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Illinois: New Governor, Same Old Pension Pyramid Scheme

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Writing at Forbes, Elizabeth Bauer asks if Illinois’ public retirement system is a pension fund or a pyramid scheme. The evidence doesn’t look good. Despite electing a new governor, Illinois seems to be using the same old tactics to plug its pension holes. Bauer explains:

Illinois’s new elected officials and their advisors simply don’t believe that it matters that public pensions are pre-funded.  They view pension funds as something that exists on paper, and pension reporting as a nuisance to be avoided where possible, and ignored otherwise.  Through their actions — and indeed their words — they are showing that they think of public pensions as pyramid schemes, in which new participants pay the retirees’ pensions.  And while that’s true of Social Security, it’s a terrible and terribly harmful approach for state-employee pensions.

What justification do I have for saying this?

First, Prizker plans to revise the funding schedule from a target of 90% funding in 2045 to 90% funding in 2052.  But it’s not just a matter of redoing the math for a standardized formula, like refinancing a mortgage and adding more years to the payoff period.  His office reports a reduction in contributions of $878 million in the 2020 budget, relative to what existing law would require.  But the office has not made available the underlying contributions, and even Ralph Martire, executive director of the Center for Tax and Budget Accountability and member of Gov. Pritzker’s Budget and Innovation Committee, said on the February 20, 2019 edition of Chicago Tonight (about the 18 minute mark) that

he didn’t publish enough material for us to weigh in on those pensions and either support or not support what he did.  One major concern we have is they reamortized, changed the ramp, the payment schedule, and they didn’t point out what the new payment plan looks like, so I don’t see what that new ramp is and we want the state to go to a level dollar so it doesn’t always have this increasing payment obligation.  That’s what strains the fiscal resources.

Sure seems as if “change the target funding schedule” is really a rationalization for yet another pension contribution reduction to plug a budget hole.

Read more here.

I have warned readers many times about the dangerous techniques being used to cover up the rampant under-funding of pensions in American states and municipalities. Read here for more:

Originally posted on Your Survival Guy.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.