The retirement crisis: Illinois points the way.
Kurt Granberg, poster boy for retirement planning. (Post-Dispatch file photo)
During his 22 years in the Illinois legislature, Kurt Granberg became something of an expert on the state’s severe underfunding of its five public pension funds. “People didn’t pay attention,” he told the Associated Press in May 2008. “They saw the pension obligations 20, 30 years down the road. It was fiscally irresponsible.”
Mr. Granberg, a Democrat from Carlyle, was no slouch when it came to planning for his own retirement, as Post-Dispatch columnist Pat Gauen has amply demonstrated. After being re-elected for a 12th term in the House in 2008, Mr. Granberg resigned on Jan. 6, thus avoiding the vote on then-Gov. Rod Blagojevich’s impeachment three days later.
On Jan. 16, in between Mr. Blagojevich’s impeachment on Jan. 9 and his conviction and removal from office by the state Senate on Jan. 29, Mr. Blagojevich appointed Mr. Granberg to run the state’s Department of Natural Resources. On Feb. 6, the new governor, Pat Quinn, fired Mr. Granberg, but not before his 19 days on the job had qualified him for an extra $40,000 a year in pension payments for the rest of his life.
Add this $40K to the $71,716-a-year pension Mr. Granberg gets for his 22 years in the legislature, and he’s got $111,716 per annum, plus cost-of-living bumps.
Kurt and friend.
This little trick, one of Mr. Blagojevich’s lesser-known outrages, was a massive betrayal of the nearly 700,000 retired Illinois workers and their beneficiaries. It left the impression that the state’s public pension system was fat and sassy.
Legislators (most make at least $71,000 a year for their part-time jobs) indeed have a very sweet pension system — after 20 years of government service, they can collect a pension based on 85 percent of their highest state salary, plus 3 percent cost-of-living increases every year after they turn 60. Even retired members of the U.S. Congress, who are pretty good at feathering their own nests, usually receive pensions of no more than $55,000 a year.
The average retired Illinois state worker gets just $17,112 a year. For many of them, that’s their sole source of retirement income. More than 75 percent of Illinois workers aren’t required to pay Social Security taxes, so they’re not eligible for Social Security payments. The pension was supposed to make up for it. (See data and background here)
To add insult to injury, the very legislators who have carved their own sweet spot consistently have underfunded the state’s pension funds, pushing what should be a normal operating cost onto a constant succession of next years.
Illinois has set aside only about 63 percent of what will be needed to fund its pensions. By contrast, California — about whose pension troubles we have read so much in recent months — has 87 percent of its obligations covered.
Illinois’ current pension fund shortfall now exceeds $45 billion and is rising at more than $4 billion a year, in part because by law the state must pay 8 percent a year in interest on the shortfall. The legislature recently passed a 2010 budget that borrows $3.5 billion more money for this year’s pension contributions. That’s money on which it is paying interest to keep up with its interest payments. It doesn’t pay down its past obligations.
What’s horrifying is that Illinois, while its public pension problems are worse than most states, by no means is alone.
For decades we’ve known of the looming crisis in Social Security; the first of the baby boom generation now has begun collecting benefits. Most of the rest of the 76 million Americans born between 1946 and 1964 will join the line over the next two decades.
What’s only recently become apparent, though, is that the rest of the retirement security net has become shredded as well. In many states, public-sector workers have come to realize that cash-strapped governments haven’t been making sufficient annual payments to pension funds.
Thirty states owe more money than they have in the bank. The National Association of State Retirement Administrators estimates the shortfall at $430 billion, or about $3,800 for every U.S. household. That could be very low; if states were to default on the debt, the underfunding could be as high as $1.21 trillion.
Private-sector employees are not much better off. At most companies, so-called defined-benefit retirement plans like pensions have become a relic of the past. In 2007, only 37 percent of companies offered defined-benefit plans. The rest have gone to 401(k)-type plans.
Three problems with that: One, most Americans are lousy savers and don’t contribute enough to 401(k)s or individual retirement accounts; the average retiree has set aside less than 20 percent of what he’ll need. Two, many companies either have cut their matching contributions to 401(k) plans or have stopped making them entirely. Three, most 401(k) and IRA accounts have been battered by the stock market’s problems.
And this, of course, assumes you’ve still got a job to worry about retiring from.
The fundamental problems are that people are living longer, there are fewer workers supporting them and they’re doing it with lower wages. What will be required, if tens of millions of Americans are to escape poverty in their “golden years,” is a fundamental re-thinking of the problem of old-age security.
Older Americans vote in huge numbers, so surely Social Security will be saved, probably with later eligibility and higher contribution rules. If people won’t save for their own retirements, the government must mandate it. It’s not right to shift all of the obligation onto future generations.
Those efforts must be tied to new rules prohibiting employers from reneging on their responsibilities to employees’ retirement.
State governments must fully fund their pension obligations. In return, public employee unions will have to make concessions, possibly a two-tier system with lower benefits for new employees.
Illinois already has limited the rich double-dipping that Mr. Granberg employed. California is rethinking the wisdom of its “3 at 50” rule that allows public safety officers to retire at 50 with pensions equal to 3 percent of their highest yearly pay for every year of service.
Even all of this might not be enough to forestall the need for yet another federal bailout — this time of public employee retirement systems. Analyst Dan Caplinger, writing for The Motley Fool website in April, said that a collapse of the public pension system “could make the recession we’ve seen thus far look like a walk in the park compared to the real depression that could follow.”
