. And you wonder why people feel helpless to control the endemic corruption within the Chicago urban limits..
oflannabhra 9y ago
In Kentucky, the governor is essentially committing political suicide by deciding to tackle the issue. Kentucky's pension is rated as the worst state in the union by S&P. The press has excoriated him (as have much of the public). The fact that he is actually addressing the crisis is commendable, though.
Leader2light 9y ago
IL is screwed. Thank god I got out 2 years ago. Insider info, State Farm is next. Major cuts. Again IL is dead. Thanks Chicago.
- nwsm 9y ago
  Can you give me some even better insider info: what city / state (US) is already decent and getting better?
  - lotsofpulp 9y ago
    I would avoid NJ/CT/IL for sure. Also seems like more work and highly qualified people are concentrating in urban/metro areas. I would look for somewhere that's up and coming, has decent weather, and secure water supplies. West coast cities, Denver, Austin, Dallas, DC, Boston, NYC seem to be the big ones, although I'm sure there are other urban areas exhibiting growth.
- concrete-faucet 9y ago
  What does State Farm have to do with Chicago? The HQ is 150 miles away. And how does an insurance company lose money absent a massive act of God? By being bad at math, that's how. Why is that the fault of government?
surfearth 9y ago
Pensions in principle are great. The problem in the US is a combination of (i) unrealistic return expectations, (ii) laws that allow pensions to be underfunded, (iii) poor governance that reduces investment returns, and (iv) overly generous benefits. Other countries (e.g. Canada) address all four of these problems and have pension systems that are widely admired as well funded, well governed, sustainable and savvy investors. The US needs comprehensive reforms to address all four of these points. Without that, any partial solutions such as increased funding or reduced benefits, only serve to delay fixing the system. For (i), returns should be conservatively based on a bond index rather than an unrealistic 7-7.5% return. For (ii), pensions provides should be legally required to maintain a small funding surplus (e.g. 105%). For (iii), pensions should have independent boards comprised of investment professionals that are free of political meddling and actually pay their staff Wall Street level salaries so they can attract top talent to compete, rather than constantly being fleeced by Wall Street. For (iv) I don't have any specific recommendations, but it would be interesting to see the distribution of benefits for the Illinois pensioners.
- lotsofpulp 9y ago
  These could happen, except politicians excluded taxpayer funded pensions from any type of oversight, starting with its exclusion from ERISA. Even now, taxpayer funded pensions don't have to follow rigorous accounting standards such as IFRS, and instead choose to use GASB, which are intentionally lenient so it hides the underfunding. It's telling that once non-taxpayer funded pensions were brought to fully account for their promises, they started disappearing. It's just too costly and too unpredictable to promise something 30+ years into the future. It's ridiculous as a concept, I've never heard of anyone else saying with confidence that they can predict that far into the future, yet we have billions and trillions of dollars of liabilities based on these projections.
  - surfearth 9y ago
    You're correct that poor governance is a big part of the problem. Nevertheless, it is certainly possible for well governed pensions to remain solvent and even run at a surplus. Insurance and annuities are two other industries with the same basic concept. Pool risks together and guarantee a certain level of future benefits based on conservative assumptions (it is not unreasonable to guarantee an inflation adjusted payout if you assume you will generate a market-based return over the long run). One of the problems today is that assumptions have not been conservative.
danvoell 9y ago
"Total pension benefits have grown at an annually compounded rate of 8.8 percent over the past three decades. Compared to 1987, benefits have grown 1,061 percent." How could they let this cost grow at 8.8% for 30 years! Yikes. How immoral.
TuringNYC 9y ago
Here is my worry: IL, CA, and hundreds of states and municipalities will come hat-in-hand to the US government for bailouts in 10 or 15 years. If that happens, everyone in the country is on the hook.
sct202 9y ago
In Illinois, there have been austerity measures taken that have put more burden on younger residents: * Pensions for new employees fall under a tiered system where the benefits are far far lower than the old plans. * Funding to services (eg higher education) have been cut to divert money to pay for the short falls. * Almost every new tax is earmarked to pay for old pensions. So not only do we have to pay more for today's services (tollways, rising transit fees, property taxes, sales tax, college), we have to pay for yesterday's underfunded promises.
- jdhn 9y ago
  The tolls in Illinois are ridiculous. I was heading up to Madison, WI and decided to take I-90 despite the fact that it had tolls. I figured that the gas saved would make up for the tolls. That turned out to be an expensive mistake. What an absolute racket.
