State-Journal.com - Pensions left to legislative will

The pension reform plan enacted during a special session includes provisions to phase in full payments to pensioners over a period of 15 years " but the reality of that happening depends on legislative will.
Mike Burnside, executive director of the Kentucky Retirement Systems, said the plan " to be paid in full by 2025 " will be effective only if lawmakers are able to adhere to it.

"That's a very big if," Burnside told The State Journal. "It will require a serious commitment."

The Kentucky Retirement Systems have 316,000 members and $16.8 billion in assets.

For seven of the last 15 years, Kentucky legislators approved budgets that didn't provide enough funds to meet the required pension payments.

Although the reform legislation is a step in the right direction, experts say the plan is unusual because of its direct approach.

Sujit CanagaRetna, a senior financial analyst at the Council on State Governments, said states usually "nibble at the edges" when trying to address pension obligations.

It's unusual to see a more direct approach like the plan approved during the special session last week, he said.

"It's a pretty bold step," CanagaRetna said.

It's important to remember that pensions are only one financial demand states are facing, he said, such has health care, education and transportation.

Keith Brainard, director of research at the National Association of State Retirement Administrators, said the plan is a step in the right direction although he cannot recall any states making similar proposals.

"It sounds like a good idea," he said. "To move in that direction is better than not making an effort."

The state retirement systems face an unfunded liability of more than $26 billion and several factors have contributed to the crisis, including falling investment returns and insufficient funding from the General Assembly.

The under-funding and the investment returns the systems would have earned during those 15 years amount to about $1.3 billion. However, the increasing costs of healthcare and new accounting guidelines have also contributed to the funding gap.

As part of a compromise plan, legislators met last week and approved a plan to pay the full annual amount by 2025. The biennial budget approved earlier this year funds pensions at only 35 percent of the required amount.

Lawmakers cannot impose financial obligations on future General Assemblies, but they have pledged to increase contributions to 53 percent of the required pension payments by 2013. Payments would reach 77 percent in 2019 and 100 percent by 2025.

In 1989, Illinois lawmakers pledged to phase-in the required pension payments but never followed through.

"They didn't put their money where there mouth was," said Eva Goltermann, public information officer for the Illinois Teacher's Retirement System.

The teachers retirement system is the largest of the state's five retirement systems, which includes 344,000 members and $38.7 billion in assets.

A similar plan approved in 1995 again required legislators to begin making the full contributions in 15 years. The law included a continuing appropriation for pension funds and contributions did increase for eight years, until 2004, Goltermann said.

"The state must pay the actuarially required amount off the top automatically," she said. "It's not up for discussion."

The plan puts Illinois on the right course although it will be tough to adhere to it, Goltermann said.

"It's hard to swallow the large increases to the pension systems, but it will pay off in the long run if the state shows fiscal discipline," she said. "The cost today is much less expensive than in the out years."

2.	Posted by aecarter44 July 3, 2008
	It's a shame. Decades ago, most (non-union) businesses had the foresight to see that pensions led the way to financial ruin. Pensions were STOPPED in favor of other retirement plans. And the (unionized) companies that didn't are finding funding those plans impossible. I guess as long as the "old-boy" politicians don't have to worry about the future, and their pay doesn't depend on a companies profitability, just getting re-elected, we will continue to have this financial mis-management. Government employees deserve NOTHING that anyone in the real world does not have and I'm tired of having my taxes raised to fund these special benefit programs! Let me guess, if the State went to a 401-type plan, then Billy-Joe-Jim-Bob's nephew would get the job of managing it (because of his Uncle, not his ability) and his total incompetence would bankrupt THAT plan. Then only the employees, NOT the taxpayers, would suffer. Can't have that! Do your blasted job!