Illinois’ economy will take decades to recover from the state’s current pension and workers’ compensation obligations, to say nothing of the debts continually being added because of a significant lack of reform, according to a blistering analysis from Chicago attorney Eugene Keefe.
In a recent blog post for his law firm, Keefe, Campbell, Biery & Associates, Keefe railed against what he calls fake pensions: those not funded by employee contributions and pension fund investment income. Specifically, he cited the General Assembly Retirement System (GARS) and the Judges' Retirement System (JRS). Thanks to generous annual cost of living adjustments and low thresholds for full vestment in the systems, retired employees eligible for benefits stand to earn millions of dollars over the course of their retirement, he explained.
Keefe said GARS participants benefit from the worst-funded pension system in the state and need to work in the Legislature for only four years to receive full benefits.
“… (F)or an investment of about $32K in total, the former legislator may receive several million dollars if they live long enough,” Keefe wrote. “Their retirement money will quickly come from you and me when the participant’s contribution, state match and investment income is rapidly exhausted. This financially destructive fake pension program could be ended in only four years by enacting legislation barring it for everyone but current participants.”
The JRS is a similar burden hung on Illinois taxpayers, according to Keefe. To become fully vested in the pension system, judges must contribute their approximate annual pay. Keefe notes that judicial pay in the state starts at more than $200,000 and illustrates why JRS is a “fake pension” system.
If a judge contributes $200,000 to the system, she is entitled to 85 percent of that as her base pension income, translating to $175,000 in her first year of retirement. On top of that, she will receive a 3 percent annual compounded increase. Keefe points out that this means that after the judge’s second year of retirement, she would have used up her total contribution to the JRS pension fund, as well as the state match and the fund’s investment income on those contributions. From the third year on, her retirement income is being paid by Illinois taxpayers. If she survives 23 years after retiring, her annual pension income would have doubled to $350,000.
“If you want to be mad at me about reporting this, you are going to have to be mad because I don’t want to pay former judges who are no longer working as judges,” Keefe wrote. “And I promise my math is accurate – if you want to be mad about me about the math, you are clearly blaming the wrong party. Like the GARS program above, this destructive financial engine could be ended right now but would have to continue to allow the current participants to get billions of our tax dollars over the coming years.”
Keefe notes that Illinois is also paying out well over $100 million in workers’ compensation costs to former state workers who have been awarded total and permanent disability payments.
Keefe compares state lawmaker actions on the Illinois’ precarious financial situation to treading water in a hurricane. On workers’ compensation, Keefe urges lawmakers to pass legislation requiring that workers who can no longer do physical work be transitioned to sedentary state jobs rather than receiving benefits without working. He urges the end of costly pension systems, acknowledging that even swift action on that front at this stage will only help the state prevent further calamity. Illinois is on the hook for pension benefits for all current and already retired workers.
“In short, we are almost certainly going to be raising taxes and adding new taxes to allow our leaders to ‘tread water’ and pay some bills for now,” Keefe wrote. “If we don’t find and block/end these sorts of destructive financial engines, we are going to need to continue to raise taxes and add more taxes ... then raise taxes again and add more taxes. The outflow of jobs and businesses to our sister states will continue and may accelerate.”