  - gok 9y ago
    Of all of Illinois’ goofy taxes I find the tolls pretty reasonable actually. Especially since electronic tolling gets a 50% discount and often allows you to avoid stopping or even slowing down to pay. Compared to SFBA bridge tolls it’s downright pleasant.
pure_ambition 9y ago
There are several problems with this analysis. The first major problem is that the article presents "promised benefits" - equal to the sum of all future pension payouts, which can span as many as 50-60 years into the future - and compares them to ANNUAL state revenue; a comparison which will obviously seem ridiculous. A more accurate comparison would be expected annual payouts vs expected revenue allocated to pensions. An even more accurate comparison would be expected payouts at year X vs (contributions + (expected returns at year X * balance of pension fund at year X) + expected revenue allocated to pensions). After all, pension payouts are funded by a mix of contributions, investment returns, and any state revenues allocated for pension payouts. Another error is that in the linked analysis where they say they looked at every state's level of underfunding, they state: "According to a recent report from the Hoover Institution, on average, public pensions (state, local and federal employee pension plans) assume that they will achieve a risk free 7.6% return on investment per year, every single year." This seems very stupid if it were true, but it's not. The Hoover Institution paper actually states that the 7.6% figure is the return these pension funds are expecting, which is reasonable given the historical S&P 500 annual return of 11.83% (since 1928). The Hoover paper makes no mention anywhere that pensions are expecting the return to be "risk free." Furthermore, the paper makes no mention of inflation or "real" returns, and pensions are tied to nominal wages rather than real wages, so it's reasonable to assume that the 7.6% figure is NOT adjusted for inflation - but even if it were, it would be reasonable, given the historical average inflation rate since 1928 of 3%. Moreover, the Hoover paper rests on the rather dubious assumption that "The appropriate discount rate for a guaranteed nominal pension is the rate on a government bond with a guaranteed nominal return of that same maturity, so for the average plan it would be a Treasury bond with a roughly ten-year maturity." They are saying that pensions should always value their expected returns at the 10-year treasury rate, which is absurd. The only use for using the 10-year T rate is to estimate taxpayer liabilities if everything fell apart. The real question should be, is it reasonable to expect these returns and inflation rates going forward? I would argue that 11.83% is too high to expect, although if it encourages you to save as much as possible to maximize possible gains, so be it; but that 7.6% is much more reasonable. If I were a pension fund manager, I would expect a more conservative target like 5 or 6%, and allocate anything extra either to an "emergency pension fund" in case of years with a revenue shortfall or allocate the extra to be refunded to the taxpayers. Sources: https://ycharts.com/indicators/sandp_500_total_return_annual https://ycharts.com/indicators/sandp_500_total_return_annual http://www.calculator.net/inflation-calculator.html?cstartingamount1=1&cinyear1=1928&coutyear1=2018&calctype=1&x=100&y=9 http://www.calculator.net/inflation-calculator.html?cstartin...
mylons 9y ago
the state is becoming increasingly unlivable. my parents have a house worth about $750k in teh suburbs and are paying ~$15k/year in property taxes. they get almost _nothing_ in terms of services for this money, and taxes are likely going to go up.
wyldfire 9y ago
Holy cow, what is up with the slope of that line? I'd have expect it to level off but it looks like it's headed straight for inf.
Harkins 9y ago
This is blogspam ripping off this site and the link should be changed: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis... The authors of this report are former employees of the Illinois Policy Institute: http://www.wirepoints.com/mark-glennon/ http://www.wirepoints.com/mark-glennon/ https://www.illinoispolicy.org/author/ilpoliski/ https://www.illinoispolicy.org/author/ilpoliski/ The Illinois Policy Institute is, politely, a conservative think tank: https://en.wikipedia.org/wiki/Illinois_Policy_Institute https://en.wikipedia.org/wiki/Illinois_Policy_Institute The full report plays a lot of games to produce these striking, misleading graphs, like comparing yearly numbers with total values of all future pension liabilities at face value instead of any attempt at NPV. If you're curious to spot more, the 1993 edition of How to Lie With Statistics chapter 7 ("The Semi-Attached Figure") and 9 ("How to Statisticulate") are a lighthearted read.
vidanay 9y ago
This is one of the many reasons NY wife and our son spent the last week looking at properties in Raleigh NC and Tampa FL this week. We feel that the clock is ticking for Illinois and the judgement day is going to be spectacular. It's time to vote with our feet.

