There was bad news coming out of Illinois last week. But what happens in Illinois doesn’t necessarily stay in Illinois — particularly when what happens is related to much needed pension reform.
As reported by the Chicago Tribune’s Hal Dardick on Thursday, the Illinois Supreme Court dealt the city of Chicago a big blow by finding unconstitutional a law aimed at shoring up two city pension funds by cutting future retirement benefits and requiring workers to pay more toward retirement. The move undercuts Mayor Rahm Emanuel’s efforts to stabilize what is considered one of the nation’s most troubled pension systems.
Chicago’s 2014 reforms, the court said, would violate a provision of the state constitution that bans diminishing existing pension benefits. Apparently, that holds true even if the two pension plans involved have a current funding shortfall that will now continue to grow at a rate of about $900 million a year — yes, nearly $1 billion annually, Mr. Dardick noted.
If that doesn’t tell you how bad the problem really is, just bear in mind that Mayor Emanuel is a Democrat, yet is willing to acknowledge the looming disaster of unfunded liabilities within the city’s public employee pension program. Mr. Dardick pointed out that, absent a new plan to fix the shortfall, the pension funds will run out of money in 12 years. Perhaps when the system implodes and pensions drop to zero, the opposing unions and retired workers who challenged the law in court will see what a hollow victory it was.
But again, this problem is hardly limited to Chicago. Government at all levels across the country faces massive unfunded pension liabilities, including here in Nevada. Last year, the unfunded liability for the Nevada Public Employees Retirement System was pegged at about $12.5 billion, and the state Legislature, with Republican majorities in the Senate and Assembly, was poised to address the problem. Assembly Bill 190, designated only for new employees, would have had a 6 percent employer contribution to a defined-benefit plan, and for regular employees, there would be a defined-contribution plan, with 6 percent contributed by the employer and 6 percent by the employee.
An additional 6 percent employer contribution would be applied to the unfunded liability of the existing plan, though the new plan would halt the growth of that liability. The bill went nowhere for months and ultimately died.
As Mr. Dardick rightly pointed out, the Illinois Supreme Court ruling was perhaps more a setback for Chicago taxpayers, and the same holds true with the failure of AB190 in Nevada. Short of serious pension reform, either the state’s taxpayers — who don’t enjoy nearly the benefits of public-sector employees, particularly with regard to retirement — will be called upon again and again to fund the shortfall, or key existing government services will have to be cut back. Or both.
Nevada should learn from Illinois’ example. It’s time for taxpayers to stop shouldering the load of public-sector pensions, at the expense of what limited retirements they can scrape out for themselves. At the very least, it’s time to end defined-benefit plans for all future public employees and instead place them in a defined-contribution plan. Even that may not be enough, but it’s a start.