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California Double-Dippers Rake in Public Money

Then again, Illinois has got to be the stupidest state.

Illinois Is Digging a VERY Deep Hole

Illinois has a $33 billion state budget – and five pension funds that are officially underfunded by almost $100 billion. Remember that sky-high projection of investment returns by CalPERS? Illinois pension funds estimate they will earn anywhere from 7.5% to as much as 8.5%. But the state-employee fund made less than 0.1% last year, barely beating out CalPERS.

(By the way, you can see the projected returns of your state funds in a January 2013 NASRA Issue Brief. Scroll to the bottom. I was aghast to see that much of Texas was looking to make 8%! The Houston firefighters project 8.5%! I keep reading about problems with the funding of liabilities in Houston. As I said, this is a nationwide scandal. California and Illinois are just the easiest to pick on.)

Without 8% returns, the shortfall for the Texas Employees Retirement System (ERS) could be twice the current projections. The system is scheduled to pay out $133 billion between now and 2045. It has $11 billion. For these assets to cover future payouts, ERS would need to see average investment returns of 21.5% per year – or see big-time payouts from the government budget. Think they can find an extra $5 billion a year for the next 20 years? From a $30 billion budget? And get 8%?

But back to Illinois, which has a legal problem. It is one of two states (New York being the other) that in its Constitution is prohibited from impairing promised retiree benefits. This makes for a rather tough negotiating stance.

You can find the same exotic stories about large pensions in Illinois that you do in California; but it seems to me the pension for rank-and-file teachers is not overly generous, considering that they pay 9.5% of their salary into the pension fund, while the state is supposed to fund less than 10% of that amount and then doesn’t even manage to do that. Putting the teachers on Social Security would cost the state a lot more (6.2% in matching funds).

Yes, there are the 28 Illinois state troopers who retired at 51 and draw over $100,000 a year. And the politicians get eye-popping amounts, but their retirement fund is underfunded by 74%. Care to make a wager which pension fund gets enough money to survive, the teachers’ or the politicians’?

And while all this sounds delectably scandalous, it is actually very sad. Consider this story:

Last Thursday night, 57-year-old Dick Ingram, a bald guy in a dark suit, stepped onto the stage in a cramped, muggy auditorium at a south suburban high school. In his remarks to an audience full of teachers, Ingram repeated the same message he's been delivering for months: Be afraid. Be very afraid.

Ingram is in charge of Illinois’ biggest pension fund, called the Teachers Retirement System. With $52 billion in unfunded liabilities, it’s arguably worse off than any state pension fund in Illinois – which is saying something, considering Illinois has the worst-funded pensions in the country.

“I don’t think it’s any secret that finances in the state of Illinois are a train wreck,” he told the crowd of about 350 working and retired teachers. “We cannot, today, feel secure in telling a 45-year-old or a 25-year-old teacher in Illinois that they’re gonna get their pension,” he told the crowd. “We face the possibility, and the real likelihood, of insolvency.”

Several teachers at last week’s meeting excoriate[d] Ingram for talking too much, saying he’s just providing fodder to politicians who want to cut teachers’ retirement benefits.

But if you stop and consider what’s going on here, it’s pretty radical: Ingram, the guy in charge of the retirement savings for 370,000 people, is telling anyone who will listen that the money may not be there when they quit working – that teachers, in his words, have “been getting screwed for decades.” (Illinois Public Media)

These teachers put in 9.5% of their salaries, and their retirement could be in jeopardy. Think about what it would be like to work for 35 years, doing the right thing and saving. You make your retirement plans, and then at some point, say 10 or 15 years into your career, the deal changes.

This is rubber-meets-road sort of stuff. Much of our society is finding itself severely burdened to meet past promises made by politicians. It is pretty easy to make them when you are spending someone else’s money, especially when that someone is 30 years in the future. Except that now the future is here. The bellwether is San Jose, whose citizens voted last year (70% in favor) to cut current pensions and benefits for municipal employees. That’s liberal, socially progressive San Jose, which finds itself under severe funding pressure just to fulfill basic city services.

I have talked about the “abuse” of the California pension system, with double-dipping by policemen, et al. – except they are doing nothing illegal or even unethical. They are taking deals offered to them under terms both parties agreed to. The fault, dear Brutus, is not in our stars but in our politicians and we who elect them. (Source: John Mauldin newsletter)
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