127 points by Four_Star 9y ago

There is a very simple solution to this problem of politicians and unions leaving future taxpayers on the hook. The state simply pays an insurance company for an equivalent annuity. Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem to fix its deficits. Either way, remove the government from these long term obligations with easily corruptible pots of money, and the problem fixes itself. And you get transparent, accurate accounting of government costs instead of the manipulable numbers we get now, which of course politicians and unions fill fight against.

banned1 9y ago
Or better, give the money to the people and let them take care of their own retirement.
- rdlecler1 9y ago
  You seem to be discounting limitations of human hardware to effectively execute your program.
  - lotsofpulp 9y ago
    Seems like there are even worse limitations when pooling together everyone's assets and putting a lien on future taxpayer's funds. The best retirement plan is to raise a family and have successful children that you can depend on (and vice versa).
    - jerf 9y ago
      Whether or not it's worse... ehh... a lot of room for personal judgment in there. What it definitely does is take a lot of little problems (at least at government scale) and aggregate it into one whopping big problem bigger than all the little problems combined (because basically we're paying interest on the deferral of those small problems), thus trading a whole bunch of small problems that at least sometimes someone could have fixed or mitigated, into one huge problem that is too large for even the government to fix and for which the individuals involved have no optionality. It would be nice if there was some way to figure out how to stop governments from "solving" problems that way, as for some of those problems we're already arguably at the end of the road, and we're certainly staring down the barrel of a lot more of them that are no longer so much "decades" in our future as "years" in our future.
    - bluGill 9y ago
      I know someone who after he retired fell for a scam and lost all his savings. I know someone who because of a genetic defect has decided not to have kids (he will die at around 55 but the last 10 years he will be disabled enough that he can't work) There is no good answer that covers all cases.
      - lotsofpulp 9y ago
        Yes, there are rarely solutions that can cover all edge cases. But looking at it in terms of maintaining a society, it works well...and that's all we had before the 1950s.
        toomuchtodo 9y ago
        It did not work well, and those factors contributed to the creation of social security. The only solution is beefing up social security while ensuring transparency and long term (centuries) stability. But people have to vote and care for this to work.
    - deleted 9y ago
      [deleted]
  - banned1 9y ago
    And yet, here we are discussing what happens when we see Dad Government saving for me. sigh We give all of our info to Facebook, then complain when "privacy". We give all of our money to the Government or Union, then complain "it went broke."
- pm90 9y ago
  That is a terrible idea. Period. If its one thing that I've consistently found among my American friends, its a shocking lack of any kind of long-term financial saving/thinking (note that I say most, not all. And people in the tech industry are generally better about this but not always). Any time they come across some sort of financial windfall, its all spent in vacations, car or a new house. The house at least is a financial investment so I will give you that.
  - lotsofpulp 9y ago
    Viewing a house, assuming you only have one, as a financial investment is not a good idea. The focus should be on educating students on taking care of themselves. I'm also not sold on subsidizing financial firms with the tax benefits of 401Ks and IRAs, but it's better than nothing. But it's obvious that giving politicians a big pot of money to throw around and a lien on future taxpayers is also terrible.
    - peteey 9y ago
      401Ks and IRAs are good for retirement if and only if the economy doesn't collapse. 2008 saw +50% of the DOW's value "go away". Some individual retirement portfolios lost more.
      - lotsofpulp 9y ago
        If the economy collapses, then you're going to need guns, water, a farm, and a group of people to help defend yourself. "Value" was only lost if all the assets were sold in 2008. Assuming you were diversified and just had the run of the mill index funds, you'd have tripled your "value" since then. The dollar loses value every day, and it will continue to do so, so you need to make sure you're making more and more of it. Unless you're adept at investing in cash flow businesses and maintaining them, your best bet is via the stock market. At least then you can tread water, and if another recession comes, the government will just print some more again, but at least you'll be treading water with inflation.
  - leetcrew 9y ago
- UrukParthian 9y ago
  But you have to have the illusion that society isn't a pyramid scheme. Nobody will admit to being Chronus devouring his young.
- njarboe 9y ago
  This would work for some people. How many stock market crashes have you lived through? I vaguely remember 1987, but did not have skin in the game at that point, so no lessons learned (but no wrong lessons learned?). I had money in the market during the dotcom crash where the Nasdaq dropped 78%. My dotcom holdings were mostly eBay at the time, so I was not as impacted as many. Then the 2008-09 madness. At some point I split investments between my long holdings and a double short SP500 fund for around a year to save my sanity. Since then a bull market and I bought a chunk of Tesla at $21. Good times. I have made out alright, but really like thinking about financial matters. I know many people in their 50's that during the dotcom and real estate crashes could not stand the losses and sold near the bottom and are still in all cash. Seems like controlling your own retirement assets is a good system to transfer money from regular people to the market makers/full time stock investors. I think some kind of annuity that you buy every year that kicks in at age 65 or 70 is what most people want. Too bad those have really high commissions and horrible returns.
  - dahdum 9y ago
    Forced 401k savings would work, but forcing annuities would cut returns through high fees, and removing too much risk too early.
  - bassman9000 9y ago
    * like controlling your own retirement assets is a good system to transfer money from regular people to the market makers/full time stock investors.* Who said you have to? Fidelity, Securian, and the likes all offer balanced, automated, diversified 401ks and IRAs. Check the plans, and tell me if there's any concentrating on a given sector.
    - njarboe 9y ago
      Maybe I was a bit obtuse but the transfer comes not from poor diversification (although that can be a problem) but market timing. When a person in control of their retirement fund and has a diversified retirement account, just like the experts say, they eventually build it up to a decent amount. Now they start to pay attention to the losses and gains. If stocks now go crazy for a few years, all the hype and past missed gains are so great they sell their bonds and buy stocks near the peak. Then the market crashes and they sell near the bottom for a 50% loss. Then they have been so burned they just keep it in cash and miss out on making it all back and then some in the next bull market. The really unfortunate (stupid?, greedy?, gullible?) people cycle through this more than once. I know I'm not immune. Not sure how one would set up a system where people can control their own retirement funds and yet not control them. Some system where you can only trade with a one month lead time? Or only allow people to buy those timed funds that mix and match highly diversified stock and bond funds depending on your age. Seems like a hard problem.
