What's the deal with Pritzker's pension payment proposal?

The crisis that wasn't.

I have been retired from teaching for nearly twelve years and have received my monthly pension every month without fail.

This seems fair since I paid into the state teacher pension fund every paycheck that I taught kids in a public school.

Which is not true for the state of Illinois which has chalked up billions in debt for its failure to pay the actuarial payments to the five state pensions.

When I began collecting my pension the media was full of stories about the state’s pension crisis.

Many of us were led to believe that our promised pensions would never be paid. The debt was so large that the pension funds would run out of money.

Then Speaker of the Illinois House (now indicted and awaiting a corruption trial) Michael Madigan rammed through a bill that cut pension benefits. It was later ruled unconstitutional by the Illinois Supreme Court.

The Illinois legislature under Madigan’s leadership also passed a bill creating a Tier II pension system for teachers hired after January 1st, 2011 which significantly reduced benefits and extended the length of time it was necessary to collect it but had no impact on the actual debt.

All this pension crisis frenzy turned out to be baloney.

Although nothing was done to solve the “crisis,” no public retiree has missed a single pension payment and the debt has remained relatively constant.

In fact, the pension crisis was totally manufactured by the state’s Republican and Democratic politicians to shift the cost of pensions to other expenses.

Retired public employees be damned.

Which brings me to Governor Pritzker’s budget address this past week.

Pritzker is a liberal millionaire Democrat who has his eyes on the White House.

When it comes to public pensions Pritzker is a far cry from Democratic Governor Pat Quinn who said he was born to cut pensions.

And he is even a further cry from the right-wing anti-union Republican Governor Bruce Rauner who followed Quinn and preceded Pritzker.

In his budget address Pritzker is proposing the state increase its statutory funding ratio goal for its underfunded pension funds to 100% by fiscal year 2048 from the current goal of 90% by fiscal year 2045.

The year 2045 and the goal of 90% funding is significant because they are the result of the pension ramp that was created by Republican Governor Edgar, the Democrats and the state’s teacher unions in 1994.

The pension ramp was a disaster.

In 1994, when unfunded pension liabilities hit a then-high of $17B, new legislation was passed under Edgar to raise the funding ratio from 52% to 90% by 2045, referred to as the 'Edgar Ramp'.

The Edgar Ramp created back-loaded pension balloon payments that had the effect of worsening the pension debt.

It was the very definition of kicking the can down the road.

Under the new proposal, Pritzker calls for an increase in the state's annual pension contributions when certain so-called legacy debts are paid off. Specifically, he referenced the retirements in the 2017 $6 billion Backlog Borrowing General Obligation Bonds in fiscal year 2030, and the 2003 $10 billion pension funding General Obligation Bonds in fiscal year 2033. He proposes dedicating half the revenue being used to pay off those bonds to make additional pension contributions when those debts are paid.

Pritzker said that making the decision this year "to dedicate these future savings to increase the pension contributions in FY30 through FY40 above what is currently required will save taxpayers an estimated $5.1 billion by FY45."

Many of us argued a decade ago that a solution to the pension debt was to reamortize it, extending the length of time to pay it off along with increasing required payments.

Pritzker’s proposal doesn’t quite go as far as we argued for.

However, the additional payments, along with extending the funding goal to fiscal year 2048, should bring the pension funds to a fully funded state according to the Governor.

Responding to the budget address, the Illinois Retired Teachers Association issued the following statement:

The Governor gave his State of the State and Budget Address today. There was much discussion of interest to retired teachers. IRTA applauds the Governor for seeking the full certified funding amount for both TRS pensions and for the TRIP and TRAIL programs. This will ensure these programs have the funding necessary to meet their obligations to retired teachers. 

The Governor went beyond this upcoming year in his recommendations.  He is pursuing contributing over $5 billion to the pension systems as the pension obligation bonds are retired between 2030 and 2045. He called on the state to create a 100% funding target, and he is the first Governor to do so. He outlined that the state will reach 90% funding by 2045 and 100% funding by 2048. 

In addition, he proposed a rolling amortization for certain actuarial gains and losses that occur after 2035, which results in less payment volatility as the state nears the closed end of the payment plan.  This is based on commonly accepted accounting and pension funding practices. 

He also advocated for the legislature to continue their work on addressing the benefit shortfalls experienced under Tier II, and he charged TRS with helping them to resolve these important issues.  Overall, the Governor expressed support for and action on issues that IRTA has long advocated for. 

We will continue to work with TRS so that we can share their independent analysis of the Governors’ plan in the weeks to come. 

It should be remembered that the IRTA was the organization that brought the lawsuit that resulted in the Illinois Supreme Court ruling against Madigan’s pension theft.