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Illinois Skeptic Realizes Pension Crisis Is Real

State and local pensions in the US are currently in the middle of their gravest yet, but many people — deceived in many cases by union leaders and politicians trying to keep the scam operating for just a little while longer — continue to deny that there is even a crisis. Alarmingly, this includes a number of pension managers, who continue to insist that nothing is wrong despite repeated, obvious warnings to the contrary.

For a time, one of the most outspoken skeptics—possibly the most outspoken—was Dick Ingram, director of the Teachers’ Retirement System of the State of Illinois. As the Wall Street Journal reports, Ingram made a habit of lambasting critics who worried that pensions were in trouble and claiming that the pension he was charged with managing was in no danger whatsoever.

But now that Ingram has studied that data more closely, even he is finally sounding the alarm. The Illinois teachers’ fund is in dire trouble, and the plan’s problems will become more apparent as the fund moves forward with plans to reduce its expected rate of return from 8.5 percent (one of the highest in the nation) to a still very optimistic and aggressive  7.95 percent. The Journal follows Ingram’s change of heart:

During his first year on the job, Mr. Ingram and other officials at the fund blasted critics in letters to Illinois and national newspaper editors.

One letter accused a critic of scaring teachers into thinking their pensions could be cut.

But last fall, Mr. Ingram said he had a change of heart when he began studying the state’s budget problems.

He became persuaded that it was highly likely that the state at some point wouldn’t be able to make its required payments to the pension plan.

In February of this year, he sent a confidential memo to the pension fund’s board that later became public, warning that the state’s unfunded pension liability was “practically unmanageable.”

Looking at the data, discounting the expected rate of return seems like a smart decision. Although the past 30 years have seen average annual returns of 9.3 percent, the past ten years paint a much bleaker picture, averaging well below the target. With the economic future still uncertain, to put it mildly, the near future will probably look more like the past decade than the preceding boom years. Meanwhile, the plan’s funding sits at a paltry 46 percent of expected liabilities, and with Illinois state finances circling the drain and ratings agencies contemplating downgrades there won’t be much help from the state.

Actually, the fix proposed is only the beginning. Ingram and company are still not facing the music; the new rate of return is still well above what most investment managers think is reasonable, and is twice the level that private pension funds are legally required to use.

We hope Mr. Ingram continues his pilgrim’s progress and begins to fight in public for a more realistic set of numbers. The sooner managers and politicians are forced to confront the problem, the less painful the fix will be. Teachers relying on these pensions for their retirement, however, should be watching closely. At this point, there is no guarantee the funds will still be there when they need them.

The pension meltdown across the country is both a scandal and social disaster. Collusion between politicians and union leaders has put the retirement security of millions of Americans at grave risk. (Remember, for most government agencies in the US, government pensions are instead of Social Security payments, not a supplement to them.) Working to put these pensions on a sustainable basis is going to bring a lot of pain to a lot of people, retirees and current workers included, but it’s something that needs to be done.

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  • Anthony

    The pension meltdown across the country is both a scandal and social disaster…in lieu of social security….

  • thibaud

    Very quiet at VM today. Bad day at Jacksonian Black Rock, apparently.

    Most likely, the TPers are scrambling to assemble their talking points, now that their Operation Barbarossa – ie pretend to want a mandate, then go 180 degrees in the other direction and mount a full-scale assault on that same, GOP-approved mandate – has met its Stalingrad. Oops.

    Alternatively, perhaps is there actually some reconsideration going on now at VM.

    Perhaps there’s a revisiting of the vapid memes about big gum’mint – esp as regards VM’s defense of that mother of all bureaucratic kludges, aka the US healthcare non-system?

    Perhaps some of the VM prescriptions against red tape, administrative bloat, outrageous inefficiencies, opaque and capricious – not to mention casually cruel – processes might actually be directed at our joke of a healthcare kludge?

    Perhaps VM will actually move the debate forward with a serious proposal for replacing our absurd non-system swiftly – and affordably, with adequate funding via sweeping tax reform that severs the link between employment and insurance – with a simple, straightforward, vastly more efficient, less expensive, and more effective model.

    Aka the public option supplemented by optional private insurance purchasable across state lines.

  • An

    VM needs to stop stating that the union workers are being lied to. They know very well what they are doing. Whatever happens to their pension is entirely their own doing. Responsibility lies hand in hand with freedom.

    • Walter Russell Mead

      @An: Actually, most people who belong to unions don’t know much about what is going on. In many states workers are forced into unions with no choice in the matter; these workers in particular often don’t have a lot of interest. And in any case the union leaders are careful to control the messages that go out.

  • LarryReiser

    Every government worker should be free to choose whether or not they want to join a union.Further governments should be forbidden from taking dues from government employes paychecks for the benefit of the union.

  • BBFS


    2/3 of government unions vote Democrat. 95% of the money goes to Democrats. They have a choice. Either way we have to bail out these pension funds, best do it through the Pension Guarantee Corporation (which is underfunded too) as it’s the least cost to the consumer.

  • Gene

    Wait a minute. Ingram is director of the Teachers’ Retirement System of the State of Illinois, and ONLY NOW he’s started to look at the numbers more closely? Isn’t that gross incompetence? Why, again, does he still have a job?

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