robert_foss 9y ago
Government granted pensions work well in other places, like Sweden for example. I'm sincerely wondering why they aren't working in the US?
- Larrikin 9y ago
  The specific problem in this case is the massive corruption through all levels of government and politics in Illinois. http://abc7chicago.com/archive/8973798/ http://abc7chicago.com/archive/8973798/
  - dmm 9y ago
    How did corruption harm the Illinois pensions? Were governors using pension contributions to buy yachts? People keep using the word "corruption" but I think this situation arose simply because pension funding was continuously deferred. Is the deceptive? Yes, because the state is making promises it can't keep but it's not an example of corruption.
    - toomuchtodo 9y ago
      It’s fraud. Promise the benefit, but pay for it.
    - lotsofpulp 9y ago
      Governments use GASB accounting standards, and non-government entities have to use IFRS accounting standards. There are completely different and far more stringent requirements for non-government defined benefit pensions (PPA 2006), and far more lenient standards, if you can even call them that, for taxpayer funded pensions. If that doesn't scream corruption, I don't know what does.
- ptero 9y ago
  I suspect one reason is that the teams granting pensions are usually long gone before it is time to pay for them. I strongly suspect that union leaders negotiating big pensions generally do not care much for the welfare of the people they claim to negotiate for (e.g., union workers). Negotiators almost certainly know that what they ask for is unsustainable and that a more sustainable schema will be better for the workers (their benefits wound not have to be trimmed), but negotiating for bigger future payouts brings bigger career benefits and plenty of time to not be associated with this when the system finally fails.
jostmey 9y ago
Of course there are solutions but that isn't the problem. The root issue is that Illinois is corrupt and short-sided. No one complained about kicking the problem down the road.
- lotsofpulp 9y ago
  There are very few well funded state and local government pension plans, all due to the same reason (unrealistically high investment return assumptions, underfunding, and miscalculation on how long people will live). This would indicate there is a problem with the design of taxpayer funded pensions.
pessimizer 9y ago
> There is a very simple solution to this problem of politicians and unions leaving future taxpayers on the hook. The state simply pays an insurance company for an equivalent annuity. Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem to fix its deficits. I'm not sure why you think that what would be (pragmatically in Illinois) giving over state pensions to some state official's cousin to manage at their overextended insurance company that will fail at the first sign of stock weakness would fix anything, or is significantly different from what actually happened.
- lotsofpulp 9y ago
  It would fix the problem of taxpayers being on the hook for it. It's the union and pension recipients job to ensure that their retirement money is managed properly, just like the rest of us do with our 401k.
  - oh_sigh 9y ago
    What happens when the insurance company goes out of business, because they made the same forecasting mistakes that the state government made 30 years ago?
    - lotsofpulp 9y ago
      Same thing that happens anytime insurers go bust, policy holders eat some or all of the losses. It would then get political on if they're getting bailed out or not, but at least the taxpayers in general aren't on the hook, and if they are, then at least it's explicit. But the thing is insurers are actually subject to reserving and reporting requirements such that they would more accurately price annuities, and quite frankly, no insurer is stupid enough to offer such lavish defined benefit pensions because they know it's not affordable...unless you have a lien on future taxpayer funds.
jasode 9y ago
>There is a very simple solution [...] I think you're vastly overestimating the simplicity. Your 2 proposed solutions and its problems: >The state simply pays an insurance company for an equivalent annuity. This requires a willing insurance company that wants to be on the hook for it. The problem is no rational insurance company with competent actuarial skills would calculate that the Illinois premiums payments would be enough to meet 100% future pension obligations. Or, you'd get the alternative scenario where you have a dishonest insurance company just taking the premium payments with no intentions of paying all the pensions and conveniently declaring bankruptcy. Therefore, you'd have the same "unfunded" liability as you have right now. >Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem Again, the union would have to agree to this. The union isn't a puppet of the state such that they would automatically agree to anything the state proposes. The union is an adversary against the state when it comes to negotiating pay and benefits. The union does not want to be on the hook for the increasing future benefits; it wants to the state to have that financial responsibility. Your "simple" solution requires self-interested actors to do what they don't want to do.
- lotsofpulp 9y ago
  I completely agree with both of your points. But I also think it's conceptually simple. My last statement also shows that I don't believe it will be easily accomplished, or accomplished at all.
- jeffdavis 9y ago
  If no insurance company will take the deal, that's a good sign to the constituents that it's all a lie anyway. I think there are laws requiring the insurance company to have enough assets or reinsurance to pay the claims if they come due.
smsm42 9y ago
You seem to be under impression that underfunded pensions is some kind of a mistake, due to the lack of a system to create funded pensions. Not at all. People know how to save for the future, have known for millenia. The purpose of the defined benefit pension scheme is to cheaply promise massive benefits and to stick the next generation - when current politicians have retired - with the bill, thus keeping the employees content and happy without busting the budget and collecting exorbitant taxes. The fact that these benefits are not funded is not some omission that nobody noticed. It is by design. They do it not because nobody came to them and proposed your scheme, they do it exactly because they want to be in control of easily corruptible pots of money, and they do not want transparent and accurate accounting of the government costs, and do want manipulable numbers. And as long as people keep voting for those fraudsters, it will not change.
- lotsofpulp 9y ago
  I agree with you, but unfortunately there aren't enough people voting to offset the union members and government employees who are voting.

