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Pension indebtedness
EDITOR: In the July issue of Illinois Issues, the effect of unfunded liabilities in the state-funded pension systems is minimized by using personal income as a yardstick. The article states that the pension debt is well within safe limits and as a percentage of personal income, the unfunded pension liabilities have actually been declining.

Relating pension liabilities to per capita personal income is specious reasoning similar in nature to the comparison made sometimes that the present $800 billion federal debt is a smaller proportion of the gross national product than the $300 billion federal debt of 15 years ago was of GNP at that time.

The dramatic effect of pension indebtedness in State of Illinois pension funds is illustrated by the increases in unfunded liabilities for state funds since 1967. In 1967, the unfunded liability for the General Assembly was $2.2 million and in 1977 $10.9 million. For the judges system$14 million in 1967 and 100.6 million in 1978. The state employees from $255 million in 1967 and $812 million in 1978. The downstate teachers rose from $683 million in 1967 to $1,850,000,000 in 1976, and the state universities from $153 million in 1967 to $659 million in 1976.

We can no longer assume that there can be no danger of a shortage of tax resources at the state, federal or local levels in the immediate or distant future.

The fact that unfunded pension liabilities in 1976 are less a proportion of bonded state debt that they were in 1971 is due to the liberalization of borrowing power allowed by the 1970 Illinois Constitution and not declining pension obligations.

Borrowing for a retirement program is borrowing for a current payroll expense -- a practice which helped generate New York City's financial crisis. Also, proper funding enables a retirement system to use earnings on investments to help meet costs; the 86 percent funded Chicago Park District derives 52 percent of its income from earnings on investments.

The minimum funding standards of ERISA in private pension plans requires 40-year amortization for existing plans and 30-year amortization for new plans.

Finally, the 49 other states, with the exception of Massachusetts, do not operate on a current funding basis.

William J. McGlone
Director of Development
The Civic Federation