Cancerous pensions

The nature of the encroachment upon American constitution is such, as to grow every day more and more encroaching. Like a cancer; it eats faster and faster every hour. The revenue creates pensioners, and the pensioners urge for more revenue. - John Adams, February 13, 1775

President Adams probably would not be surprised at the rate that government retirees' pensions are consuming revenue today, but the rest of us are.

Once again we are enlightened by the political system in the City of Chicago and the State of Illinois.  Pensions were the subject of two recent articles in the Chicago Tribune:

Aldermen getting generous pensions for their part-time jobs

How Daley beefed up his pension payouts

In January 1991 the Illinois legislature passed a law that would have a long term devastating effect on the financial future of the State of Illinois and all Illinois municipal governments.  The law vastly expanded pension benefits and greatly reduced vesting requirements for elected municipal officials.  Without any public vetting, legislation creating the plan was slipped into a larger bill before it was signed into state law on the last day of the session. Last year, the Tribune and WGN-TV detailed how another provision added to that same legislation allowed many union officials to land six-figure city pensions.

Here are some of the details from the first article above:

An analysis of pension fund documents for 21 aldermen who retired under the plan to date shows they are in line to receive nearly $58 million during their expected lifetimes, though contributions and assumed investment returns are predicted to cover just $19 million, or a third of that sum.
Former Ald. Thomas Allen is a prime example. After retiring from the City Council in 2010 at age 58, Allen went on to become a Circuit Court judge while also collecting roughly $90,000 a year from his city pension. During his lifetime, he stands to receive more than $4.2 million in benefits, though contributions and assumed investment returns are expected to cover only $1 million.
The perk for aldermen also shows how the Daley administration leveraged city pension funds for political purposes rather than protecting the modest, sustainable retirement benefits promised to city workers.
Under the plan, aldermen and other elected city officials became eligible to receive up to 80 percent of the salary they earned during their last month of work. All other employees in the municipal pension plan — including top managers — receive 70 percent of their average monthly salary over the previous four years.
Aldermen can also reach the maximum benefit with just 20 years of service, compared with nearly 30 years for everyone else in the municipal pension plan.
The result is that many aldermen will end up making more in retirement than they did when they served on the council.
Council members argue that they deserve to earn credit more quickly because they face re-election every four years. "Once you become (a city employee), you have to commit murder to lose your job. And an alderman can get tossed out in the next election," said Ald. Richard Mell, 33rd, who has been on the council for nearly four decades.

If you are not familiar with Chicago Alderman Richard Mell you probably have heard of his son in law former Illinois Governor Rod Blagojevich.  (I do agree with Mell that to lose your city job you do have to commit murder).

The pension revisions came as Daley was running for his first full term as mayor. He went on to dominate city government for five more terms with frequent support from organized labor and the acquiescence of the City Council. During his tenure, Daley appointed nearly three dozen aldermen, many of whom went on to earn full aldermanic pensions.
When pension benefits for aldermen were boosted in 1991, their salary was $40,000 a year. Since then, it has grown to as much as $115,000 — rising at nearly double the rate of inflation.
That six-figure salary, and the large pension that goes with it, isn't even for full-time work. By law, the job of a Chicago alderman is part time.

Now some of the highlights of the second article:

Two years into his reign as Chicago's longest-serving mayor, Richard M. Daley took advantage of the state's convoluted pension system to significantly increase his potential payout while saving $400,000 in contributions.
Daley, a former state senator, made it happen by briefly rejoining the legislative pension plan in 1991. He stayed there just one month before returning to Chicago's municipal pension fund, but the switches made him eligible for benefits worth 85 percent of his mayoral salary — a better rate than all other city employees receive.
He was just 49 years old at the time. Even if Daley had never won another election, he could have started collecting a public pension at age 55 of $97,750 a year. Without the steps he took, his public pension benefits at that age would have been worth just $20,686.
The same legislation, rushed through the General Assembly on the last day of the session, also gave private labor leaders public pensions based on their much higher union salaries. Under Daley's watch, former Chicago Federation of Labor President Dennis Gannon was given a one-day city job that allowed him to collect a public pension based on his $200,000 private union salary.
In 1995, when Daley wanted to fund his school reform package, his administration pushed legislation that allowed it to divert $1.5 billion from the Chicago Teachers' Pension Fund over a 15-year period.
All the while, Daley blessed benefit increases for city workers without ensuring that payments into the funds would cover the costs, a problem worsened by the economic downturn. Today, the combined unfunded liabilities of Chicago's four pension funds have grown to nearly $20 billion, which doesn't include the $6.8 billion shortfall at the teachers’ fund.

Please note that the City of Chicago has unfunded pension liabilities of $26.8 billion.

Taxpayers United of America has published a study about Illinois public pension plans.  This study is at this link:

For REALLY Big Bucks, Try the State University System

Here are some highlights from this study (all quotations below are from Jim Tobin, President of Taxpayers United of America):

If you want to see why the pension funds in Illinois are lurching toward insolvency, look no further than the State University Retirement System, said Tobin. The pensions are so mind-boggling that if I didn’t have our list of the Top 100 SURS pensions, no one would believe it.
The highest of the ‘Top 100’ list again is Tapas Das Gupta, of the University of Illinois-Chicago, whose annual pension is an absolutely astounding $426,885 (as of 4/1/12). Each month he pulls in $35,574. His monthly pension is about the same as the median full-time annual wage in Illinois, which is $35,256.
Since 1/1/98, Gupta’s total pension payout is $3,001,481.
Who says teachers are underpaid?
The way to fix the broken pension system is to replace pensions for all new government hires with social security and 401(k)s, and increase current employee contributions. This is the only way to eliminate the unfunded liabilities that plague taxpayers.

The link to the Top 100 pension recipients of the  State University Retirement System is at this link:

SURS Top 100

A brief analysis of this list reveals:

2 retirees earning over $400,000 per year

5 retirees earning over $300,000 per year

63 retirees earning over $200,000 per year

How do your pension benefits compare?

I agree with Jim Tobin.  We must drive a stake through the heart of defined benefit pension plans.  Give the employees an individually managed account to accumulate their pension benefits.