But sometimes these "leaders" slip and tell us things they don't mean for us to know. Like how ignorant they are about things they should be knowledgeable of for the benefit of their membership.
Unions pushing to revisit pensions contains such a completely ignorant based comment by a public sector union President in Illinois:
"SPRINGFIELD
— A coalition of Illinois public employee unions said they’re willing
to negotiate higher contributions to their pensions — if they’re part of
a package that includes exempting those
already retired from pension changes, guaranteed pension contributions
from the state and ending some corporate tax breaks.
Members of the We Are One Illinois coalition laid out their conditions for pension reform at a news conference Monday.
They also blasted pension proposals under discussion now as unfair and unconstitutional.
“Any of these pieces of
legislation will significantly reduce pensions for all current employees
and retirees,” said Michael Carrigan, president of the Illinois
AFL-CIO.
The General Assembly is to take up pension reform during a special session Friday. The House could vote on House Bill 1447, which would
reduce benefits for members of the State Employees Retirement System
and the General Assembly Retirement System. Another bill has been
introduced to make similar changes in the Teachers Retirement System
and the State Universities Retirement System.
Both bills would force
members of the systems to choose between 3 percent annual increases in
their pensions or continued access to retiree health insurance. The
changes would affect both active employees and retirees.
Open to negotiation
Illinois Education
Association President Cinda Klickna said higher member contributions
are open to negotiation if they would be part of a package that includes
other conditions set out by the coalition.
“The increase would vary
among the pension plans, due to the different benefit structures,” she
said. “The percentage would have to be something we work on at the
table.”
She said a 1 percentage point
increase in contributions by downstate teachers, university workers
and state employees would generate about $168 million a year toward
pension costs. If those contributions earned 5 percent in investment
income each year, they would accumulate to $15 billion by 2047.
However, Klickna and other
union officials said, higher contributions would have to be accompanied
by guarantees that state government will meet its pension obligations
and by a provision exempting current retirees from changes in their
pension benefits.
Klickna said pensions should rank second only to bond payments in the state’s funding priorities. “This would mean a guarantee for the future retirement security that thousands of workers rely upon,” she said.
The coalition also called
for the state to end numerous corporate tax breaks, which the union
group said cost Illinois hundreds of millions of dollars annually. . . .
Gov. Pat Quinn’s office immediately rejected the coalition’s ideas.
“This is nothing new and all
has been discussed before,” said Quinn spokeswoman Brooke Anderson.
“This proposal would not solve the state’s pension challenges, nor is it
feasible.”
Quinn, meanwhile, tried to
increase the pressure on lawmakers to shift some pension costs away from
the state. He released an analysis in Chicago showing that state
funding for higher education will continue to drop if pension funding
continues to squeeze out the money available for other state programs."
Discussion and Analysis
Now let's consider the Forrest Gump stupid is as stupid does part of the story.
Illinois Education Association President Klickna is offering to increase employee contributions by 1%, saying this would amount to $168 million annually which would accumulate to $15 billion by 2047 if it earned 5% annually.
Of course, the $15 billion would be in nominal and not inflation adjusted dollars. More important, it would represent a step backward from the current unaffordable position of the funds today. Pension funding would be losing ground instead of gaining. Things would be getting worse each year and not better. And that's the Union President's proposal. The membership should fire her immediately or sooner if possible.
Now I of course don't expect that everybody reading this posting is familiar with actuarial assumptions, or how they're used to assess current liabilities for future payment obligations. That gets a little technical and an understanding requires either expertise or some expert advice. That's called actuarial science.
But I would certainly have expected, and the people of Illinois absolutely deserve, as well as do the public sector union members themselves, that the union president Klickna would consult an actuary before saying something so utterly stupid.
That she said what she said shows how far off track things really are in Illinois public sector pension discussions. Here's the bottom line. If funds invested don't earn 8% over time, the unfunded problem gets progressively worse. Not better. So a 5% rate of return on employee contributions is a loser, pure and simple, especially when compared to an 8% rate of return assumption used by the pension plan for purposes of funding its requirements each year.
So here's what I know, or at least think I know, based on what I've read about all this. Illinois has a current unfunded public sector pension liability of some $85 billion. The assumptions underlying the pension fund's liability are that money in the fund and future contributions will earn an average 8% annual rate of return. Not 5%.
Accordingly, if the monies earn 5% instead of 8%, the unfunded problem will only get worse each year. At a shortfall of 3% annually (8% - 5% = 3%), and using the rule of 72, every 24 years the unfunded liability would double.
Thus, if the fund earns 5%, as trumpeted by Union President Klickna, the actual unfunded liability is probably much closer to $200 billion than the acknowledged $85 billion.
Which begs the question of how much will be needed to fully fund the pension promises and how that money will be invested, as well as what happens if in fact the fund in the future only earns the 5% forecasted by the union president Klickna.
Concerned yet, Illinois taxpayers, teachers, other public sector employees, government officials, union leaders and legislators? Well, you should be.
Summing Up
This would all be pretty funny if it weren't so sick. And Ms. Klickna is the Union President? The leader of the pack?
I hope she's being paid appropriately for her efforts.
Her mouth can only hurt the cause and chances for a rational discussion of the problem anytime soon.
Thanks. Bob.
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