News Clip
What You Don't Know About State Pensions

November 5, 2010

By Phil Kadner
The Southtown Star



You could win a lot of bar bets in Illinois by asking people how much the average state employee makes from his pension.

The answer: $26,663 a year.

Teachers have a higher average annual pension, but it is still far lower than most people would guess: $43,000.

If you're surprised by those figures, you're not alone.

As candidates for state office trooped through this office for the Nov. 2 general election, they routinely talked about the need to reform the state's pension systems.

When I asked them how much the average state employee pension was, few came close to the actual figure. They simply didn't know what they were talking about.

There are five employee retirement systems in Illinois: the State Employee Retirement System, Teachers' Retirement System, State Universities Retirement System, Judges' Retirement System and General Assembly Retirement System.

Most of the members of these systems do not receive Social Security benefits.

I am not defending public-employee pensions, although an argument can be made that on average they are not extravagant. But I do think people ought to know the facts.

And largely because of newspaper and TV stories, I believe, people are under the impression that it is common for people to get pensions in excess of $100,000 per year.

"Those stories in the news do tend to distort the perceptions of the public when it comes to pensions," said state Rep. Kevin McCarthy (D-Orland Park), who was the chief sponsor of a bill to reform pensions in the Legislature last spring.

Illinois' pension systems are a train wreck. They have the highest unfunded liabilities (about $78 billion total) in the country and are projected to keep on growing beyond the state's ability to pay.

But the independent Center for Tax and Budget Accountability, among others, claims the problem is caused not by the benefits paid, but the state's failure to keep up with its share of the payments.

Still, there's little doubt that more pension reform is coming.

Police and fire union pensions escaped the reforms passed last spring, but McCarthy said he will try to include public safety employees in a new bill during the General Assembly's fall veto session.

By the way, judges in Illinois receive the highest average retirement payment, $8,684 a month, or about $104,000 a year.

The typical payout to state legislators is $3,971 a month, or $47,000 a year. That's for a part-time job and, typically, 14 years in the Legislature and time in some other state position.

By comparison, to earn $43,000 a year, a typical teacher has to spend many years in the classroom.

According to the Illinois comptroller's office, Illinois ranks in the bottom one-fifth of all states for retirement benefits paid to the average state worker.

"A common misconception is that taxpayers shoulder most of the cost of funding public pension systems," according to a report issued by Bukola Bello, director of the Illinois Retirement Security Initiative. "To the contrary, investment income accounts for the majority of Illinois state retirement funding. Unfortunately, the ongoing struggles in financial and capital markets continue to have a negative impact on investment returns for the five state retirement systems."

Indeed, the Teachers' Retirement System is selling assets to meet its pension payments, sparking reports that it will run out of money by 2018. TRS says that projection is completely false - requiring the system to make only 2 percent annually on its investments in the next eight years and the state to fail to make any payments into the system.

"TRS is selling assets only because the state does not have the money on hand to make its annual required contribution to TRS and five other state pension systems," the TRS Web site states.

"The Comptroller's Office is authorized to contribute $2.35 billion to TRS during fiscal year 2011, but because of the state's budget problems, the comptroller doesn't have the money to make its normal monthly payment to the system.

"For every month that we do not receive the state payment, TRS plans to sell $250 million in assets for a potential total of $3 billion for the fiscal year."

For more than 20 years, the state has failed to make good on its obligation to fund state pensions.

And the average pension will continue to increase. The average teacher salary in 2002 was $55,000 and rose to $62,319 by 2009, meaning teachers are going to get bigger pensions.

One thing Illinois could do to raise money is start taxing government pensions of more than $75,000 a year. All pensions are currently untaxed by the state.

Whatever happens, I think people ought to know the facts. That includes elected officials and people in the news business.


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Frequently Asked Questions

Q: Why are some calling for Illinois to switch from a defined benefit to defined contribution system?

A. As of 2011, Illinois faces an unfunded pension liability that exceeds $80 billion, one of the largest in the nation. Calls have been made to switch Illinois from its current defined benefit system to a defined contribution system due to misunderstandings regarding the sources of this large debt and the effects of a system switch.

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