Larger issue of pension plans still unresolved

Friday, January 13, 2012

Gov. Pat Quinn signed a necessary and politically easy pension reform bill last week.

The action, however, does not address the larger issue of the state’s pension payments taking up more and more of the state’s money.

The bill outlaws double dipping by union officials who were gaming the system to secure their own six-figure public pensions. In effect, union leaders were being allowed to use the pension system set up for public employees. While that type of behavior won’t be allowed any longer, the larger issue of pensions — and their impact on the state’s finances — remains unresolved.

Currently, the state faces an $83 billion shortfall in funding for its public employees. That sum doesn’t need to be paid all at once. What does need to be paid is about $5 billion for this year’s current pension obligation. That’s a huge amount — nearly the entire amount collected from the tax increases last year.

Quinn is calling for a bipartisan panel to reform the pension system “once and for all.” This is a true test of Quinn’s leadership. The panel must speed up, not slow down, reforms.

One of the ramifications of the problem was evident last week when Moody’s downgraded the state’s credit rating, partially because of a failure to address the pension issue.

Republicans in the Statehouse say the pension problem is due to an overly generous system and abuses such as ones addressed by the new law.

Union officials say the abuses represent only a portion of the pensions and that overall the state’s pension payouts average about $32,000 per retiree.

Some pension critics have targeted the pensions for educators that tend to run higher.

Union officials argue the problem is that the state ignored paying into the pension system for decades, which is why just 43.4 percent of the long-term pension burden is currently funded.

They contend the state must pay for the shortfall, even if it means raising taxes.

That’s a hard sell in a state where income tax rates were increased 67 percent just a year ago. It’s also clear that those personal and corporate tax rate increases have stalled job creation in the state.

Pension reformers say that some public employees — primarily those not near retirement age — need to pay more into the system or the system needs to change into a 401K-type system where the state and employee both contribute to a fund.

The amount available for retirement would depend on how well an individual invested and market forces. Most businesses have converted to a 401K-type system.

While raising taxes is a bad idea, other suggestions could be a part of a solution. The state needs to stop delaying pension payments to fund other areas of government. Cuts in government expenses need to be made to fund the pension obligation.

At the same time, the current pension system is unsustainable.

Changes are needed but they should be done cautiously and should affect only employees who are far enough away from retirement to adjust.

There are constitutional questions about changing the pension system, too, but the General Assembly should get those questions answered in court, instead of using it as an excuse to avoid taking action.

Time’s up. A solution needs to be enacted during the spring session.