Are Illinois Public Retirement Systems Pension Funds or Pyramid Schemes?

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CHICAGO, IL – ADVERTISING 01: Illinois J.B. Pritzker during a round discussion with high-level students at creative work space for women on October 1, 2018 in Chicago, Illinois. The requester went with Lieutenant Governor, Illinois, Julian Stratton, and former Secretary of State Hillary Clinton, as they talked to students under leadership. (Photo by Joshua Lott / Getty Images)Getty

The evidence goes on: & nbsp; New elected Illinois officials and their advisers believe that it is important that public pensions are pre-funded. & Nbsp; They look at pension funds as it is on paper, and pension reporting as a nuisance is to be avoided where possible, and otherwise ignored. & Nbsp; Through their actions – and indeed their words – they show that They think of public pensions as pyramid schemes, in which new entrants pay for claimants' pensions. & nbsp; And while this is true of Social Security, it is a terrible approach to state-employee pensions.

What do I mean to say this?

At first, Prizker review the financing schedule plans from a 90% financing target in funding 2045 to 90% in 2052. & nbsp; Not only does the issue of replacing the standardized formula, such as a refinancing mortgage and more years be added to the payoff period. & Nbsp; His office reports a reduction of contributions of $ 878 million in the 2020 budget, relative to the current law. & nbsp; But the offices did not provide the basic contributions, and even Ralph Martire, executive director of the Center for Tax Accountability and Budgets and Member of the Government Budget and Innovation Committee, on the February 20, 2019 edition of Chicago Tonight (about the 18 minute mark)

it has not published sufficient material for us to weigh and support those pensions or not support what he has done. & nbsp; We are very concerned that they are reassessed, changed the ramp, the payment schedule, and did not show what's like the new payment plan, so I can not see what new ramp is like and want since the state goes to the level of dollars, so this payment obligation is not always increasing. & nbsp; That's what fiscal resources have.

It seems "changing the targeting of funding" seems to have been reasonably motivated for the reduction of another pension contribution to add a budget hole.

Secondly, the Deputy replied. Dan Hynes continued question, on potential transfers of pension funds transfers, at City City of Chicago City Last week has been tackling me (under the 22 minute mark):

Pension benefits must be paid in cash. & Nbsp; How will you pay benefits with non-assets?

We are not paying benefits for assets. & Nbsp; I mean that the assets will enter, they will raise the system's financing ratio, but it is clear that we will use billions of dollars to enter income from the income tax into the system, and will be used, and employees will put millions and billions of dollars into their system to pay benefits.

This is very difficult mentally & nbsp; This indicates that Hynes, and Gov. Pritzker, look at the pension fund as a monetary for accounting matters, but they believe, in the end Future benefits pay future state income& nbsp; It is even more difficult to see employee contributions to pay for these benefits, rather than contributing to the financing of the retirement accruals of the same employees in the future –

But, sadly, it's not completely wrong.

The largest public pension plan in Illinois is the Retirement System of Teachers. & Nbsp; Cut benefits were as great as teachers employed under the Series II system, as in 2011 and beyond the latest annual report (since 2017) that they actually pay more than the actuarial value of the benefits they receive when they make their pay contributions 9% of the pay contributions (however, be fair, in some cases). & nbsp; While it is certain that mathematics would work differently if the discount rate was reduced from the current 7%, in the calculation of the report, the benefit II accruals value of employees in Level II is 7.11% of the pay – that is 1.89% less than the 9% contribution. & nbsp; (The situation is different for the other key retirement systems with more generous interest structures compared to employee contributions.)

What's more, the benefits of Series II for each pension cap is payable. & Nbsp; That cap raises each year at a rate that is half the rate of inflation. & Nbsp; By the time the new status target reaches 90% of Prizker funding in 2052, that cap will reduce the value it equals to the medium pay his teacher

Finally, a A new report was published on February 19 three students at the University of Illinois at Urbana-Champaign and Chicago The concept of the "pension crisis" will decline based on funding status& nbsp; Instead, they argue that a pension system is only "in crisis" when it is "& nbsp; it is insolvent and it is not possible to make benefits payments to current migrants." & Nbsp; Instead, they claim, what matters of the state paid by the accruals, will bet his or her employees to the future generations, but does Illinois spend on pensions from year to year level and sustainable, in this case, at about 1% GDP state.

But even this report acknowledges the problem with the teachers' pensions, even though they do so called "creativity & crisis" – that is, those legislators were too much of the success to determine that they did not make any reasonable analysis.

In the Layer II plan there is also a fault that can be serious and expensive. If the inflation rate is high enough, Level II benefits will be low enough to infringe federal law, which requires them to be equal to at least social security benefits. Therefore, Illinois may need to increase the benefit of around 78 per cent of employees currently not registered in Social Security (Illinois Report on the Pensions Modernization Task Force, Reconciliation 65, 2009) .

