|Title:||A pension "crisis" mentality won't help
|Author(s):||Merriman, David F.; Kass, Amanda; Bruno, Robert
|Subject(s):||crisis, pension, mentality, finances, policy, contributions, fiscal, state's,
|Abstract:||The near ubiquitous claim that Illinois is facing a “pension crisis” has rarely been challenged. The failure
to examine this customary framing of the fiscal condition of Illinois’ five state pension systems limits how
policymakers conceptualize their funding strategy. This white paper, jointly authored by researchers from
the Project for Middle Class Renewal at the School of Labor and Employment Relations, the Government
Finance Research Center and the Institute of Government and Public Affairs (all at the University of
Illinois), argues that the “pension crisis” framework negatively influences discussions of policy options.
Our goal with this paper is to rethink the conversation about pensions and the state’s finances in several
ways. First, we argue that the funded ratio and unfunded liabilities, conventional ways of assessing a
pension system’s fiscal health, are inadequate metrics that reinforce short-term thinking. We argue that the
focus should be on long-term trends and peer comparison. In addition, attention should be paid to
identifying what the drivers are of negative trends and carefully assessing whether action is needed.
Second, we argue that a “pension crisis” is a situation in which the pension system is insolvent and unable
to make benefit payments to current retirees. This is not the present scenario in Illinois. Nonetheless, we
recognize that both the state and the pension systems face significant fiscal challenges. Third, rather than a
singular problem, we contend that there are actually two, interrelated and in-conflict issues:
● concern over the pension systems’ finances, and
● operating budgets where expenses regularly exceed revenues.
We note that a tension exists between a desire to rapidly improve the finances of the pension systems (which
would necessitate higher state contributions), and an interest in preventing pension contributions from
crowding out other areas of the state budget.
Illinois lawmakers have long sought a silver bullet solution that will not increase (or even lower) the state’s
required contributions while simultaneously shoring up the pension systems’ finances. We view such a
scenario as unattainable and its pursuit as a distraction from the job of responsible policymaking. Moreover,
because the two issues are interrelated, a policy designed to address one issue will necessarily worsen the
In this paper, we recommend abandoning the “crisis” narrative and moving away from only assessing the
pension systems’ finances with a single point-in-time measurement. Last, we urge lawmakers to shed the
common practice of reducing the state’s pension payments to balance the operating budget.
|Publisher:||Institute of Government & Public Affairs
|Date Available in IDEALS:||2021-08-02