ckinnan 9y ago

Blog spam, here's the original report: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis...

ComputerGuru 9y ago

Yeah it’s a horrible mess. One generation promised itself the next generation will pay them massive, undeserved pensions. That first generation is still calling the shots (and voting avidly) and the coming generation is going to be stuck with an impossible tab, continuously rising taxes, lowered pensions and benefits, and a miserable situation all around. Or Illinois could find a way to renege without filing for bankruptcy to avoid throwing out the baby with the bathwater. Perhaps someday Madigan and his political machine will pay for what they’ve done. But likely not.

pulisse 9y ago
One generation promised itself the next generation will pay them massive, undeserved pensions Defined-benefit pensions are a form of deferred compensation. State employees in the past accepted lower salaries in exchange for this future benefit. Taking away that pension now would be theft from these people.
- zeypher 9y ago
  Using a similar argument, paying yourself exorbitant over-market compensation while cooking the books to avoid accounting for the true (and unaffordable) cost to your funders and auditors (the public, for Gov't) is a form of embezzlement. I think the truth lies somewhere between here, but the obligations probably can't reasonably be met, and probably never could.
  - ebbv 9y ago
    Those workers didn’t decide their own pay and benefits. And frankly they aren’t ridiculous. They are very reasonable and frankly a joke compared to the compensation of executives and bankers who bribe politicians to undermine and kill worker benefits.
    - delecti 9y ago
      Wealth inequality is certainly an issue, but it's not relevant to the issue being discussed. That there exists private sector executives whose salaries and benefits have more commas than most people can hope to make isn't relevant to pensions of an average worker.

ataturk 9y ago

I was just in the Chicago area, drove down through Wisconsin. When I left, I had to run a gauntlet of state troopers. What do I mean by that? I mean, starting about 10 miles from the Wisconsin border, every single turnaround in the interstate had a state trooper SUV sitting in it shooting radar down the highway. There were 5-6 units plus a car on the south side. This was yesterday, 3/28 in the afternoon around 4pm. So my question to Illinois is, if you're so deep in the hole, why do you have so many cops on the payroll in the first place? Each one of those guys is another pension you have to eventually pay (but can't). And while I'm all for public safety, especially on the highways, I know blatant revenue enhancement when I see it and it pisses me the hell off!

gregorymichael 9y ago

We recently left Chicago after living there for 11 years, and this was one of the ~dozen reasons why. We had a kid, started looking at buying a place, and couldn't justify making a long bet on the city given its financial situation. Chicago has lost population for three years in a row. http://www.chicagotribune.com/news/local/breaking/ct-met-chicago-cook-county-population-20180320-story.html http://www.chicagotribune.com/news/local/breaking/ct-met-chi...

jostmey 9y ago
I left too and could not be happier! My situation and experiences in Chicago were awful and I couldn't see that until I moved to a new city.
tptacek 9y ago
Chicago is losing population from the south and west sides --- for good reason --- but has hit historic low unemployment rates. If you're in the middle class, you can safely pretend none of what's happening to low-income residents has anything to do with you.
- rrdharan 9y ago
  Not arguing that any individual should stay or go since that's obviously a complex decision, but at some level if you believe the municipal and/or state government are broken, yet you are in the middle class and you decide to stay, are you not implicitly funding the brokenness with your continued tax dollars? A huge part of why I decided to leave California was because I lost faith in the municipal and state government and didn't feel like funding them anymore. As a high-earning non-citizen, I "vote" with my feet and my taxes. I guess the point is that you can still pretend it doesn't have to do with you until it's really staring you in the face... and also by my same argument all Americans are also funding US neocolonialism and war etc. by contributing our productivity to the nation. At any rate, I want to emphasize again I'm not saying anyone choosing to stay in Chicago is somehow making an ethically questionable decision, just wanted to bring up this line of thinking for consideration.

