Illinois Government Pensioners Hit The Jackpot

I love Illinois because it is a showcase of government mismanagement and corruption.  Very few places on earth are willing to so publicly display this level of greed and malfeasance.  Today Jim Tobin president of  Taxpayers United of America released the results of its annual study of the top government pensions in the State of Illinois.  The full report is at this link:

Illinois Pensions

You need to read the following excerpts and think carefully about the amount of money that is involved:

Illinois House Speaker, Michael Madigan (D), and Senate Majority Leader, John Cullerton (D), continue their political charade of pension reform while the number of six-figure pensioners grows 47% in one year to 9,900.

The purpose of our study is to put some perspective around individual pensions, to put them in terms to which the average taxpayer can relate. Illinois taxpayers, whose average household income is $53,234, and struggle with 9.3% unemployment need to know how much Illinois’ government retirees are being paid not to work and the astronomical accumulation of those payments over an average lifetime.

We actually expanded our list from the top 100 to the top 200 since there are so many six-figure pensioners now. The top 200 are all over $189,000a year.

Still topping our list of Illinois’s government elite in annual payouts is Tapas Das Gupta, retired from the University of Illinois at Chicago. He collected a cool $439,672 in his last annual pension payment and will accumulate a stunning $5.2 million in lifetime pension payments.

Beverly Lopatka  retired from DuPage Government HSD 88 at the ripe old age of 56 and has an annual pension of $399,652, with a staggering estimated lifetime payout of $11,524,643. Her contribution of the estimated lifetime payout would be only 0.8%.

The highest lifetime payout estimate goes to Larry K. Fleming, retired from government school district Lincolnshire-Prairie View 103. Having retired at the age of 55 with a cushy annual pension of $258,163, he will accumulate a breathtaking $11,868,155 in pension payments over a normal lifetime.

 Jim Tobin is not a person to just point out a crisis he also proposes solutions:

Without sweeping and immediate reform, Illinois’ government pension system will collapse by 2015. It’s mathematically impossible to tax your way out of this problem. Illinois has more than 9,900 retirees collecting more than $100,000; in 2020, that will be over 25,000 six-figure pensioners. Real pension reform must include raising the retirement age to 67, increasing employee contributions by 10%, increasing healthcare contributions to 50%, eliminating all COLA’s, and replacing the defined benefit system with a defined contribution system for all new hires.

This is the solution that can be used to solve the unfunded pension liability crisis all across America.

Death spiral states

Forbes magazine published the following article on 11/25/12:

http://www.forbes.com/sites/baldwin/2012/11/25/do-you-live-in-a-death-spiral-state/

The highlights of this article are as follows:

Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.  Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.

The taker count is the number of state and local government workers plus the number of people on Medicaid plus 1 for each $100,000 of unfunded pension liabilities.

The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios.

A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking.

The list of states in a death spiral:

New Mexico

Mississippi

California

Alabama

Maine

New York

South Carolina

Kentucky

Illinois

Hawaii

Ohio

Squeezy the Pension Python

Illinois Governor Pat Quinn has a solution to the Illinois unfunded pension liability crisis.  His solution is brilliant and creative.  To solve this crisis he has created an animated mascot.  Meet "Squeezy the Pension Python" by viewing this short video:

http://thisismyillinois.com/

Not everyone is convinced that Squeezy will be able to solve the crisis.  Some of the comments can be found in this Chicago Tribune article:

http://www.chicagotribune.com/news/local/ct-met-governor-quinn-pension-reform-20121119,0,3422889.story

These quotes are from the Tribune article:

After months of promising a major grass-roots effort to win public support for reforming the state's government worker pension system, Gov. Pat Quinn on Sunday unveiled a plan that featured an incomplete online strategy, children wearing red plastic megaphones and an animated "Squeezy the Pension Python" mascot.

There were, however, no solutions offered on how to fix the nation's most underfunded retirement system.

The Democratic governor, known for a style that sometimes veers into the corny, attempted to jump-start the pension overhaul push by lauding the power of "the people of Illinois, good and true" through what he called the "electronic democracy" of Twitter and Facebook. Quinn went so far as to encourage families gathering at the Thanksgiving dinner table to "speak to each other" about the pension crisis.

The approach left some lawmakers questioning whether the governor demeaned the severity of one of the most pressing unresolved problems facing state government in Illinois. State Rep. Jack Franks, D-Marengo, called Quinn's strategy "juvenile."

"If he wants to do a grass-roots campaign, he should talk to the people directly about his proposal. But he doesn't even have one, which is why we can't get anything done. You can't follow someone who doesn't lead," Franks said.

"This has to be comprehensive reform. It can't be done in a vacuum and it can't be done with slogans and it certainly can't be done with cartoon characters," Franks said. "It's going to take some hard work."

The State of Illinois pension system's unfunded liability now is estimated to be at least $96 billion.  Please note that this unfunded liability is calculated using an anticipated annual return on invested pension funds of 8% per year.  Do you think it is possible that Illinois will be able to generate 8% annual returns?  If they generate less than 8% the unfunded liability goes up.  If there is another big down year for the financial markets the unfunded liability goes up dramatically.

The only solution to this crisis is to cut benefits to future retirees.  Illinois is so deep in debt that they may be forced to cut benefits to current retirees.

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.