Public pension benefits gain on average public salary

[August 13, 2014]  BY BRADY CREMEENS | Special to Watchdog.org
 
 SPRINGFIELD – Pension benefits for public retirees in Illinois has now reached 60 percent of the salary equivalent of a working employee, and that gap is closing.

Research and analysis from the Daily Herald shows that in 2013, the average pension was just short of $31,674 a year for retired public workers, a group that includes government employees, teachers, lawmakers, judges, and public university faculty and staff. The average annual salary for still-working pension fund members is just over $55,000.

According to a report from Pew Research Center, the average salary for private-sector workers in Illinois is about $3,000 less than public-sector employees, at approximately $52,000 a year.

Just a decade ago, the average pension was less than half of the average salary. Today, it’s a good deal more than half.

Jeffrey Brown, professor of finance at the University of Illinois, Champaign-Urbana, warns against ignoring what he calls a “pension crisis” and opting for quick fixes instead of longer-term, more sustainable solutions.

“Pensions surely matter because they add to the fiscal stress on the state more generally, and that leads to the state cutting back on general aid to public universities and many other institutions,” Brown said. “The budget is a mess and the lack of real attention given to the coming pension crisis denotes a real lack of urgency on the part of the state’s decision makers.”

Brown predicts a major overhaul of the pension system, one where either contributions increase, benefits decrease, or a combination of both until the ship is righted.

“Basically, this is one more indication that for many decades, the state of Illinois mismanaged its fiscal situation and under-invested in the future,” he said.

Carol Portman is the president of the Taxpayers Federation of Illinois, a group that advocates for fiscal responsibility and pro-growth tax structures in the Prairie State. She says the pension shortfall is a combination of under-funding and over-promising.

“We have a generous pension system,” Portman said. “But it hasn’t been fully funded and also unfortunately suffered when the stock market dropped.”

Portman said another aspect to the issue is that people are living longer than they were previously, and therefore drawing benefits for an extended number of years.

“It’s a great thing that people are able to live longer lives,” she said, “but not such a good thing for a pension system trying to pay out benefits from a shrinking pool of resources.”

Portman says the problem is here and now, not just down the road somewhere.

“Today’s taxes aren’t paying for today’s services,” Portman said, “because so much of the government’s resources goes towards pensions. There are lots of really good people who work long, hard careers and count on that pension money. It’s not right to keep them from getting it, but on the other hand today’s tax dollars aren’t being allocated to pay for the necessary government services.”

While pension benefits approaching current salary levels may be troubling, the bigger problem stems from the number of pension beneficiaries compared to the number of active employees paying into the system.

The State Employees’ Retirement System had in 2013 more than 65,000 former employees and spouses of employees receiving pension payouts, with fewer than 62,000 current employees on the payroll contributing to the fund.

“There’s simply no easy answer,” Portman said. “There is no good answer. It’s going to take a great combination of ideas and a lot of effort to get us back on the right track.”

Brady Cremeens is a reporter with the Watchdog affiliate, Illinois News Network.

[This article courtesy of Watchdog.]