To the Editor:
Illinois does not and will not have a pension problem. Each of the major state pension funds is flush with cash. For example, at the end of fiscal 2012, the Teachers’ Retirement System (TRS) had an outside investment balance (at market value) of $36.5 billion after paying out less than $4.7 billion in benefits. Indeed, if the TRS fund were to receive no additional funds from any source, according to its auditors, this is enough money to satisfy all the pension payout requirements for the next six years!
So why are we told there is a crisis? Our governor and legislators are trying to build pension funding to 90 percent by 2046. A 90 percent funded ratio (the portion in the fund of accrued future obligations to present members) is very wise for a private or municipal pension fund. However, this is unnecessary for a state because, unlike cities, states are not allowed to declare bankruptcy and thereby invalidate pension contracts.
Illinois pension plans will always have an inflow of revenue from members, other contributors and whatever the state can afford. For Illinois to put such extra dollars into these pension funds while creditors go begging for money owed to them is like telling your landlord, “It’s OK I’m not paying you the rent I owe, I’m putting that money into my 401(k) instead.”
Again using the TRS as an example, if the funding ratio were to be kept at the present 40 percent, and all other official auditor predictions remained the same, the teachers’ retirement fund would grow to a market value of $90.6 billion by 2046 after paying out all requisite benefits.
This would save $27.5 billion, $2.6 billion of it over the first five years.
Even when lowering the auditors’ expectations for investment returns, the fund remains sound. When the other retirement funds are included, the savings are much more.
I’m told that our legislators are worried about the state’s credit rating and want to place a 90 percent funded ratio ahead of the $9 billion now owed to vendors, school districts, hospitals and private social agencies and ahead of dealing with spending cuts.
This is the wrong priority. We should be paying our debts and getting our fiscal house in order. Neither our credit rating nor our financial integrity will improve until we do.
Bill Godfrey, Board Member,
DeKalb County Tea Party