Sunday, June 28, 2015

Court says constitution protects the fire as Illinois SERS burns

The Illinois Supreme Court struck down several modest pension reforms recently passed by the legislature.  The Illinois State Employees Retirement System plan is funded at a level of 37% and that is after double-digit market returns for the last five years.  However, the Court ruled that the state constitution barred such reforms.  The Wall Street Journal reported:

The Illinois Supreme Court struck down the state’s 2013 pension overhaul, unraveling an effort by lawmakers to rein in benefits for the consistently underfunded public-sector system.

The current pension shortfall is estimated at $111 billion, one of the largest nationally.

The high court affirmed a decision in November by a state circuit court that the legislative changes violated pension protections written into the state constitution. The decision is a victory for a consortium of public-sector unions while creating a huge challenge for new Republican Gov. Bruce Rauner, who already faces a yawning budget deficit for the coming fiscal year.

“The financial challenges facing state and local governments in Illinois are well known and significant,” said Justice Lloyd Karmeier, writing for the entire court. “It is our obligation, however, just as it is theirs, to ensure that the law is followed.”....

Mr. Rauner’s office urged a constitutional amendment to help fix the problem. Otherwise, the state will be forced to turn to tax increases, budget cuts or, as Mr. Rauner discussed earlier this year, municipal bankruptcy. Recent federal bankruptcy cases in Detroit and Stockton, Calif., have raised the question of whether pension benefits are fully protected.

After the ruling, Standard & Poor’s Ratings Services put the state’s credit ratings on watch for potential downgrade, saying Illinois faces “profound credit challenges.”

The Illinois law would have reduced retirement costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger workers, and capping the size of pensions....

The ruling puts Mr. Rauner in a bind. The expiration of special recession-era tax increases at the end of last year has left the state facing a $2 billion revenue shortfall for the coming fiscal year....

The pension overhaul, passed with backing from former Democratic Gov. Pat Quinn, was the latest effort to fix the system. When the state was drafting its 1970 constitution, the system was already underfunded, and lawmakers said protecting benefits was the best way to force future legislatures to maintain payments, according to testimony cited in Friday’s opinion.

Despite lawmakers’ hopes, “that did not occur,” Justice Karmeier wrote. Rest of article.

This chart from the actuarial report shows the true state of the pension system:


Anonymous said...

Employees shouldn't have to pay for the mismanagement of their pensions.
I support the notion that those who manage pensions should be held responsible and as far as I'm concerned if those managers have profited in any way and not done their due diligence, they should go to jail.
Wasn't such mismanagement called " graft" at one time? Wasn't the S&L scandal all about deliberately making poor investments for profit? But apparently, that's legal now. Stealing has been legalized and called " de-regulation".

Love the latest " de-regulation". We no longer get to know where the meat in the grocery originates. Thanks GOP. And, I hope all the meat in the Congressional cafeteria comes from China!

Anonymous said...

This all points to one conclusion.

Tax rates on income will be much higher in the very near future.

So we are fooling ourselves with 401(k) investments. When we pull those funds out 10-25 years from now...the tax rate will be 50%.

pittpanther said...

10:19, this not an instance of the pension funds being mismanaged. Instead, the IL legislature has not funded the pensions with an appropriate amount of money each year, instead choosing to spend the money on other things.

I really don't know what the "end game" is for IL. I guess they get into more and more debt over time, at higher and higher interest rates, until they default? Then what? Do we have a precedent of a state defaulting on its debt?

Anonymous said...

The fools are those who save next to nothing, if anything, for their retirement regardless of future tax rates. The fools are those with 401(k) plans who don't invest the minimum it takes to receive a company match if a match is available.

Hoffa said...

Public Employees rack up these huge benefits without having to work hard and with little chance of being fired. Every public employee I know marks time trying to make it to Friday, the next three-day holiday and vacation. Long-terms goals are non-existent.

Anonymous said...

I understand that public employee unions is only part of this problem, but it is a big part. I don't agree with much that FDR believed in, but he was right that we should not have public employee unions. The nature of unions is that no matter how much the members are paid they always want more. In the private world the market place puts limits on this. Eventually a union can cause a company like General Motors to go bankrupt. A federal, state, or local government has no competition for its good and services. The end game for union greed in this case that that an entire city, state, or nation can no longer pay its bills. Government works are protected as are all workers in the US. If you don't like your pay or working conditions go to work elsewhere. People do it every day. We need something strong, like a constitutional amendment banning unions for government workers. Right now the liberals are running wild while our so called conservative leaders wring their hands. I am not expecting this amendment right away. However, I am expecting more bankruptcies by cites and maybe some states. (I am not talking about breaking retirement agreements with retirees and current workers. But you can and in many cases must change the rules for new hires.)

Anonymous said...

PERS in Mississippi is attempting some modest reforms to try and stay out of this kind of disaster. Meanwhile, the Treasurer closed down the college savings plan just in time to miss out on two years of 15-18% returns, and all the income from the incoming participants. Fitch took a bad situation and made it worse. No wonder they won't let her near the PERS investment committee.

Kingfish said...

I thought it was because she literally wasn't going near the investment committee.

Anonymous said...

9:36, you are not too bright-bless your heart. Nothing was "missed" as no monies were removed from the markets. All accounts that were opened remained so. All contributions received for existing accounts were accepted and invested. The fact that new accounts could not be established were in YOUR best interest as a taxpayer. (If this is moving too fast for you---well, it explains your post)
You see, now follow me here cause it gets really difficult: 8% (State's projected annual earnings) is greater than 4% (which was about the average return of the markets for the TEN years prior to the college plan moratorium). Have I lost you?? Just trust me that 8>4.
Ok now, so the team that was supposed to score 8 every year only scored 4. That is not good, btw.
Now, the rate of tuition inflation at Mississippi's PUBLIC university's during that same time frame was often double digits (that, too, would be greater than 8 ) and now you have a number GREATER THAN 8 working against investments earning 4. Again, not good.
Okay, here it comes, pay attention--The obligation was, and still is, on the state of Mississippi (you & me) to pay all tuition for each covered student WHETHER OR NOT the student's fund had earned enough to foot the bill. HELLO 9:36!

Dunce Patrol - Two Spotted said...

Really 'Hoffa'. State employees have no goals? All of them simply mark time 'til Friday or a holiday? You have nothing but your opinion. Did you get rejected for a state job in the past? As if those in the private sector don't enjoy an occasional holiday. And you'll find banks closed more often than state offices.

8:34; You're yapping at the moon. There are zero legitimate state employee unions in Mississippi. Say it with me....ZERO. State employees in this state have no collective bargaining, no union through which to express grievance and no union to protect them from job dismissal. And that's as it SHOULD be. And this includes teachers, another group with no goals who only anticipate the weekends. Right.

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