Chicago
By CHARLES B. CLEVELANDChicago |
|
RECENTLY on my WIND-radio show, "This Week in Chicago," I talked with two leading authorities on the status of pension plans for public employees. Here are excerpts of that interview with state Sen. Robert J. Egan of Chicago, head of the Illinois Public Employees Pension Laws Commission, and William M. McGlone of the Civic Federation, a taxpayer watchdog group in Chicago.
Egan: There are about 500 plans in Illinois. They are all similar, administered by trustees elected from with in those systems. The principal ones are for elementary school teachers [one in Chicago, one downstate], state employees, the General Assembly retirement plan and judicial retirement plan. There are a lot of police and fire plans.
Q: Are they in financial trouble?
Egan: We have a good sound system in Illinois. One problem, now being highlighted by the New York situation,is the funding of these systems and the funding is not up to the proper level.
Q: By funding we mean money to pay out claims?
Egan: Not necessarily. Each system has funds from the employees and from the employer [such as the State of Illinois in the case of state employees].What we have been doing is to pay in [as employers] only enough money to adequately pay the retirees.
Q: What shape are these funds in?
McGlone: Chicago and Cook County funds (which our organization focuses on primarily) are approximately 44 percent funded. This is a reasonable figure. In Illinois the plans are restricted; if there is early retirement the pensions are discounted one-half per cent a month. Also pensions are based on a maximum of 75 per cent of the average pay of the last four years of employment, where as in New York the base is the final salary including overtime.
Q: What are the unfavorable features?
McGlone: The employees in Illinois pay a higher share than many other states — 81/2 or 9 per cent — and the employer-government share (based on census figures) — is the next to the lowest in the country. Also the unfunded liability is about 6 billion dollars.
Q: What is the role of the commission?
Egan: Laws introduced to broaden pension benefits usually cost money from the system. The commission tries to screen these proposals so we're not spending more than we can afford. We don't need to fund all that 6 billion dollars; if we brought the funding up to65 per cent we'd be the shining light of all states.
Q: Are the public pension plans better than those of private enterprise?
McGlone: Yes, with some exceptions. Some large corporations have pension plans in which the employee doesn't have to contribute anything. The commission has been instrumental in stopping bad broad policy changes such as counting military service prior to employment, assuming all heart and lung ailments were service connected. This has added one-third to the woes of Massachusetts, which is out of assets and appropriates every year for benefits.
Q: Comparing pension plans with in Illinois, how uniform are they?
McGlone: The security forces such as police and fire, because of the risk and nature of the position, are allowed early retirement, proper disability.
Getting back to funding, there is an effort now to pursue the middle-way —not just pay out benefits, but contribute a portion of the interest on the unfunded liability. An example: In the average Cook County fund, they could pay out for nine more years without any money coming in.
Q: With inflation are the pensions realistic for former employees?
McGlone: The commission has tried to meet that problem by providing a flat rate increase (two per cent, but three percent in one fund) in pension payments.
Q: Has the state cut back on its contributions?
Egan: Over the past 25 years we have not fully funded our pension. The ratio [between what the state should have contributed and what it actually did] is greater over the last four years.
Q: Is this a moral or a legal obligation?
McGlone: It is a constitutional matter. Pension benefits may not be diminished or impaired. Even changes in New York apply only to new employees.
Egan: Sure it's a constitutional obligation but there's no punishment fornot doing it.
Q: What it boils down to, is that if these costs continue to build up, at sometime we, the citizens, are going to have to make up that money. Is that true?
Egan: That's true. There's a law pending in Congress which would put all kinds of restrictions on our state systems. We're opposed to it because we have sound funds and sound administration.
McGlone: A side effect of full funding is this: The Chicago Park District is 85per cent funded. As a result, earnings on their investment is 48 per cent of their income; a significant relief to the taxpayer.
Q: Is there interest in the problem of pension funds?
Egan: Yes, in part as a result of the New York experience. As a matter of fact, in this past session only two laws were passed because it was felt that any broadening of benefits would be fiscally unsound. We think the public will is not to raise benefits until we can find the funds without raising taxes. ž
30 / October 1976 / Illinois Issues