Given the recent economic downturn, it is not surprising that many states’ pension funds are lower than expected. However, Illinois is now finding itself with $97 billion less in its pension fund than it had promised its public workers. This shortage has continued to grow in the past few years and will continue to do so without direct intervention from the state legislature.
The first reaction of many after viewing this incredible shortfall is to call “crisis.”
This is understandable, as $97 billion is an incredible amount of money to owe to government workers by the time they retire. Yet, one must keep in mind that much of this is a result of the economy taking a turn for the worst. Of course there could have been better investments made, but hindsight is 20/20. What the state needs to focus on now is how to gain back the pension funds that they promised, and labeling this shortfall a crisis is not going to do that.
With that said, this issue definitely deserves the full attention of the state congress. As the economy gets better the state is bound to make up some of its lost ground, but the simple fact is $97 billion dollars are not coming back on their own. The only true way to cut into this deficit will be smart lawmaking with compromises between the state and its workers. This type of smart lawmaking can only be achieved with level heads and lawmakers who are not in crisis mode.
Currently, there are eight other states with less than 60 percent of promised pension funds set aside for their workers. This statistic alone shows the necessity for smart solutions that can be applied across the board in both cities and states with pension problems. Luckily, there is a bipartisan committee in the Illinois government attempting to address the problem of the pension shortage. Currently, the leading plan involves cutting some cost of living and inflation protections in exchange for lowering the required contribution of public workers by one percent. This plan hopes to save the state $138 billion over 30 years. While there are obvious reasons to be hesitant of this plan, it is an excellent starting point for getting the pension shortage in check.
The reason I support the framework of this pension plan is twofold. First off, the plan is not naive. It is ridiculous to think that investing wiser or cutting a few government programs will make up for the mistakes of the past. The only mathematical way to ensure the state’s pension fund will level out is to cut back on some of the overzealous promises made to the public workers. The other reason I am in favor of this strategy is that it attempts to be fair to the workers as well. Quite simply, this situation is the fault of the government’s investments and not of the workers so they should not be penalized for it. By cutting the worker’s contribution by one percent, the government is allowing its workers to have more money immediately to adjust for any differences that might occur with the pension at the time of retirement. While far from ideal, this is the most fair way that things can be done.
Other ideas have floated around the discussion table for the pension problem, such as raising the retirement age. While this sort of cut does produce some positive numbers on paper, in reality it does very little. At best, the system saves money for the few that will continue to work longer, but at its worst all it does is kick the can farther down the road. The cuts that need to be made will be rough on employees, but by allowing families to prepare for this difference in retirement coverage with a little extra money each month, a middle ground can surely be reached.