Local Districts - Pt. One
Caught Holding the
Bag
Idiom: The
phrase Holding the Bag is an idiom
describing the person caught or penalized while others get away free. If a group of brigands held up a person, and
the authorities were soon to arrive, veteran criminals would give the witless outlaw
the swag to hold physically. This not
only distracted the less thoughtful but allowed for the veterans to slink away
or lay the blame on the bag-holder. That
brings us nicely to the General Assembly.
Given the neurotic
need to tinker by the General Assembly, by the time 2035 rolls around, Illinois
public teachers may find themselves part of a Tier 8 or Tier 9 program, but let’s concentrate for a moment for
those caught up in Tier 2.
Tier 2
teachers are the result of SB1946,
passed in 2010, which designed an entirely different benefit schedule for those
hired after January of 2011. That change
in benefits included increased retirement age (67), a maximum pensionable salary
calibrated to social security, a simple COLA with lesser increases, and the
same payment of 9.4% in contribution despite reduced benefits.
In fact, the
overwhelming support for SB1946 (only one vote against in the House, unanimous
in the Senate), and the rapidity with which it passed seemed to indicate the
General Assembly’s conviction to do something about pension expenses. In fact, however, the bill was also a
demonstration for bond-rating companies, as Illinois was eager to float nearly
$100 billion in additional bonding to help pay expenses for the state. As an
infamous deadbeat state, politicians needed to show they could recoup that
money politically. Thus, enter stage
right, Tier Two.
Back to
2035, or the next year –when the state will no longer have to pay for pensions
for teachers hired after January 1, 2011.
That’s right. The State of
Illinois will no longer need to pay the normal costs of teacher retirement
benefits after 2036, as a direct result of the overpayments made by Tier Two
teachers.
According to
Kathleen Farney, a director of research at TRS, “The Tier Two members are
paying more than the benefits are worth.
So they are not only paying their own benefits, but they’re actually
helping reduce the unfunded liability ($100 billion) that was accrued before
they were even hired” (Wetterich - http://www.sj-r.com/top-stories/x1274367255/Tier-2-teachers-helping-pay-off-states-pension-debt).
The normal
costs of pensions (payments to active retirees) will end, thanks to Tier Two
employees in 2036, and the cost of paying down the unfunded debt using the 1995
ramp-up to achieve 90% by 2045 will begin to fall precipitously. “In 2045, the state is projected to have to
pay $9.9 billion in amortization costs (payment for the unfunded debt). It will
be able to subtract $876 million in negative normal costs from that amount
(money not needed to pay current retirees due to Tier Two overpayments). In
2046, the year after the state is projected to meet the 90 percent funding
goal, its amortization costs will fall to $1.8 billion and its normal costs
will be negative $900 million, resulting in a (miniscule) $881 million pension
payment” (Wetterich).
Note: SB1946 will more than reverse
the unfunded liability on the backs of Tier Two teachers by 2045. In fact Tier Two will make the payment of
normal costs for active retirees unnecessary, as they have paid for their own
retirement benefits and more.
In most
state systems, private businesses that handle pensions (except those like
American Airlines who declare bankruptcy to pay higher salaries to CEO’s), or federal
employers with pension programs – the idea is to match the actuarial expected
expense with the employee and company/state matching payment to provide
retirement income.
Tier Two was designed to fix the contributions well beyond that amount; indeed, it requires
future retirement recipients to pay far, far more than they will ever receive in benefits.
Note Again: A Bucks Consultants Report of 2011 sustains these numerical
projections of less for paying more, although a spokesperson for Governor Quinn suggests
interpretations of such information might be a “rush to judgment.”
Note Also: But Madigan is still unsatisfied.
According to his close colleagues Representative Senger and
Representative Nekritz in their news conference video, Madigan’s SB1 will
create an additional windfall of $30
billion affecting the unfunded debt immediately. They argue that Cullerton’s bill SB 2404 will
only reap $5 billion at the onset. They
also warn that if SB2404 passed, there would need be further, additional
measures to assure the payment of the unfunded liability. They’ll be back! (http://preaprez.wordpress.com/2013/05/22/watch-as-representative-nekritz-and-senger-discuss-how-sb1-compares-to-sb2404-when-it-comes-to-robbing-pensioners-video/).
PART TWO:
If they will be awash in Tier Two money in 2045, why this desperate need
by Nekritz, Biss, and others to take even more with SB1 or SB 2404? If they will be inundated in funds in 2045,
why is Madigan pushing the cost shift to local districts again? Perhaps this "crisis" is an opportunity to recoup more than the original bill itself?
Back to 2035: Finally, if a Tier Two worker
is paying far more into a system that has capped his eventual earnings at
social security earnings, why wouldn’t he sue?
Maybe because the guilty party and object of the suit would be the local
district – even if unknowingly?
If there is a windfall, there will be a Madigan around who will collect it.
ReplyDeleteFoundations are like that - and tax free as well.
Plutocrats love their foundations.