stupidcar 9y ago

This ties into the larger problem of Western democracies generally degenerating into gerontocracies. Older voters can form a bloc protecting pensions and pensioner-directed state-benefits that no politician dare take on. The results of this is a political trap without an easy exit: Impose punitive taxes on the working population and you'll strangle the economy and incite capital flight and outright rebellion. Form a consensus with other mainstream politicians to slash pensions and benefits, and you'll push the pensioner voting bloc into the arms of whatever extremists promise to protect their interests. And you can't allow large-scale immigration to correct the demographic imbalance and raise tax revenues, because the same pensioner voting bloc is also rabidly anti-immigration. Brexit was a first taste of this: The 1997 Labour government saw the demographic and revenue crisis coming and thought EU migration was a solution. But the long-term result was to inspire an anti-immigration and anti-EU movement amongst older voters that has forced the country out of the EU. In Germany you see the same forces at work with the rise of AFD, and in France with the FN. This is going to get a lot worse before it gets any better.

hkmurakami 9y ago
You've perfectly described Japan. And honestly they're more anti immigration than any western country!
dmm 9y ago
> generally degenerating into gerontocracies. Solution: You can't vote your first 17 years and you can't vote your last 17 years. The average life expectancy in the US is ~78 years so you can't vote after 61, periodically adjusted for changes in avg. life expectancy.
- DINKDINK 9y ago
  Are you proposing taxation without representation or that people after 61 wouldn't be taxed?
  - PurpleBoxDragon 9y ago
    Only to the same extent those under 18 are taxed.

anilshanbhag 9y ago

The public pension system is flawed. Unions hold significant political sway and no politican will want to go against them. There was a multi-year standoff between the governor of Illinois and the house on this. The governor of Illinois tried to balance the budget and adjust compensation to market rates; he failed. Here is an article on it: https://www.nytimes.com/2015/10/27/us/illinois-budget-stalemate-rauner-and-democrats-divided.html https://www.nytimes.com/2015/10/27/us/illinois-budget-stalem....

ryandrake 9y ago

There’s got to be some happy medium between this insanity and the insanity of “you’re on your own—here’s a crappy 401(k), figure it out!”

DubiousPusher 9y ago
"Try not to get screwed buying funds you have no hope of understanding everyone who didn't study finance in college."
- ryandrake 9y ago
  I studied finance and still am the world’s worst stock picker. Every time I’ve experiment with investing in individual stocks I’ve lost money. Yet we ask every Tom, Dick, and Harry out there to manage their own asset allocation. It’s madness. I dump my meager savings 1/2 into a savings account and 1/2 into a low fee diversified mutual fund, since that option “sucks less” than all the other shitty options available to us normal people. My parents (and their generation) who enjoy robust defined-benefit pensions are laughing at me and my generation for sure.
leetcrew 9y ago
imo it would be best to just not have these benefits. just increase salaries by the amount that would have been added to the pension fund, let them choose between a Roth or traditional IRA and increase the tax deductible contribution limit. then they are free to allocate the funds at an appropriate level of risk and choose low-fee institutions. idk why you wouldn't want to be able to do that. if you really can't understand the basics of personal finance, then maybe you could pay into a third party pension service. but in general, i think it is fair to expect guaranteed benefits to be less than the expected value of market appreciation if you just invested that money yourself. if that were not the case, it would be too risky to offer the benefit!
nradov 9y ago
The happy medium would be a good 401(k) or 403(b) plan with employer matching contributions which defaults to a low-fee target date mutual fund with options for low-fee equity and debt index funds. Many employers already offer something like that.

pessimizer 9y ago

This (or the original, rather: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis...) is a lot of graphs and percentages with very few absolute numbers, and all of them deceptive, with endless spurious comparisons such as comparing the percentage rise in "promised pensions" to the rise in average income. Literally inviting you to think that retired state workers make 11x the average salary of working people in Illinois. They do this by comparing the total pensions committed to be paid over a lifetime to people to a bunch of yearly metrics, and most deceptively of all, comparing the rise in total promised pension payments to the rise in inflation during the time that the promises were made. The people who wrote this report are terrible people who were paid to sell a conclusion, not to study anything. The reason that everything was pushed to pensions was simply a way to pay employees less. If they simply paid their workers, they wouldn't have to promise such a luxurious retirement.

mglennon 9y ago
Your claim that the authors were paid for it is just a lie you made up, right? That's why you have no specifics about who paid them.

LorenPechtel 9y ago

When you "pay" workers with delayed benefits like pensions it doesn't break your budget, it becomes someone else's problem. Hence high, unfunded pensions with government jobs.

selleck 9y ago

Honestly, this is one of the reasons I am looking to move out of state. Eventually somethings gotta give and I am assuming it will be much higher state and property taxes.

