POWIP Piece of Work In Progress – Former Abode of Dan Collins

The Rotten State of Public Pensions

Today, in the Chicago Tribune, a former legislator and federal judge [same person] patted the Illinois legislators and governor for doing the bare minimum in dealing with the state's looming problem:

Gov. Pat Quinn and the Illinois legislature accomplished a near miracle when they successfully negotiated the "third rail" of Illinois politics: a meaningful reform of state pension laws. Criticism that the reform did not go far enough is unfortunate and misguided. The pension bill that passed will save hundreds of billions of dollars in the future (including a substantial sum in next year's budget). Legally, the governor and the legislature may have gone as far as they can under the Illinois Constitution.

Article 13 of the constitution says "membership in any retirement or pension system" of any governmental entity "shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." Under the "plain meaning" rule that almost every judicial authority recognizes, the words speak for themselves. Every existing employee is protected against changes in benefits. That is what Illinois courts have said the words mean.

Oh, I disagree, though I am not a lawyer or even a pension actuary.

The reason: even a state constitution cannot will money into being, no matter how hard politicians and public employees wish.

They cannot make the people stand still to be taxed at the rates to sustain the benefits they desire, which many of these states have discovered as they drive the "rich" people who used to be their main source of revenue away.

For the past two years, I have been keeping track of the public pension tsunami approaching at the Actuarial Outpost, partly to dispel the notion that public pensions are guaranteed in any de facto way. The laws of economics are far less yielding than the law of conspiracy-against-the-taxpayer.

With the help of google news alerts, my go-to sites like Pension Tsunami, John Bury's blog [he is a pension actuary], Calpensions, and other like-minded areas, I'm going to be keeping track of what's going on in the world of public pensions. I've been following this a long time, and I'll point out a few interesting disaster stories: Pritchard, Alabama is one favorite of mine. Less well-known than the bankrupt California town of Vallejo, it's the canary in the coal mine for a number of reasons. More on that one later.

In addition to public pensions, I'm going to look a little bit at some other retirement-related issues: multi-employer plans, as are negotiated by the likes of the UAW; and Social Security, the perennial "third rail" issue in federal politics, which has gone awfully quiet as the Social Security cashflows are now going the other direction.

For public pensions, politicians have been nibbling away at the low-hanging fruit: altering pensions for people who don't even work for the state yet. But the unfunded liabilities that are causing the main problems are for benefits already accrued by public employees, and may accrue even more [on paper], if the rules aren't changed for them. And they may very well find out that the word "unsustainable" applies to them, and their benefits really won't be sustained in reality, no matter how loud they cry "Unconstitutional!"

So look for the following in the coming days, weeks, and months: definitions of double-dipping, spiking, DROP and backDROP, "air time", and much much more.

It'll be a fun ride, don't you think?

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

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