Wednesday, August 30, 2006

Pension promises

In a rare move, members of a congressional subcommittee came to the Illinois Capitol Wednesday to learn about the security of the state’s public employee pensions.

The backdrop to the hearing was President George Bush’s decision to sign the Pension Protection Act of 2006, an attempt to halt the nationwide problem of unfulfilled pension promises in the private sector. U.S. Republican Reps. Judy Biggert of Hinsdale and John Kline of Minnesota conducted a hearing for the U.S. House Subcommittee on Employer-Employee Relations. They listened to Illinois officials paint a pretty rosy picture of chronically underfunded pension systems.

Biggert said the hearing was conducted because the public sector is just as troubled as the private sector. In her written testimony, she said four out of five public pension systems in the nation are underfunded collectively by hundreds of billions of dollars. Worst of all is Illinois.

“I’m troubled to say that my home state of Illinois manages a plan for its workers and retirees that is underfunded by $38 billion, making it the worst-funded state pension plan in the nation,” she said.

Interestingly, Biggert served in the Illinois House in 1995 when the legislature passed a law to put Illinois on a gradual track to fully fund the five pension systems by 2045.

Things changed under Gov. Rod Blagojevich’s Administration when the General Assembly allowed the governor to float $10 billion in pension obligation bonds and pay the required amount in 2003 and 2004. Then they yanked $2.3 billion in state contributions in fiscal years ’06 and ’07. (See more details in the August 2006 report of the legislative Commission on Government Forecasting and Accountability.)

John Filan, Blagojevich’s budget director, called the 1995 law a “conscious plan to underfund the pensions for 40 years.”

“What everyone is ignoring is we’re ahead of their funding schedule,” Filan said after the hearing. “If we followed the 1995 funding schedule to a penny, we’d be far worse off. We are 60 percent funded. They wanted 52 percent funded. It’s simple arithmetic.”

Simple arithmetic? Hardly. But he was right when he said the state has had the same problem for 30 years, which is why he thought the timing of this congressional hearing was particularly interesting.

“I think it is more than coincidental, all the sudden, out of the blue, after many years, there’s this hearing in the middle of an election, right here in Springfield. It is what it is. It’s an obvious question that you’re asking. I think the timing is interesting.”

Biggert said there were no political motivations with this hearing. She also said Wednesday’s testimony showed some people don’t think there’s a problem in Illinois and that it is her committee’s job to sort that out and look at other states. While she said the last resort would be the federal government stepping in to regulate the states’ pension systems, it is time to consider whether the new federal standards for the private sector could also apply to the public sector. (See a breakdown of the new federal law on this fact sheet.)

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