Leader2light 9y ago
My parents pay 15k taxes on a 280k home. Get out while you can even still sell your home.
concrete-faucet 9y ago
> Eventually somethings gotta give and I am assuming it will be much higher state and property taxes Well since y'all refuse to consolidate governmental units, it will be higher property taxes. A typical suburb with 50,000 people has its own police department, its own fire department, its own library system, its own parks department, road department, etc. Two school systems (K-8 and high school), each with a full administration! Drive your car, cross an intersection, and now you are in some other identical suburb of 50,000 people with all those same governmental units. I know you want your community to feel like a little village, and your community is better than the one next door, so you'll never vote to combine into one. This is how much it costs. Someone pays $15000 per year tax on a $280000 house. I pay $9000 per year on a $650000 condo. I share the cost of a police chief with 2.7 million people and you share it with 50,000.
- sol_remmy 9y ago
  > I share the cost of a police chief with 2.7 million people and you share it with 50,000. And you wonder why people feel helpless to control the endemic corruption within the Chicago urban limits..

oflannabhra 9y ago

In Kentucky, the governor is essentially committing political suicide by deciding to tackle the issue. Kentucky's pension is rated as the worst state in the union by S&P. The press has excoriated him (as have much of the public). The fact that he is actually addressing the crisis is commendable, though.

Leader2light 9y ago

IL is screwed. Thank god I got out 2 years ago. Insider info, State Farm is next. Major cuts. Again IL is dead. Thanks Chicago.

nwsm 9y ago
Can you give me some even better insider info: what city / state (US) is already decent and getting better?
- lotsofpulp 9y ago
  I would avoid NJ/CT/IL for sure. Also seems like more work and highly qualified people are concentrating in urban/metro areas. I would look for somewhere that's up and coming, has decent weather, and secure water supplies. West coast cities, Denver, Austin, Dallas, DC, Boston, NYC seem to be the big ones, although I'm sure there are other urban areas exhibiting growth.
concrete-faucet 9y ago
What does State Farm have to do with Chicago? The HQ is 150 miles away. And how does an insurance company lose money absent a massive act of God? By being bad at math, that's how. Why is that the fault of government?

surfearth 9y ago

Pensions in principle are great. The problem in the US is a combination of (i) unrealistic return expectations, (ii) laws that allow pensions to be underfunded, (iii) poor governance that reduces investment returns, and (iv) overly generous benefits. Other countries (e.g. Canada) address all four of these problems and have pension systems that are widely admired as well funded, well governed, sustainable and savvy investors. The US needs comprehensive reforms to address all four of these points. Without that, any partial solutions such as increased funding or reduced benefits, only serve to delay fixing the system. For (i), returns should be conservatively based on a bond index rather than an unrealistic 7-7.5% return. For (ii), pensions provides should be legally required to maintain a small funding surplus (e.g. 105%). For (iii), pensions should have independent boards comprised of investment professionals that are free of political meddling and actually pay their staff Wall Street level salaries so they can attract top talent to compete, rather than constantly being fleeced by Wall Street. For (iv) I don't have any specific recommendations, but it would be interesting to see the distribution of benefits for the Illinois pensioners.

lotsofpulp 9y ago
These could happen, except politicians excluded taxpayer funded pensions from any type of oversight, starting with its exclusion from ERISA. Even now, taxpayer funded pensions don't have to follow rigorous accounting standards such as IFRS, and instead choose to use GASB, which are intentionally lenient so it hides the underfunding. It's telling that once non-taxpayer funded pensions were brought to fully account for their promises, they started disappearing. It's just too costly and too unpredictable to promise something 30+ years into the future. It's ridiculous as a concept, I've never heard of anyone else saying with confidence that they can predict that far into the future, yet we have billions and trillions of dollars of liabilities based on these projections.
- surfearth 9y ago
  You're correct that poor governance is a big part of the problem. Nevertheless, it is certainly possible for well governed pensions to remain solvent and even run at a surplus. Insurance and annuities are two other industries with the same basic concept. Pool risks together and guarantee a certain level of future benefits based on conservative assumptions (it is not unreasonable to guarantee an inflation adjusted payout if you assume you will generate a market-based return over the long run). One of the problems today is that assumptions have not been conservative.

danvoell 9y ago

"Total pension benefits have grown at an annually compounded rate of 8.8 percent over the past three decades. Compared to 1987, benefits have grown 1,061 percent." How could they let this cost grow at 8.8% for 30 years! Yikes. How immoral.

