September 2012

Today we are hearing much about pension reform. It is a priority with many of our State leaders and the subject of much press in Chicago, Springfield and elsewhere. It is a near daily topic in the Springfield, Illinois State Journal-Register.

Proponents are quick to point out abuses or extreme instances where an isolated few have been able to manipulate the system to their own advantage. However, the picture is much different for State retirees generally.  State Employee Retirement System pension annuities rank fifth from the bottom of the 50 States and the average monthly State Employee Retirement System annuity is $2,552.

Pension “reform” is not a new idea. Over the past twenty to forty years many American companies have plundered retirement funds and robbed employees of rightfully earned pensions. Benefits consultants such as Kwasha Lipton or Mercer have played a significant role in helping companies design plans and strategies to surreptitiously bilk employees out of their full rightfully earned pensions. The methods and technique used to do this is very well described and documented in a book entitled Retirement Heist by Ellen E. Schultz, an investigative reporter for the Wall Street Journal. The book is available at Barnes and Noble and perhaps other booksellers.

As we look at the current “reform” push in Illinois and the legislation being proposed (e.g. Amendment 3 to SB3168, which was proposed but not enacted in the recent Special Session), it is almost as if the tactics detailed in Retirement Heist are the ground rules for pension reform in Illinois. In fact, we know that the benefits consulting firm, Mercer, was retained in the recent movement to fashion a system whereby certain retirees and employees, previously exempt, would begin to pay for health insurance. This program was legislated in Senate Bill 1313 (Public Act97-695). Also, Amendment 3 to SB 3168, for example, included a cash balance plan and such a plan was one of the techniques used by many American companies to slash retirement benefits.

For forty years and more, State employees have paid their share of future retirement costs but in that period the State has consistently failed to provide its share of funds to meet that cost. The result is that the lack of State payment and the investment income those payments would have earned are lost and we are hearing of an unmanageable unfunded liability. The current popular answer to this problem is “pension reform” and the methods being proposed to accomplish “pension reform” have much in common with tactics detailed in Retirement Heist so if you want some understanding of what is before us the book is recommended reading.

Tom McGee