Illinois -- Unfixable Pension -- Canary in the Mine?

Illinois -- Unfixable Pension -- Canary in the Mine?

Postby Nick Della Volpe » Mon Nov 26, 2012 8:52 am

Now that you have exhausted every leftover turkey recipe on the planet, it's time to re-focus on the broader news.

The WSJ reported on Friday November 29th that Illinois pension system is "headed for a meltdown." It is apparently some $200 billion underfunded--although it conveniently reports less (about $95 billion) by using an assumed, and unrealistic, 8% growth rate or discount rate (compare that to an actual 0.75% realized by their teachers fund in 2012 and less than 0.1% by other state employees' funds). The WSJ reports that Illinois business groups have declared the state's pension crisis "so severe" that it is now "unfixable." The WSJ adds that the state's problem is "worsening so fast that the usual menu of reforms won't be enough to keep public pensions from sucking taxpayers and whole cities into its yawning maw." The Governor is trying to rally public support for drastic pension reform, including a possible income tax to help fund it.

Scary stuff!

I'm glad that we have made a fair "start" on our pension problem here at home. But the real work is far from done. There is no time for complacency. Unless we want to endure 20+ years of strained budgets and restricted services to our citizens, we need to do more to rein in the overruns / underfunding in the now-closed pension system (Note: "closed" here means no new entrants, but there remain some 3500+ retirees and vested/ covered employees who remain part of the "old" city pension plan. The underfunding gap in those closed plans has been widening in recent years due to a poor financial markets and a slowed economy, despite increased city annual funding and the extra $10 million transferred from our so-called "rainy day fund." That rain barrel is shrinking, and we need a healthy margin to preserve our bond ratings and prudent reserves.

What's next? Growing the city revenue pie, by attracting new businesses, will certainly help. So will smarter investing of pension plan assets. But everything needs to be on the table. More realistic pension growth assumptions are needed; so are cost limiting measures, like trimming back automatic COLA, and pro-active meetings with employees to enlist their help to hopefully nip this problem in the bud...

The seas are getting rougher. Let's trim the sails before the Nor'easter blows.
Nick D
Nick Della Volpe
Posts: 110
Joined: Mon Jul 02, 2012 4:00 pm

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