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Pension update - April 1, 2012
By IEA Communications

From IEA President Cinda Klickna:

Colleagues:

A news story today in the Springfield State Journal Register has again put pensions front and center. We are in a very difficult period in our association's history. We've all known for some time that the pensions (TRS and SURS), on which so many active members are counting and which form the safety net for thousands of retired educators, had financial problems due to the state's failure to make the payments it is required by law to make to the systems.

This update is intended to provide some background on the current situation and information as to what is being discussed as your leaders and staff take action intended to protect member pensions.

Pension underfunding

Despite benefits that are fair and reasonable, the systems have, almost from their inception, had a funding/revenue problem. We all know, that problem has worsened considerably over the last decade.

The latest assessment by Buck Consultants, TRS's actuarial firm, shows that if the state does not make the payments it is required to make, the system is headed toward insolvency unless action is taken.

To be blunt: Keeping things as they are (system underfunded by $43 billion, and the state not paying the actuarial amount required) will mean insolvency for TRS within approximately 37 years.

The point: Action must be taken to ensure the systems continue to pay benefits to current and future retirees.

Solutions?

We know that there is nothing more important to IEA members than this issue. But what should/can we (IEA and its labor partners) do?

That is what we've been wrestling with for some time. Here are some of the basic questions:

• What's fair to our members?

• What ideas for reducing the underfunding (again, $43 billion) will help the systems to return to fiscal health?

  Ideas that address underfunding are, by their nature, expensive and cause state policymakers to demand adjustments in benefits. IEA continues to push for a funding plan that guarantees the sustainability of the systems.

• What constitutional ideas would address the problem?

  Membership in any pension or retirement system of the state, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired. Illinois Constitution - Article 13, Sec. 5.

• What ideas for addressing the revenue issue are politically viable (capable of being approved by the General Assembly)?

  Money the state diverted from the pension systems was spent long ago on roads, health care for children and the elderly and also helped fund increases in education spending during the last 20 years.

That last point is significant: If the state is going to replace at least some of the underfunded amount it will have to come from taxpayers who believe taxes are too high in Illinois, especially since the income tax increase of January, 2011.

Due to the irresponsible spending practices dating back to, at least, the early 1980s, instead of putting Illinois on solid fiscal footing, the tax increase has merely allowed the state to tread water financially.

Not only is there a huge pension problem, but also vendors who supply needed services are owed billions by the state. And, our school districts have seen cuts, which have led to education employees facing RIFs, cuts in salaries and insurance, and our students left without needed resources and programs.

So, we have a problem that can only be resolved with a tremendous infusion of dollars and a great political will.

TRS Board and Executive Director

The TRS trustees unanimously passed the following resolution at last week's meeting:

The fiscal situation of the state has deteriorated to the point that the board no longer has confidence that the state will be able to meet its existing funding obligations to TRS.

As a result, the board believes that action must be taken now to ensure the continued solvency and viability of the plan. This action must be based on the following principles:

1. The impact of any proposal, and all future contributions to the plan, must be determined using generally accepted actuarial principles and standards and not the funding scheme and pension bond limits currently in Illinois law

2. All future contributions must be guaranteed by statutory language substantially similar to that presented to the governor's pension assembly in February

3. Any changes to the Pension Code must first correct the existing inequities and funding flaws created with the enactment of Tier II and,

4. Any changes to the Pension Code must be based on the simplest and most straightforward changes possible

Further, the board resolves that it will only certify future contributions that are calculated based on generally accepted actuarial principles and standards.

The board's approval of the resolution came following a presentation by TRS Executive Director Richard Ingram. The information and analysis he presented was a continuation of what Ingram has been doing for months; traveling the state and having frank conversations with TRS participants about the condition of the pension systems.

Many of the points he made last week were also stated at the IEA Representative Assembly in March.

We have said from the beginning of this discussion that the state needs to live up to its obligations. In the past, we have assumed that the law would be followed. In light of what we've seen over the last 15 or so years we now must acknowledge that is no longer a safe assumption.

Refusing to accept this reality would only impede our ability to act to preserve the pension systems.

To make sure that the pension systems remain capable of paying benefits to current and future retirees, we have to accept reality and base all decisions going forward on reality and not the hope (based on law) that the state will live up to its responsibilities. Identifying new revenue must be part of any constitutional solution.

It's important to understand that the current situation is very serious but capable of being resolved.

TRS, SURS and the other state systems can be saved but we need to understand that it will not be easy or inexpensive.

The top priority of IEA leaders and staff is to make sure the pension systems continue to be able to pay benefits to current and future retirees and that those participants get the benefits they have paid for.

IEA and the labor coalition members will remain opposed to any unconstitutional proposals and will fight for the best outcome for our members.

In the Sunday story on pensions appearing in Gatehouse Newspapers statewide, IEA lobbyist Will Lovett makes our association's position clear as to any proposals for reducing the Cost of Living Adjustment for retirees:

However, changing benefits for employees already receiving pensions is not constitutional, he (Lovett) said.

"That is crystal clear in that benefits cannot be modified or changed," he said.

Next steps

Please check the IEA website regularly for updates. TRS Executive Director Ingram is holding town hall meetings with TRS participants. Here's the schedule.

Continue to lobby lawmakers in your home districts and urge them to support only constitutional proposals on pensions.

Talking points for contacts with lawmakers:

• Regarding "insolvency," and recent news reports, TRS trustees and staff are warning that, if the state doesn't make the required payments, the system will become insolvent years from now. That is why the legislature needs to approve a funding solution. The problem is funding, not benefits.

• TRS and SURS members don't receive social security. Their pension is, for nearly all, their life savings.

• The education employees did not cause this problem; so fixing it solely on the backs of pension system participants is not fair or acceptable.

Please make sure that IEA has the email address on file that will allow us to contact you quickly if immediate political action is needed. Talk with your colleagues about this issue.

We can't change the facts that got us here, but we can take actions that will improve our prospects for the future.