It’s small comfort, but Kurt Granberg will be OK.
The fundamental problem is a lot of people – associated with gov – are looters and down-right thieves. And they have, for a long time, gotten away with it in broad daylight. It’s all crashing down on them, it’s a bad time to have your wagon hitched to the public pension trough. All across the country, you can’t get enough police on the beat (or teachers or firemen) b/c bringing one man on is now considered completely secondary to supporting the lavish pensions of men not much older than him.
I expect the next big thing will be either nationalization of all retirement accounts (including my 401K) for the public good and security or mandatory caps of 35 hours per week to control unemployment. The only thing challenging the twelfth-power numbers we see in the deficit and debt by our masters are the controls they so freely wield.
In 1974, nearly half of American workers were enrolled in a defined benefits pension plan. Today, that has dropped to just 18%. Meanwhile, 401k plans, which didn’t exist prior to 1984, have enrolled more than fifty million workers. The idea that the company will take care of you for the rest of your life is obsolete. Unfortunately, state and local governments never got the message.
Unfortunately, at this point there is no easy way out. Those who must pay for our own retirement will be angered large tax hikes to pay for cushy public pensions. But who will be the target of the anger? The politicians who approved these costly benefits, and who failed to put away the money to pay for them, are long gone.
You say the unions will have to make concessions. They may concede a little. But as you continue to blindly endorse every Democrat that comes down the pike, how do you suppose this will happen? Will Democrats suddenly become fiscally responsible and willing to pick a fight with their most organized group of supporters? Unlikely. Instead, the cost of this train wreck will be placed right alongside the cost of the bank bailout, the stimulus plan, and any other trillion dollar schemes that can be pushed through Congress - on the overburdened shoulders of American taxpayers, the ranks of which continue to be thinned by Democratic policies.
The ironic part is that the authors of this editorial (who go unnamed!) are the same people who endorsed (a tainted) Blagovich simply because any Democrat would be immensely (that is an adverb!) better than any Republican.
Albeit there had been some slimely Republicans governors in the recent past, it is still hard to believe that the PD editorial board would stoop so low as to stereotype anyone.
Don’t Monkey Around With Public Pension Plans
For More than 100 years Defined Benefit Public Pension Plans have worked.
Mr. Greenberg’s double dipping is an anomally the average benefit
to retirees is a little more than $20,400. The employees PAYS INTO the retirement fund and the bulk of the monies paid out are from investments not - tax dollars. State and local government retirement plans in the United States cover more than 10 million active employees and more than 5 million retirees, including police officers, firefighters, teachers, legislators, judges,corrections officers and public works employees. Nearly all state and local governmental employees are covered by defined benefit public pension plans. Many of these public employees are not covered by Social Security.
Far from bankrupting the economy the trillions of dollars in investments
and the money pensioners spend tend stabilize their communities and help attract qualified public servants. Public retirement plans pay out annual benefits totally more than $100 billion per year averaging a little more than $20,000 per retiree. The trillions of dollars in public plan assets, are carefully and prudently invested in a diversified buckets of bonds, equity and fixed-income securities with an eye to long term stability.
Yes the economy (largely impacted by the same interests that want
to privatize public plans) has hurt invsetments (and 401 Ks) but that is one major reason to trust in the long term, actuarial driven, long range planning of pension funds versus an independent investor without benefit of investment guidance or independent trustees who take their fiduciary responsiblity seriously. The U.S. economy has withstood boom and bust cycles since 1793 - public pension funds in the last 100 years have proven that they work because they are designed to withstand the boom and bust cycles - over time.
It is a real treat to see an obvious liberal like Byron speak out firmly thinking that he is defending his fellow public union members and their pension plans….then find himself in the trap of having to say that they are solid because they are invested in American (god-forbid) Corporations….those evil, greedy, big oil, big pharm,etc, that on any other day, he is screaming about their profits, most of which makes his Funds solid…..
Illinois……..I forgive the ever liberal, never-saw-a-Democrat-that-was-not-better-than-any-alternative, Post Disgrace. In Illinois, they couldn’t win. It is a cess pool of politicians of every stripe. California without the beach………..its best chance…..every voter south of I-80: Never vote for anyone who comes from any area north of that line….try that life saving strategy
Is the editorial board saying that government is often no better than the private sector when it comes to greed and dishonesty? I’m stunned, especially when the crooks are Democrats. Mr Balgojevich and associates don’t give up anything to Al Capone when it comes to criminal intent.
I certainly miss the defined pension plans that I previously enjoyed at different employers over the years. Still, one does the best he/she can with the resources available, and 401Ks and IRAs can help provide retirement income.
As with health care , we have to become better informed, involved consumers as regards our retirement strategy. Many employers match employee contributions to 401K accounts up to a certain percent, and most plans offer investment advice as part of their services. The recent stock market volatility certainly cost a lot of us a sizable portion of our funds, but hopefully, the market will follow its historic course and recover much of that loss in the future. It’s certainly not the easiest time to be an investor, but it’s the environment we live in and we have to do the best we can for ourselves and our families.
In the meantime, let’s start prosecuting white collar crooks, whether on Wall Street or the centers of government, to the full extent of the law. And no more separate rules for public officials that give them a license to steal.