May 30, 2011 6:02 PM GMT
Also a metaphor for social security. If we don't try to fix it now, the costs will be so much greater later on.
Illinois’ runaway pension system is placing the state’s fiscal health in jeopardy. State contributions to the pension system have already crowded out payments to social service providers. But less focus has been placed on current state workers and teachers, particularly those with retirements more than a decade away. Their outlook is very much at risk, which is why their unions’ opposition to pension reform is contrary to their interests.
Illinois’ pension system is hopelessly insolvent with about $60 billion of assets and $200 billion in “legacy” liabilities (using an appropriate discount rate). Illinois state workers and teachers currently have roughly 9 percent of each paycheck withheld and sent to the pension black hole. The premise is that the funds will be held by the pension system, invested responsibly, and used to make payments to the workers upon retirement. Unfortunately, pension officials are using those contributions from current workers to pay current retirees.
And it gets worse. With respect to the tens of billions of state contributions to the pension system, the pension sieve pays those funds out as fast as they arrive. Pension officials are also liquidating the $60 billion current pension investment portfolio, also to pay current retirees. In the May issue of National Tax Journal, nationally recognized pension expert Professor Joshua Rauh of Northwestern estimates that by 2018, all pension assets will have been liquidated! The cupboard will be bare.