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Pension Problems: How Did Illinois Get Here?


Lawmakers head back to Springfield in early January to try to tackle the state’s massive pension crisis. Illinois’ retirement systems have unfunded liabilities of at least $95 billion– and counting.

Last Thursday night, 57-year-old Dick Ingram – a bald guy in a dark suit – stepped onto the stage in a cramped, muggy auditorium at a south suburban high school.

“Thank you all for being here tonight,” he greeted the crowd. “I really appreciate it.”

Ingram is in charge of the Teachers Retirement System, Illinois’ biggest pension fund. It’s arguably worse off than any of the other state pension funds – which is saying something, considering Illinois has the worst-funded pensions in the country.

As he talked to a few hundred working and retired teachers – people who are counting on a state pension – Ingram said some things that seemed to really freak them out.

“I don’t think it’s any secret that finances in the state of Illinois are a train wreck,” he said. “We face the possibility, and the real likelihood, of insolvency.”

Not everyone appreciated his candor.

“Mr. Ingram,” one teacher told him, “you have shaken the confidence of thousands – many thousands – of retirees.”

Now, if you think about what’s going on here, it’s pretty crazy.

The Teachers Retirement System alone has $52 billion in obligations it can’t afford right now. And, if you count the pension funds for all state workers, that number nearly doubles.

So how did Illinois get here?

When you ask pension experts, watchdog groups, even politicians – they all agree the story is not primarily about gold-plated benefits for state workers, or people gaming the system.

It’s because, basically, Illinois wanted a pension system but didn’t want to pay for it – for decades.

The Illinois pension piggybank gets its money from three sources:

  • State workers – like teachers and prison guards – they contribute right out of their paychecks.
  • Then people in charge of the pension funds – guys like Dick Ingram –invest the money and put the earnings back into the fund.
  • Finally, the employer – in this case, state government – is supposed to throw in its share.

Except  that last part? Not so much.
“It’s a matter of never quite putting enough money into the piggy bank,” explained Sandor Goldstein, arguably the public pension actuary when it comes to Illinois’ retirement systems.

Actuaries, in some ways, are accountants with a crystal ball. They use statistics to try to project how much something will cost 10, 20, 30 years down the road – including retirement benefits.

In Illinois, the governors and state lawmakers who decide how much money to put into the pension piggybank have been ignoring guys like Goldstein for a long, long time.

“I have some reports from these pension commissions that complain about the underfunding back as early as 1945,” Goldstein said, opening a faded paperback report, “and just looking at the context, I see something called, uh, insufficiency of revenues.”

There’s actually whole stack of these reports from the state Pension Laws Commission. The commission didn’t just sound the alarm about pensions in 1945. They did it again and again – all through the fifties ...

“… the tremendous, ever-increasing and disproportionate liabilities being imposed upon present and future generations of taxpayers …”

And then again through the sixties …

“… large unfunded accrued liabilities resulting for the most part from the inadequacy of government contributions …”

And they were still sounding the alarm in the seventies …

“The pension obligation still remains almost wholly obscured or ignored by some public officials.”

Goldstein acknowledges that he hasn’t been raising loud alarms about the situation. “I haven’t been doing that because our job is more of a technical one,” he said “It becomes a political issue after a while, and there’s little we can do about that.”

The politics of shorting the pension funds are pretty easy to figure out.

“Part of the reason was, people in the state didn’t want to pay more taxes,” explained former Republican Governor Jim Edgar, who argues the state has never taken in enough revenue to cover its costs.

He admits that, when he came into office in 1990 with a big budget shortfall, he was more concerned about issues like education than the problems of pensions.

A few years later, with the economy looking up, he finally turned his attention toward the piggybank. And it happened to be an election year.

The 1994 gubernatorial race pitted Edgar against Democratic state comptroller Dawn Clark Netsch.

When she was a state Senator a few years earlier, Netch had been one of the few Illinois politicians who actually tried to do something about the pension problem.

“I swear I remember the number of the bill,” she said. “Senate Bill 22.”

Netch says her bill would have given Illinois the very thing all those actuaries had been clamoring about since 1945 – an honest-to-goodness payment plan to get the pension piggybank back on track.

“I always thought it was one of the less sexy, but most important things, I did at that time,” she said, although her proposal was pretty much ignored.

But Edgar says he still didn’t want her to bring up the issue during the ’94 campaign. So, just a few months before the election, he pushed through a funding plan of his own – the funding plan Illinois still uses today.

It’s sometimes called the “Pension Ramp,” which, if put in a graph, does look like a skateboard ramp.

On the left side, the state’s payments start to climb gradually – over 15 years. Moving to the right, the graph starts to get really steep, with payments growing more every year – which is where we are right now.

Today, critics accuse Edgar of kicking the can down the road. That’s not how he remembers it.

“I don’t think we kicked the can down,” he protested. “I disagree with that. We did more than what had been done in the last 30, 40 years.”

Netsch countered, “He did not live up to what I think was a golden opportunity.”

But you can’t blame Illinois’ pension nightmare on Jim Edgar alone.

Through the first decade of this century there were recessions, budget shenanigans and skimpy contributions from the state.

Still, actuaries – like Goldstein – say Edgar’s plan was flawed from the get-go. They say it sets payments artificially low, and the plan only hits a 90-percent funding level, so it would never fill the whole commitment.

All this means the unfunded liability is six times what it was in 1999 – and it’s only growing. So now, politicians and labor unions are talking about possible fixes.

And that brings us back to those teachers at the town hall meeting, who are wondering what’s taking so long.

“There was some talk about it,” one teacher agreed, “but at the time I’m looking around – why isn’t everybody mad about it? It was in the 90s!”

And, despite all the facts and figures, this is the one question Dick Ingram – the head of that teachers’ pension fund – isn’t really able to answer.

“I really wish that that had been so,” he told the group, “because you’d be less ticked off at me today.”

But Ingram seems to take this all in stride. He says he’s use to being the messenger who gets shot.

“All you can do is tell the truth as you see it,” he said, “and that’ll sort itself out over time.”

A look at efforts to find solutions to Illinois’ pension problems will be presented tomorrow.

Alex Keefe contributes to Illinois Public Radio reports.

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