"A pension ""crisis"" mentality won't help"

Merriman, David F.; Kass, Amanda; Bruno, Robert

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https://hdl.handle.net/2142/110225 Copy

Description

Title

"A pension ""crisis"" mentality won't help"

Author(s)

• Merriman, David F.
• Kass, Amanda
• Bruno, Robert

Issue Date

2019-02-21

Keyword(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 other. 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

Type of Resource

text

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http://hdl.handle.net/2142/110225

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