Illinois’ state constitution now guarantees current workers and retirees pension benefits. But nothing in its constitution guarantees that the state fund them.
Illinois has a history of promising much while paying little. According to a recent report, Illinois struggled to fund its pensions for decades, extending back to 1917. Illinois’ first pensions were a fixed, flat annual benefit, but neither benefits nor contributions were tied to salary. Instead, teachers paid an arbitrary flat contribution based on milestone service years. State contributions were based on certain taxable properties. Pensions initially were treated as gratuities or gifts that the state could adjust or take away, and funds were not held in a trust and could be used for other purposes.
Even when pensions were later restructured and included employer and employee contributions tied to salaries, the plans continued to struggle. In 1969, the Illinois Teachers’ Retirement System was 40 percent funded and the Chicago Teachers Pension Fund was only 32.7 percent funded. Overall, the state’s five pension systems were just 41.8 percent funded. This means for every dollar the state needed to fund future payments, it saved only 41.8 cents. Not much has changed since 35 years ago: today the Illinois Teachers’ Retirement System is still just 40.6 percent funded and the Chicago Teachers’ Pension Fund 49.5 percent funded, according to the plans’ own actuaries.
In 1970, the state constitution was amended to include the following (known as the Pension Protection Clause):
Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.
The above language protects pension benefits, but the Constitution is silent on funding those benefits. There is no recourse for forcing a state to pay its annual required contribution or address shortfalls, and Illinois has consistently skipped or shorted its pension payments for decades. On top of this, both politicians and worker unions have an incentive to advocate for pension increases without paying for them.
After the recession, the political landscape turned. Illinois politicians passed legislation that scales down benefits for new workers, enacts a funding plan requiring 100 percent funding by 2043, and provides a funding guarantee (if the state comptroller fails to make state pension contributions, affected pension systems can sue to order payment). The legislation, however, was challenged and will be argued in the upcoming month and may eventually proceed to the state Supreme Court. The decision will have big implications for how Illinois deals with its growing pension shortfalls and worker benefits in the future.
Illinois has carried significant pension debt for close to a century. What makes this different is now the costs are starting to catch up. Consistently short funding pensions has led to higher contributions and rising debt costs that eat into salaries and other social spending. It’s time for Illinois to change the course of its history.