illinois Policy institute Policy sPotlight

MARch 13, 2013 budget & tAx

HB 3411 makes Illinois’ already-broken pension system worse illinois needs a new foundation, not a fresh coat of paint
Ben VanMetre, Senior Budget & Tax Policy Analyst HB 3411 paints over illinois’ pension crisis with more of the same broken policies that have pushed government retirement systems to the edge of collapse. this bill: 1. Perpetuates unstable, unpredictable and unmanageable defined benefit systems – the key driver of illinois’ pension crisis is the state’s defined benefit system, which is inherently dangerous because there is no way to predict how much the systems will actually cost each year. there is no crystal ball to accurately predict movements in the economy, the state’s tax base or retiree longevity – mistakes in any of these measurements can bump up future payments and are the primary cause of underfunding. hb 3411 perpetuates a defined benefit pension for new and current employees. Sets up a new pension payment ramp: Edgar 2.0 – hb 3411 relies on a dangerous repayment ramp – pushing the bulk of pension payments onto the backs of our children and grandchildren so the state can make smaller contributions today. Former gov. Jim edgar used a similar approach in 1996. the ramp isn’t working today and won’t work going forward. 3. Sacrifices nongovernment workers with a pension funding guarantee – hb 3411’s funding guarantee protects one group of citizens – government workers – at the expense of another – taxpayers. that’s unfair and immoral. it’s not right to shield one group of people from the consequences of misguided government interventions that cause economic downturns. Further, working class and poor taxpayers shouldn’t have to worry about backstopping government’s unstable retirement system while trying to fund their own retirements.

Real reform would: 1. implement a stable, predictable and manageable defined contribution system. 2. eliminate the pension ramp and replace it with a level payment schedule. 3. head off the need for a funding guarantee with automatic payroll contributions going forward. Real reform is HB 3303.

2.

The Cross-Nekritz plan – Edgar ramp 2.0
(In billions of dollars)

12 10 8 6 4 2 0 2013 2017 2021 2025 2029 2033 2037 2041

Source: Actuarial valuations of HB 6258 Illinois Policy Institute.

Additional resources: illinoispolicy.org 190 s. lasalle st., suite 1630, chicago, il 60603 | 312.346.5700 | 802 s. 2nd st., springfield, il 62704 | 217.528.8800