Before Congressional Panel,

Witnesses Underscore Troubling Trend of Underfunded State and Local Pension Plans

SPRINGFIELD, IL – On the heels of recent congressional reforms to laws governing traditional private pension plans, witnesses today shared concerns with Members of the U.S. House Employer-Employee Relations Subcommittee about the health and future prospects of the pensions of state and local government employees. 

Approximately 2,300 public employee pension plans with more than $2 trillion in assets cover some 15 million state and local government workers nationwide.  With an unfunded liability of $38 billion, the State of Illinois has the most underfunded pension system in the nation.  As a traditional defined benefit plan, the Illinois’ state plan promises workers a specific monthly benefit when they retire.

“The situation in Illinois concerns me for two key reasons,” noted Rep. Judy Biggert (R-IL), a suburban Chicago Member of the House Education & the Workforce Committee, the panel which crafted the private pension reforms signed by President Bush earlier this month.  “First, I represent workers and retirees who depend on the state’s pension plan.  Just as I worked to reform private pension laws on behalf of my constituents who rely on the traditional retirement system, I feel the need to examine the public pension crisis in greater depth as well because so many of my neighbors in Illinois’ 13th District have a stake in it.  Second, public pensions are dependent upon taxpayers.  Taxpayer dollars not only serve as the primary funding source for state and local pensions, but they also could be used to bail out a collapsed public pension plan.”

Irene Jinks, President of the Illinois Retired Teachers Association (IRTA) underscored the negative financial impact the questionable health of the state’s pension plans could have on active and retired Illinois educators who rely on the state’s pension fund.

“Our members and other Illinois retired educators’ deserve more than a promise that the pension system will be funded,” Jinks asserted.  “Retired teachers and school districts have upheld their responsibility to pay into the pension system, having never missed a payment…  Current and future retirees have expected and planned on their teachers’ pension being there when they retire.  If Illinois continues to miss payments, this may not be the case in the future.  The IRTA is not only concerned about the well-being of current retirees, but we are worried about the impact that this administration will have on our current and future teachers.  Educators in Illinois are already burdened by fairly low salaries.  In order to ensure that we attract the best and brightest teachers for our future generations, we must protect the retirement system.”

Joanna Webb-Gauvin, Director of Retiree Programs for American Federation of State, County and Municipal Employees (AFCME) Council 31, echoed Jinks’ concerns about the financial outlook for public employees in the state.

“To earn their pensions, our members work very hard in the public service,” said Webb-Gauvin.  “They deserve a sound retirement plan that will let them live with dignity and some degree of financial security.  That’s why our members are deeply concerned that the state of Illinois, for some time now, has not been contributing enough money each year to cover the retirement system’s long-term costs.  They are concerned that the irresponsibility of our state’s political leaders may compromise the system’s ability to protect their retirement security.”

Lance Weiss, Senior Manager at Deloitte Consulting LLP in Chicago, noted this trend is not limited simply to the State of Illinois. 

“While some public pension plans are in sound financial shape, too many others are in crisis mode,” Weiss told the Subcommittee.  “In fact, funding public pension plans today represents one of the most significant budget issues for many states and local governments.  The news is similar across the nation, as many states and localities confront the widening gap between the amount of money collected by pension plans through employee contributions and investments, and the amount of money these plans are committed to paying out in the form of benefits to government retirees.”

Weiss continued, “A 2006 survey of 125 state retirement systems by Wilshire Research shows the breadth and magnitude of the problem.  Of the 58 plans that provided actuarial data for 2005, 84 percent of them were underfunded.  For those providing data for 2004, the number was even higher at 87 percent.  This is up from 79 percent in 2002 and 51 percent in 2001.”

Financial experts suggest that the largest state and local pension funds recently faced a funding gap of nearly $300 billion, with that gap possibly climbing as high as $700 billion.  Unlike private pension plans, which are required by the recently-enacted Pension Protection Act to reach a funding level of 100 percent, public pension plans are not held to the same federal standard.

“Let me be clear,” concluded Rep. John Kline (R-MN), the Subcommittee’s Vice-Chairman.  “We were not here today to announce that the federal government wants to be, or should be, in the business of regulating state and local pension plans.  But whether it’s today or years in the future, the looming crisis in public pension underfunding is real, and without action, on some level, it will not go away.  The purpose of today’s hearing was to begin to understand the scope of the issue facing us – to ask questions, to listen, and to learn.”