Creating the "crisis" framework was the creation of Series II legislators without hesitating consideration of their potential dangers. As a result of the belief that there was little time and taking into account something that was present, the Tier II plan carried out both state chambers in one day. Legalists have not found detailed projections of pension system actuaries affecting the impact of the plan. Sara Wetmore, vice president and director of research at the City Federation said, "They did this as quickly and there was no way to find out if there were any problems in the future" (Mathewson, 2016). A few short years after creation, Series II problems (Secter and Geiger, 2015) are widely recognized.

Long-time readers will remember that one of the first questions I've faced with "Why Pre-Financing Public Pensions. "& nbsp; I mentioned the risk of heritage costs – the examples of places that Detroit and Puerto Rico say we can not give as a guarantee that a city or state tax base will continue to increase, it has not reduced I never explained that, when it is accepted that pensions are financed at a certain point in the future, it creates conditions for the gaming system, a form of lending from the coming generations where legalists can complete their total promises from taxpayers, and fully enable a chain of benefits-supporting practices, such as pension co-operation.

But we add this in more concrete terms.

The Teacher Retirement System must refurbish; In fact, the cap must be required or attached to the total inflation rate. & nbsp; The Professors are right in fact that no such benefit should never be applied without actuarial analysis (and I can not start the ever implemented Series 3). & Nbsp; And even to be absent, the capital and other benefits restrictions, teachers, university employees, and elite employees are not provided with uniform clean safety protection and provides Social Security. & Nbsp; If they move out of the state before they have 10 years of service, they lose their benefits, not only repaying their contributions (and even then, for teachers, without interest); Even if they are vested, injury across a state carer can injure their retirement benefits because their pensionable pay is frozen.

What should happen? & Nbsp; In the first place, all new employees should be in these retirement systems he moved into Social Security, as usual teachers in 35 other states& nbsp; Then, benefits provided by employers should be provided in the form of fixed contributions, through a benefit structure equal to 401 (k) private sector plans or some of a hybrid plan provided by investments and combined benefits but participants and risks participate rather than the state of danger.

But as long as state funds are spent paying current benefits, this arrangement can not be applied because it will require a double payment, in the first instance, of existing benefits, and the second, for accruals for future Second-time employees through fixed contributions.

Because of a complaint, as Priztker and Hynes do, it is unfair for the state to repay this debt, this problem is not being solved. & Nbsp; When trying to put it on one Republican ruler, apart from the legacy of the Republicans and Democrats, who have refused to settle, and have made it worse "Rampa Edgar" is worse, it is not to be settled.

What to set it? & Nbsp; Assuming the need to amend the state constitution.

What do you think? Share your opinion at JaneTheActuary.com!

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CHICAGO, IL – ADVERTISING 01: Illinois J.B. Pritzker during a round discussion with high-level students at creative work space for women on October 1, 2018 in Chicago, Illinois. The requester went with Lieutenant Governor, Illinois, Julian Stratton, and former Secretary of State Hillary Clinton, as they talked to students under leadership. (Photo by Joshua Lott / Getty Images)Getty

The evidence goes on: the new elected officials of Ireland and their advisers do not believe that it is important that public pensions are pre-funded. They look at pension funds like paper, and pension reporting as a nuisance is to be avoided where possible, and will not be ignored otherwise. Through their actions – and indeed their words – they show that They think of public pensions as pyramid schemes, in which new entrants pay for claimants' pensions. And while this is true of Social Security, it is a terrible approach to state-employee pensions.

What do I mean to say this?

At first, Prizker review the financing schedule plans from a 90% financing target in funding 2045 to 90% in 2052. Not only is the issue of replacing the standardized formula, such as a refinancing mortgage and more years added to the payoff period. His office reports a reduction in contributions of $ 878 million in the 2020 budget, relative to current law. However, the offices did not provide the basic contributions, and Ralph Martire, executive director of the Center for Tax and Budget Accountability and a member of the Ghov Budget and Innovation Committee. Pritzker, on the Chicago 20 edition of February 2019 on February 20 (under the 18 minute mark)

it has not published sufficient material for us to put those pensions in weight and to support or not support what he has done. We are very concerned that they are reassessed, changed the ramp, the payment schedule, and did not show what's like the new payment plan, so I can not see what new ramp is like and want since the state goes to the level of dollars so this payment obligation is not always increasing. That's what fiscal resources have.

The "financing target schedule" really seems to be a refurbishment to reduce the contribution of other pension contributions to add budget holes.

Secondly, the Deputy Gover responded, Dan Hynes, with a continuing question, in the transfer of potential transfers into pension funds, at the last time I was going to talk to the City of Chicago City City (about 22 minutes mark) :

Pension benefits must be paid by cash. How will you pay benefits with non-assets?

