tag:blogger.com,1999:blog-23816706.post2104389484145182466..comments2023-08-18T03:02:44.979-05:00Comments on Illinois Issues blog: Committee likely to mine old ground for pension compromise Illinois Issues Statehouse bureauhttp://www.blogger.com/profile/17857188978913308313noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-23816706.post-69728142751225152802013-06-26T11:03:44.644-05:002013-06-26T11:03:44.644-05:00I just want to thank you Jamey for your reporting ...I just want to thank you Jamey for your reporting on this blog, especially on the pension issue. Your information has proved more valuable than any other source.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-23816706.post-88022770591697286822013-06-21T11:51:29.923-05:002013-06-21T11:51:29.923-05:00The argument made in the article, that changing th...The argument made in the article, that changing the automatic annual increase (AAI) in pensions from 3% per year to 1/2 of the increase in the CPI-U each year does not constitute diminishment, is demonstrably false. No rational retiree or employee would make this choice because it would entail too large of an expected diminishment in the present value of the pension benefits received over their lifetime, and would guarantee that the purchasing power of their pensions would fall by half of the inflation rate each year.<br /><br />Whether based on breakeven inflation rates between ordinary U.S. Treasury Bonds or Treasury Inflation Protection Securities that are indexed to the CPI-U, or based on professional economists' long-term inflation expectations as published in the Livingston Survey by the Philadelphia FED, the expected annual inflation rate in the CPI-U over the next ten years is at most 2.4%, and has averaged about the same over the past ten years. Thus the proposal would result in an expected 1.2% AAI at most, vs. the 3% that is contractually guaranteed in current law.<br /><br />Given these easily documentable inflation projections, the only way the proposal could conceivably be made constitutional is to offer retirees full indexing to the CPI (like Social Security does). Then, perhaps you could plausibly argue that the reduction in risk offsets the reduction in the expected rate of increase in pensions for some, highly risk-averse, retirees. Note that even with full indexing, the State would be expected to save money - and reduce its cash flow variability - given current inflation projections.Anonymousnoreply@blogger.com