Less retiree income means less retiree spending
Imagine that a business associate to whom you had extended credit simply decided that his debt to you had become so large that it couldn’t be paid in full.
He might explain that owing so much money was hurting his credit rating, adding that, after considering the options, he’d decided that the best course would be not paying some of what he owed.
“This is actually in your best interests, too,” he might say. “After all, we’ll still do business together.”
He promises to pay some of it back. Though, if times get tough again, he also reserves the right to not pay.
You have to admit that sounds like a pretty good deal.
For your associate.
On Dec. 3, the General Assembly passed Senate Bill 1 (SB 1), a measure that will cut pension benefits for retired and active public employees. SB 1’s backers said it was needed to address the state’s revenue problem, which has been repeatedly and inaccurately characterized as “the pension crisis.”
The unions representing public employees consider this action shortsighted and a disservice to the 700,000 active and retired teachers, administrators, university staff, state workers, nurses, firemen and policemen whose pensions are being slashed.
SB 1 is also, we believe, illegal. The employees have always paid their yearly mandated contribution to their pension systems, while the State of Illinois regularly shorted systems, opting instead to use pension money for other state services.
This allowed lawmakers to avoid both services cuts and tax increases. By using pension money as you or I would use a credit card, the politicians amassed a massive debt.
If SB 1 stands, innocent employees will pay for the state’s poor stewardship through reduced retirement benefits.
Keep in mind that TRS members don’t receive Social Security for their public education work. Their pension represents their entire retirement savings.
Under SB 1, a TRS member retiring with 30 years of service and an initial pension of $50,000 will see their total retirement income reduced by an average of 20 percent, or more than $500,000, compared to the current law.
Active workers and retirees make decisions about their futures based on an understanding that the benefits they have paid for and have been promised will be there for them in retirement. SB 1 is a bolt out of the blue
It’s also bad for business.
According to the Teachers Retirement System, the state of Illinois currently realizes a $4.4 billion positive economic impact annually from the $3.1 billion in TRS pensions paid to retired educators living in Illinois. A 2012 study showed that when retired TRS members recirculate their pension in the Illinois economy, more than 32,000 jobs are created with total earnings of $1.2 billion. This economic impact is felt in all 102 Illinois counties.
Soon, you will be hearing that the Illinois budget picture for the next fiscal year is greatly improved as a result of SB 1. It’s already being claimed that the state will reap huge “savings” as a result of this new law.
Don’t believe it.
Just like you with your business associates, these employees have a contract. Theirs is found in the Illinois Constitution (Article 8; Sec. 5)
“Membership in any pension or retirement system of the State … shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
If you take the Illinois Constitution’s unambiguous language at face value, it would seem likely that the Illinois Supreme Court will have a problem with SB 1.
The labor unions representing the impacted employees and retirees will ask the state’s highest court to declare it unconstitutional.
A ruling against SB 1 would leave a significant hole in the budget. However, swift action can avoid disaster:
1. The General Assembly should immediately pass SB 2404, which addresses the politician-caused budget problem in a fair and constitutional manner. Under SB 2404, the employees and retirees help address the problem without being forced to bear the entire burden.
2. The General Assembly needs to place on the November 2014 election ballot the constitutional amendment that would allow voters to decide whether to allow graduated rates for the Illinois income tax. Illinois’ current flat rate is unfair to low and medium wage earners and to small businesses.
We all understand the importance of a contract. We have them with our employees. You have them with your associates.
When times get tough, do they have the option to tell you, with impunity, “Sorry, I’ve decided not to pay?”
The participants in the state retirement systems don’t have a problem with Illinois taxpayers. They ARE Illinois taxpayers. As consumers, they play a major role in the overall economy of our state.
The politicians have done a poor job of leading our state. We the people, including current and retired public employees and business owners, can and should show them the way.
Cinda Klickna is president of the Illinois Education Association.