Who To Call
Board and Committees
Liability – A Crisis?
The Manufactured Crisis Over Illinois Pensions
|The outcry of people who are promoting the
pension crisis message and the need to take harsh measures against
current retirees is frequently based on the actuarial formulation of
the pension unfunded liability and the presumably significant
adverse affect it has on the financial stability of the retirement
systems and the state. However, some knowledgeable people have
argued that this aspect is exaggerated and doesn’t reflect a
realistic view of the five state retirement systems’ ability to meet
their pension annuity obligations in the future.
The following is an article that explores the public pension
situation in Illinois in regards to the ability of the five state
retirement systems to continue to pay the pension annuities to their
respective members. It appeared in the April
25-May 1, 2013 edition of the Illinois Times. The reporter is
The Manufactured Crisis Over Illinois Pensions
Practically everyone knows that Illinois’ public pension systems are
only about 45 percent funded. But not everyone knows that 45 percent
is actually an improvement over the 40 percent funding of the past.
State pension funds always carried unfunded liability
The historical record of Illinois’ 1970 Constitutional Convention
shows the state’s unfunded pension liability wasn’t considered a
crisis when delegates included a clause to protect pension rights.
Today, one person who participated in the convention says the modern
hysteria over Illinois’ pension systems is unrealistic and
“It’s absolutely a manufactured crisis,” says Ann Lousin, a
professor of law at The John Marshall Law School in Chicago. Lousin
was a research assistant at the 1970 convention. She told Illinois
Times in a recent interview that in the 1970s, there wasn’t a
consensus that the ongoing unfunded liability was a crisis.
The state’s unfunded pension liability – which measures how much
money the state needs to collect in order to pay all current and
future pensions – was $2.5 billion in 1970, according to the
constitutional convention transcript. As of 1970, the unfunded
liability had grown from $359 million 22 years earlier. During that
time, the state’s pension systems were collectively funded at about
40 percent, Lousin says.
She says unfunded liability is an unrealistic measure of a pension
fund’s health because it assumes that every employee could retire at
the same time.
“When I have asked the experts if that could ever happen, i.e. that
absolutely everybody eligible would retire at once, they say, ‘Of
course it wouldn’t happen,’” Lousin said.
She says it would be more realistic to estimate pension liabilities
with public employees retiring more slowly instead of all at once.
“Sometimes pension experts say to me, ‘Yes, that’s the best way to
do it, but we don’t do it that way,’” Lousin said.
However, other states fund their pension systems at around 70 to 100
percent, making Illinois look bad by comparison in the eyes of
credit ratings agencies.
For fiscal year 2014, Illinois must pay $6.8 billion total into the
five public pension systems because of a state law enacted in the
mid-1990s. If followed, the law purports to fund the state pension
system at 90 percent by 2045. However, the ballooning contributions
required by the current law put significant pressure on other parts
of the state budget – particularly social services.
Despite the Illinois Constitution’s pension protection clause, which
makes public pensions a contractual right that cannot be “diminished
or impaired,” Illinois lawmakers today are attempting to cut the
state’s future pension contributions by reducing the retirement
benefits of state employment in ways they hope won’t be struck down
During debate on the pension protection amendment at the 1970
convention, delegate James C. Parkhurst, an attorney and former
state representative from Peoria, said Illinois had no history of “welching”on
pension benefits when they come due.
“If we are going to get to the point in the state of Illinois where
we can’t pay the pensions, we’re down the drain anyway; and anything
you put in this constitution is not going to change that one bit,”
Parkhurst said in 1970.
Currently, Illinois’ five pension systems can pay out benefits to
existing retirees. The Teachers’ Retirement System, for example, is
the largest public pension system in Illinois and, despite carrying
an unfunded liability since 1953, TRS has always paid its retirees
“The truth is TRS will have enough money on hand to pay pensions
well into the future,” wrote TRS executive director Richard Ingram
in a 2011 letter to Illinois Times.
Ronald Smith, a professor of law at The John Marshall Law School in
Chicago, was a delegate at the 1970 Con Con. He told Illinois Times
in a recent interview that the convention started at a time when
many businesses began reneging on pension promises made to workers
in the private sector. The fear that the problem could spread to
public pensions set the stage for the debate over the pension
protection clause, Smith said.
The “home rule” powers newly included in the 1970 constitution
allowed local governments to levy taxes, issue bonds, pass
regulations and more, but police and firefighters worried that local
governments might use home rule powers to back out of pension
During debate at the 1970 convention, delegate Henry Green, a
businessman from Urbana, said the Illinois General Assembly was
failing to make required pension contributions – as they would
continue to do repeatedly over the course of the next 40 years – and
public employees were “beginning to lose faith in the ability of the
state and its political subdivisions to meet these benefit
As a result of the General Assembly’s inconsistent pension
contributions and public perception that unfunded pension liability
is a crisis, lawmakers are now searching for ways to cut future
contribution costs. Most of the proposed solutions involve giving
public employees a choice of which existing benefits get cut, and
it’s certain that unions will challenge in court the
constitutionality of any such solution. Ironically, Illinois’
solutions may end up hurting the very same groups who pushed for
pension protections more than 40 years ago.