by Ben Yount, Illinois Watchdog
1 year, 2 months ago by Ben Yount, Illinois Watchdog
State will pay $620 billion in pensions over the next 30 years
SPRINGFIELD — Illinois taxpayers can look at two different numbers that lead to the same conclusion — the state cannot afford its pension payments.
The public policy group State Budget Solutions released a report this week showing Illinois’ pension debt is more than $287 billion, nearly three times the $100 billion debt Illinois lawmakers say they are working to contain.
Dabrowski said Illinois can hardly afford this year’s $9 billion pension payment, and there is no way the state can afford the scheduled $32 billion payment in 2044.
Illinois has, depending on who you believe, anywhere between 40 percent and 24 percent of the money it needs to cover future pension costs.
But those numbers are not set; Illinois has invested its pension cash and the return on those investments has fluctuated recently.
“Academics and the credit rating agencies argue that the state’s 8 percent expected investment returns are unrealistic and make the pension systems look healthier than they actually are,” Dabrowski said.
The State Budget Solutions report takes Illinois to task for expecting too much.
“We chose a lower rate (3.22 percent) because the current practice of relying on optimistic investment return assumptions obscures the true size of liabilities,” State Budget Solutions editor Cory Eucalitto said. “Plans are not guaranteed to achieve a return simply because it is assumed.”
State Budget Solutions’ 3 percent rate of return — compared with Illinois’ assumed 8 percent — nearly triples the state’s pension debt.
“The numbers that we gathered from the plans themselves showed a $99.7 billion unfunded liability. Using the lower rate shows that number to actually be $287 billion,” Eucalitto said.
Abdon Pallasch, budget spokesman for Illinois Gov. Pat Quinn, said the governor is sticking with the $100 billion pension debt estimate — for now.
Pallasch said no matter the number, Quinn wants to “reform” Illinois’ worst-in-the-nation pension systems.
But reform is not a part of the equation for either the Illinois Policy Institute or the editors at State Budget Solutions. Both want a new system.
“The best solution is an immediate switch to a defined contribution retirement system,” Eucalitto said. “These systems are proven to provide retirement security in the private sector, and (offer) greater assurance that employers will make their promised contributions.”
Dabrowski has long championed 401(k)-style retirement system for public workers.
“Illinois workers and retirees are trapped in a collapsing system over which they have no control. That’s the result of the state not allowing workers to manage their own retirement savings. And as the Detroit crisis reveals, retirees can’t escape the consequences of bankruptcy,” Dabrowski said.