Chicago Politics 'Fixes' Pensions By Reducing Employee Contributions

Friday, 06 Dec 2013 07:11 AM

By Michael Carr

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Illinois has one of the most troubled pension plans in the country. According to one estimate, Illinois had funded only 43 percent of its future obligations, the lowest level of any state.

To increase the level of funding in a pension, the plan will generally need to decrease the benefits, increase the contributions or combine some amount of cuts with increased funding. To address the problem in Illinois, the legislature took some steps to reduce future benefits and also reduced the amount of money state employees will be required to pay into the fund.

Cutting benefits is always controversial and would be a challenge for even the best run state governments. The progress Illinois legislators made in this deal is commendable although the cut comes from an overly generous benefit. All retirees were guaranteed a 3 percent annual raise no matter how much inflation rose. Annual raises will now be decreased, but are still unrelated to the level of inflation.

Retirement ages were also increased under the recent agreement, another action which is commendable since some state employees were eligible for retirement when were only 58.

The increase in retirement age was used to justify the decrease in employee contributions. In any pension plan, a relatively small number of individuals will actually retire at a young age and to address a problem that resulted from a small group, the legislature took steps that could make the underfunding worse. Now, every employee will be paying less and the majority will probably not have to change their retirement plans.

We have seen similar problems develop on the national level. Benefits are promised without being funded and the majority of taxpayers are increasingly being asked to make sacrifices so that the problems of a few can be addressed. This pattern cannot continue indefinitely, but national leaders know as well as Chicago's politicians that the crisis can be postponed for a number of years.

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