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Illinois Tosses Pension Reform

“Crisis is not an excuse to abandon the rule of law.” So says Illinois Supreme Court Justice Lloyd Karmeier.

That’s a scary statement. I say, “If not during a crisis, then when?” Illinois is in dire straits. Their state pension fund is around $111 billion in the hole. When they tried to correct it in 2013 by passing legislation that would shave $150-160 billion over 30 years, it was not without some skirmishes. But the legislation was passed because common sense said that the existing system would eventually – sooner than later – bankrupt the state.

But law is law.

The Wall St. Journal reports that the amount the pensions are unfunded represent a 500% increase from 1995 and up 75% in just the past five years. It would seem logical to make a correction, right?

Nationwide, it’s more daunting. Jean-Pierre Aubry is the Assistant Director for state and local research at the Center for Retirement Research at Boston College. Aubry estimates that the nation’s state pension plans are about 72% funded with about 6% of the municipal budgets going to pension systems. The total shortfall is believed to be about $1 trillion. Again, this is only at the state level.

Law is law. I get that. But if public safety was a concern, or water was drying up, or pollution was affecting the general populous, then laws would be changed. So why should it be any different in state government – when the existing financial system is mathematically proven to bankrupt the entire state of Illinois?

Certainly, we will find out in the coming years when Plan B – whatever that is – takes effect. I suspect that Plan B will include a tax increase.

Law is law. And yes, history does repeat itself.

Mark Schuster, Partner

May 11, 2015

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