We are not paying benefits for assets. I mean that the assets will enter, they will raise the system's financing ratio, but it is clear that we will use billions of dollars to enter income from the income tax into the system, and will be used, and employees will put millions and billions of dollars into their system to pay benefits.

This is mentally very difficult. This indicates that Hynes, and Gov. Pritzker, look at the pension fund as a monetary for accounting matters, but they believe, in the end Future benefits pay future state income. It is even more difficult to see employee contributions to pay for these benefits, rather than contributing to the financing of the retirement accruals of the same employees in the future –

But, sadly, it's not completely wrong.

The largest public pension plan in Illinois is the Retirement System of Teachers. However, the teachers who were employed under the Series II system, as in 2011 and beyond, considered such benefit cuts showing the most recent annual report (from 2017) that their 9% pay contributions are being made, however, They pay for this school area) they really pay more than the actuarial value of the benefits they accrue. While it is certain that mathematics would work differently if the discount rate was reduced from the current 7%, in the calculation of the report, the benefit II accruals value of employees in Level II is 7.11% of the pay – that is 1.89% less than the 9% contribution. (The situation is different for the other key retirement systems with more generous interest structures compared to employee contributions.)

What's more, the benefits of Series II for each pension cap is payable. That cap raises each year at a rate that is half the rate of inflation. By the time the new status target reaches 90% of Prizker funding in 2052, that cap will reduce the value it equals to the medium pay his teacher

Finally, a new report was published on the 19th of February by three students at the University of Illinois at Urbana-Champaign and in Chicago The "pension concept" will be very refusal based on funding status. Instead they claim that there is only a "crisis" in a pension system when it is "insolvent and benefits can not be made to those who have gone." Instead, they claim, what matters of the state paid by the accruals, will bet his or her employees to the future generations, but does Illinois spend on pensions from year to year level and sustainable, in this case, at about 1% GDP state.

But this report even recognizes the problem with the teachers' pensions, even though they lose the "crisis" framework – that is, that legislation was too successful to set out their benefits that they did not Dean no rational analysis.

In the Layer II plan there is also a fault that can be serious and expensive. If the inflation rate is high enough, Level II benefits will be low enough to infringe federal law, which requires them to be equal to at least social security benefits. Therefore, Illinois may need to increase the benefit of around 78 per cent of employees currently not registered in Social Security (Illinois Report on the Pensions Modernization Task Force, Reconciliation 65, 2009) .

Creating the "crisis" framework was the creation of Series II legislators without hesitating consideration of their potential dangers. As a result of the belief that there was little time and taking into account something that was present, the Tier II plan carried out both state chambers in one day. Legalists have not found detailed projections of pension system actuaries affecting the impact of the plan. Sara Wetmore, vice president and director of research at the City Federation said, "They did this as quickly and there was no way to find out if there were any problems in the future" (Mathewson, 2016). A few short years after creation, Series II problems (Secter and Geiger, 2015) are widely recognized.

Long-term readers will remember that one of the first questions that I have faced with is "Why Public Pensions Financing". I mentioned the risk of heritage costs – the examples of places that Detroit and Puerto Rico say we can not say as a guarantee that a city or state tax base will continue to increase, it has never reduced. I explained that, when it is accepted that financing of pensions at a certain point in the future, it creates conditions for the gaming system, a form of lending from the coming generations where legalists can hide their full amount of commitments from taxpayers, and fully enabling a chain of benefits-supporting practices, such as pension co-operation.

But we add this in more concrete terms.

The Teacher Retirement System must refurbish; In fact, all the plans must have to eliminate or attach the cap to the full inflation rate. The Professors are right in fact that no such benefit should never be applied without actuarial analysis (and I will never get started with the 3 Series that has ever been implemented). And even to be absent, the capital and other welfare constraints, teachers, university employees, and state employees provided by Social Security do not have uniform safety protection. If they move out of the state before they have 10 years of service, they lose their benefits, not only repaying their contributions (and even then, for teachers, without interest); Even if they are vested, injury across a state carer can injure their retirement benefits because their pensionable pay is frozen.

What should happen? In the first place, all new employees should be in these retirement systems he moved into Social Security, as usual for teachers in 35 other states. Then, benefits provided by employers should be provided in the form of fixed contributions, through a benefit structure equal to 401 (k) private sector plans or some of a hybrid plan provided by investments and combined benefits but participants and risks participate rather than the state of danger.

But as long as state funds are spent paying current benefits, this arrangement can not be applied because it will require a double payment, in the first instance, of existing benefits, and the second, for accruals for future Second-time employees through fixed contributions.

In making a complaint, as Priztker and Hynes do, it is unfair for the state to repay this debt, this problem is not being solved. When trying to put it on a Republican ruler, apart from the legacy of the Republicans and Democrats, who refused to settle it, and in fact, the "Edgar ramp" did not make it worse.

What to set it? Assuming the need to amend the state constitution.

What do you think? Share your opinion at JaneTheActuary.com!

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