Brady says state workers should fund their own pensions

Wednesday, June 30, 2010

GOP gubernatorial nominee Bill Brady Tuesday appeared to back off his proposal that the state cut its minimum wage to the federal level.

But Mr. Brady promptly waded back in to the political deep end, suggesting that one way to help the state deal with billions in unfunded employee pensions is just to stop paying pensions to its workers.

In a speech to the City Club, Mr. Brady mostly focused on economics, suggesting as he has for months that Illinois balance its budget not by raising taxes but by making cuts and trimming levies like the estate tax, actions that he asserted eventually would boost revenue by spurring job creation.

The news came in questioning later, when Mr. Brady was asked whether his recent proposal to cut Illinois' minimum wage — rising to $8.25 on July 1, a dollar an hour above the federal rate — would force some workers to take a pay cut.

"It's the unemployed I'm most worried about," Mr. Brady initially answered, suggesting that Illinois won't get many new jobs until costs are competitive with those in surrounding states.

But, pressed further, he suggested that the state minimum be frozen until the federal rate rises to Illinois' level.
"Let's just say the federal wage should be allowed to catch up with the Illinois rate," and then the two should move in tandem, he said.

Mr. Brady's earlier call had drawn fire from Gov. Pat Quinn, whose campaign spokeswoman — and a group of demonstrators — were outside the restaurant where Mr. Brady spoke.

The Bloomington state senator then made more news, this time on employee pensions.

Asked how he would pay the costs of converting to "employee-owned pensions," as he suggested in his speech, Mr. Brady said the state should switch to a 401(k) system that would be totally funded by workers, not the government.

As long as Illinois pays pensions, political corruption is inevitable, as political insiders try to maneuver for advantage, Mr. Brady said. But that could be avoided if the state just paid a good wage and let employees save for retirement themselves, he continued.

"They (employees) would make their decision" how much to save, he said. Government would pay a competitive wage and "let them (workers) decide."

The Legislature recently voted to cut retirement benefits for newly hired state workers but has not changed benefits for those already on the payroll. Legal experts are divided on whether current employees can have benefits cut, but no other candidate to my knowledge has proposed total abolition of any employer contribution to retirement for state workers.

Such a plan almost certainly would run into legal fire from state unions, even if it applied only to new workers.

Mr. Quinn's campaign spokeswoman said she believed one state, West Virginia, switched to such a no-employer-contribution, but switched back because of worker complaints.

In the private sector, companies have steadily been switching from traditional defined benefits to 401 (k)-style defined-contribution pensions. But they typically contribute 2% to 4% of salary.

Mr. Brady asserts that state workers are relatively overpaid, making 10% to 30% more than those in the private sector. Employee groups strongly dispute that.

* * * 4:45 p.m. update: Mr. Brady's spokeswoman left me an email saying the no-pensions policy would apply in "the future." But it's not clear whether that means employees just hired from now on, or both newbies and current workers from now on.

The distinction is critical. Many billions of dollars in extra money would be needed to finish paying off benefits for current workers if they continued to accrue benefits until they retire. The figure would be much less if accrual stopped tomorrow, but that might not be legal.

I'd also like to hear details about how the plan would affect state payments to Social Security. Many workers now are ineligible, but that might not be the case if the state stopped paying into their pension fund.

And, based on further conversation with the Quinn folks, the West Virginia example is not on point. That state switched to 401 (k)s, but also made an employer matching contribution.