TuringNYC 9y ago

Here is my worry: IL, CA, and hundreds of states and municipalities will come hat-in-hand to the US government for bailouts in 10 or 15 years. If that happens, everyone in the country is on the hook.

sct202 9y ago

In Illinois, there have been austerity measures taken that have put more burden on younger residents: * Pensions for new employees fall under a tiered system where the benefits are far far lower than the old plans. * Funding to services (eg higher education) have been cut to divert money to pay for the short falls. * Almost every new tax is earmarked to pay for old pensions. So not only do we have to pay more for today's services (tollways, rising transit fees, property taxes, sales tax, college), we have to pay for yesterday's underfunded promises.

jdhn 9y ago
The tolls in Illinois are ridiculous. I was heading up to Madison, WI and decided to take I-90 despite the fact that it had tolls. I figured that the gas saved would make up for the tolls. That turned out to be an expensive mistake. What an absolute racket.
- gok 9y ago
  Of all of Illinois’ goofy taxes I find the tolls pretty reasonable actually. Especially since electronic tolling gets a 50% discount and often allows you to avoid stopping or even slowing down to pay. Compared to SFBA bridge tolls it’s downright pleasant.

pure_ambition 9y ago

There are several problems with this analysis. The first major problem is that the article presents "promised benefits" - equal to the sum of all future pension payouts, which can span as many as 50-60 years into the future - and compares them to ANNUAL state revenue; a comparison which will obviously seem ridiculous. A more accurate comparison would be expected annual payouts vs expected revenue allocated to pensions. An even more accurate comparison would be expected payouts at year X vs (contributions + (expected returns at year X * balance of pension fund at year X) + expected revenue allocated to pensions). After all, pension payouts are funded by a mix of contributions, investment returns, and any state revenues allocated for pension payouts. Another error is that in the linked analysis where they say they looked at every state's level of underfunding, they state: "According to a recent report from the Hoover Institution, on average, public pensions (state, local and federal employee pension plans) assume that they will achieve a risk free 7.6% return on investment per year, every single year." This seems very stupid if it were true, but it's not. The Hoover Institution paper actually states that the 7.6% figure is the return these pension funds are expecting, which is reasonable given the historical S&P 500 annual return of 11.83% (since 1928). The Hoover paper makes no mention anywhere that pensions are expecting the return to be "risk free." Furthermore, the paper makes no mention of inflation or "real" returns, and pensions are tied to nominal wages rather than real wages, so it's reasonable to assume that the 7.6% figure is NOT adjusted for inflation - but even if it were, it would be reasonable, given the historical average inflation rate since 1928 of 3%. Moreover, the Hoover paper rests on the rather dubious assumption that "The appropriate discount rate for a guaranteed nominal pension is the rate on a government bond with a guaranteed nominal return of that same maturity, so for the average plan it would be a Treasury bond with a roughly ten-year maturity." They are saying that pensions should always value their expected returns at the 10-year treasury rate, which is absurd. The only use for using the 10-year T rate is to estimate taxpayer liabilities if everything fell apart. The real question should be, is it reasonable to expect these returns and inflation rates going forward? I would argue that 11.83% is too high to expect, although if it encourages you to save as much as possible to maximize possible gains, so be it; but that 7.6% is much more reasonable. If I were a pension fund manager, I would expect a more conservative target like 5 or 6%, and allocate anything extra either to an "emergency pension fund" in case of years with a revenue shortfall or allocate the extra to be refunded to the taxpayers. Sources: https://ycharts.com/indicators/sandp_500_total_return_annual https://ycharts.com/indicators/sandp_500_total_return_annual http://www.calculator.net/inflation-calculator.html?cstartingamount1=1&cinyear1=1928&coutyear1=2018&calctype=1&x=100&y=9 http://www.calculator.net/inflation-calculator.html?cstartin...

mylons 9y ago

the state is becoming increasingly unlivable. my parents have a house worth about $750k in teh suburbs and are paying ~$15k/year in property taxes. they get almost _nothing_ in terms of services for this money, and taxes are likely going to go up.

wyldfire 9y ago

Holy cow, what is up with the slope of that line? I'd have expect it to level off but it looks like it's headed straight for inf.

Harkins 9y ago

This is blogspam ripping off this site and the link should be changed: http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/ http://www.wirepoints.com/illinois-state-pensions-overpromis... The authors of this report are former employees of the Illinois Policy Institute: http://www.wirepoints.com/mark-glennon/ http://www.wirepoints.com/mark-glennon/ https://www.illinoispolicy.org/author/ilpoliski/ https://www.illinoispolicy.org/author/ilpoliski/ The Illinois Policy Institute is, politely, a conservative think tank: https://en.wikipedia.org/wiki/Illinois_Policy_Institute https://en.wikipedia.org/wiki/Illinois_Policy_Institute The full report plays a lot of games to produce these striking, misleading graphs, like comparing yearly numbers with total values of all future pension liabilities at face value instead of any attempt at NPV. If you're curious to spot more, the 1993 edition of How to Lie With Statistics chapter 7 ("The Semi-Attached Figure") and 9 ("How to Statisticulate") are a lighthearted read.

vidanay 9y ago

This is one of the many reasons NY wife and our son spent the last week looking at properties in Raleigh NC and Tampa FL this week. We feel that the clock is ticking for Illinois and the judgement day is going to be spectacular. It's time to vote with our feet.