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Reeder Report: Pension guesswork leaves state in limbo

Wed, Feb 27, 2013

Gov. Pat Quinn never said the State of the State was good in his annual address

Nor, for that matter, did he ever admit that it’s bad.

Instead he asked this question, “Do we want in the years to come a prosperous Illinois? Or do we want to stop the progress and watch our economic recovery stall?”

The answers to those questions are self-evident. But his blueprint for achieving those goals is problematic.

For example, the pension reforms he endorsed make marginal changes that keep in place a deeply flawed system.

He failed to address other challenges as well.

We live in a state with a sagging economy, a state government dripping with debt and pension funds underfunded to the tune of more than $200 billion, under new accounting standards.

And our credit rating is the worst of the 50 states.

Things are bleak.

And yet the governor would have us believe that the last four years have been a steady march of progress.

But, to his credit, Quinn actually verbally endorsed a specific piece of pension reform legislation instead of communicating through bullet point press releases.

“I urge all of you to be part of the solution. And while refinements may come, Senate Bill 1 is the best vehicle to get the job done,” Quinn said.

Senate Bill 1 is basically a bowl full of spaghetti that Quinn plans to throw against the wall. The noodles that stick are what the ultimate plan will be.

The bill is a combination of “reform” measures pushed by Senate President John Cullerton (D-Chicago), state Rep. Elaine Nekritz (D-Northbrook) and House Republican Leader Tom Cross. It’s complicated and full of contingencies.

But it basically leaves it up to the Illinois Supreme Court to decide what is and isn’t constitutional. Under the legislation, whatever “sticks” becomes law.

It’s hardly the way to govern a state.

But more importantly, it doesn’t address the root of the problem. Pensions are a flawed model for government employees and taxpayers.

No one can predict the future, but pension plans are predicated on the notion that those managing them can. So the state is left guessing what future investment returns will be, how long employees will live in retirement and other factors that are impossible to guess.

And of course the most unpredictable factor is the politicians themselves.

Will future elected officials once again succumb to pressure from government unions to increase pension benefits? No one knows.

And that is why the state needs to step away from pensions altogether and adopt a 401(K)-style plan for a better financial future for employees and taxpayers.


MINIMUM WAGE

“Nobody in Illinois should work 40 hours a week and live in poverty. That’s a principle as old as the Bible. That’s why, over the next four years, we must raise the minimum wage to at least $10 an hour,” Gov. Pat Quinn said during his State of the State address.

The truth is, the majority of people working minimum wage jobs are working part time – and about half of them are younger than 25. A very small percentage of minimum-workers are heads of household. Quinn is perpetuating a myth.

Every time government raises the minimum wage, a bottom rung is kicked out of the economic ladder that people use to climb toward prosperity.

According to the Bureau of Labor Statistics, just 5.2 percent of all hourly paid workers in the United States make the prevailing federal minimum wage, which is a smaller percentage than in 1979.

The more it costs employers to hire people, the fewer people they hire. And this means young people just getting their start in the workforce will be barred entrance because it costs too much for businesses to grow their staff sizes.

A higher minimum wage doesn’t equate to a more prosperous population – it is a recipe for higher unemployment.

Written by Scott Reeder,
StreetWise Contributor

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