Gov. Bruce Rauner resuscitated the discussion on how to fix Illinois’ pension crisis Jan. 21 when he held a press conference announcing a pension-reform plan based on a 2013 proposal introduced by Senate President John Cullerton.
Rauner has not yet released his full plan, but Cullerton’s 2013 proposal included very modest reforms promising a $5 billion reduction in the state’s total pension debt. While Cullerton’s plan as originally proposed does not solve the state’s pension crisis, Rauner’s announcement restarts the discussion toward putting government-worker retirements on a sustainable path to recovery.
Illinois politicians have virtually ignored the state’s $111 billion pension problem since the Illinois Supreme Court ruled in May 2015 that pensions for current government employees can’t be modified. Democrats, despite supermajorities in the Illinois House and Senate, have failed to lead on any reform since then.
That means taxpayers continue to be burdened by ever-growing pension costs as government-worker pension benefits accrue uncontrollably and threaten the solvency of the state, Chicago, the Chicago Public Schools and many municipalities.
Illinois needs pension reform urgently – that’s why it’s so important Rauner reintroduced the idea of tackling the problem.
Illinois continues to have the nation’s worst-funded government-worker pension systems, despite widespread improvements in other states’ public pension funds since 2013.
Pension costs now consume more than 25 percent of the state’s general-fund budget, up from 8 percent in fiscal year 2005. Illinois’ government-worker pension-fund payments are crowding out funding for classrooms, public safety and better roads; this will only grow worse as pensions eat up more and more of the state’s budget. Meanwhile, teachers, child-support workers and others in the public sector are forced to put money into a pension system that may not be there when they retire.
The only way to solve the state’s colossal pension woes is to move from pensions to defined-contribution retirement plans for all government workers ­– including current workers. That means Illinois must amend the Illinois Constitution’s pension-protection clause, which prevents reforms to the plans of current state workers.
In the meantime, here’s what Illinois lawmakers must do immediately to address the state’s growing pension shortfall:
1. Ditch politician pensions: With no unions to oppose reforms, Illinois politicians should lead by example and transition their own pensions into self-managed plans such as 401(k)s.
2. Offer 401(k)s for new workers: The Illinois Supreme Court’s ruling on Senate Bill 1 doesn’t affect the retirement plans offered to new government workers. Illinois lawmakers should follow the lead of states across the country – from Michigan to Oklahoma to Alaska – and adopt self-managed plans for all new state and municipal workers.
3. Offer optional 401(k)s to current employees: Government workers shouldn’t be trapped in insolvent, politician-run retirement plans over which they have no ownership.
4. Require all teachers to make contributions toward their own pensions: In Illinois, most public-school teachers don’t pay the required 9.4 percent employee contributions toward their own pensions. Instead, many school districts pay, as a benefit, some or all of the teachers’ required payments.
5. Get the state out of the business of managing local school-district pensions: School districts should be responsible for the true costs of their employees and pay for their annual pension costs. Going forward, the annual benefits accrued each year by teachers should be paid for by local school districts and not the state.
6. Limit the growth of pensionable salaries: Government-worker pension benefits are growing at a pace that far exceeds the growth of taxpayers’ ability to fund them. With no way to structurally reform pension benefits for current government workers, the General Assembly’s only lever is to limit salary growth and other items that drive up pensionable salaries.
7. Allow municipal bankruptcy: Without the ability to reform pensions for existing workers, local governments should have more control over how they operate. That means having the option to file for bankruptcy. Bankruptcy should be the option of last resort, but it can help struggling municipalities restructure their debt, renegotiate contracts and reform pensions.

Ted Dabrowski
Vice President of Policy