Editorial: Backup plan for pension changes needed

Staff Writer
Mount Shasta Herald

In four of the last six fiscal years, Illinois has skipped its required pension payments or borrowed money to make them. Gov. Pat Quinn’s budget calls for skipping much of the payment for the fiscal year that starts July 1.

If Quinn’s money-saving proposal to reduce pension benefits for future employees hits a wall, a backup could be revising the 1995 law setting a schedule to get pensions 90 percent funded by 2045.

In a way, the 1995 law is similar to the adjustable-rate home mortgages people used to buy homes they couldn’t afford. In both cases, the payments were small and reasonable initially, but they ramped up in later years, making homes and pensions unaffordable.

The 1995 law may have been a good plan if the state had made sure the income was there to pay off existing debt and the additional pension benefits it later showered on employees. But legislators and governors put off the day of reckoning until now.

That brings us to Quinn’s plan to reduce pension benefits for future public employees. We support it, but we also understand the rage of public employee unions. They rightly note that irresponsible politicians, not employees, caused the debt by shorting the system for years and that their benefits are not out of whack in comparison to public employees in other states.

But they have to face up to political reality:

* No one will support a tax increase or other revenue enhancements, especially in this economic climate, whose purpose is to pay pension debt.

* The scaled-back benefits only apply to future employees, not current ones.

* The benefits are out of whack compared to the private sector. Quinn’s proposal is still generous. Private sector workers would trade their 401(k) for it. When you’ve lost half your life savings or more, there’s no sympathy for those who oppose scaling back benefits for future public sector workers.

* The unions argue it’s unfair to pay an older worker the better pension while a younger one gets less. They say it may be harder to get qualified public sector workers. We don’t buy it, especially in this economic climate.

Illinois' leaders are talking tough about reforms this time.

“Their pensions can be less than the people they work next to,” Senate President John Cullerton, D-Chicago, told the State Journal-Register on Monday. “That’s not an unheard of concept. We’re taking them (unions) on. The governor is taking them on.”

That kind of resolve is vital, but it could be a recipe for a lengthy court battle. Quinn’s chief of staff told us recently that the governor believes he can impose the pension reforms if legislators pass them, regardless of whether unions agree to them.

If there is no agreement, surely the unions will sue, and the case could hold the budget hostage. Quinn and the legislature should have a bill revising the 1995 law in their back pockets.

Quinn and legislators could craft a more gradual, realistic payment schedule beyond 2045, which would reduce the annual payments. If they do, the plan should be more akin to a fixed-rate mortgage, avoiding severe spikes in payments.

The pensions, battered by market losses, are currently only 46 percent funded. Before the economic collapse, they were 63 percent funded.

The state assumes the pension funds will earn interest, said Charlie Wheeler, a University of Illinois at Springfield professor and former Statehouse reporter who has studied state budgets for four decades. “If you don’t put money in, you don’t earn the interest. You lose that money compounded over the time.”

There are drawbacks to adjusting the schedule. This might actually be the best time to pour money into the system. But the state needs options, and this one should be considered.

State Journal-Register