what happens to my pension if illinois goes broke
A drawing snake named "Squeezy the Pension Python" coils effectually the State Capitol equally part of Illinois Gov. Pat Quinn's new online campaign to get Illinoisans excited almost alimony reform.
Information technology's not quite off-white to say that Illinois officials are doing nothing to defuse the most threatening alimony time bomb in America. Darn shut to nothing, that's fair, which explains why the ratings agencies Fitch and Moody'due south have put the state on their negative watch lists. The Land of Lincoln is heading toward nonetheless some other downgrade of its battered bail ratings if this near-paralysis keeps upwards. To say "nothing," nevertheless, ignores Squeezy the Pension Python.
Squeezy is the drawing co-star in a YouTube video featuring Illinois Gov. Pat Quinn. Hoping to raise awareness among voters and put pressure on the legislature, Quinn took to the ether last twelvemonth to explain why underfunding the state pension system (the deficit is deepening by more half a million bucks per hour) is not a proficient idea. When the state has to pay promised pensions even though the coffers are empty, said the governor, other priorities go squeezed—like schools, roads, and law enforcement.
Cue the snake.
It might be argued that Squeezy is too beautiful to set off alarm bells among fans of the Chicago Bears. More to the point: awareness of the pension mess is non really the problem in Illinois. Everyone has known for years that the state is a fiscal wreck, with Exhibit A being the smoking crater in the pension fund. Thanks in big part to the rapidly growing slice of country spending that goes to pensions, Illinois has gone ten years without a genuinely balanced budget, and the state was essentially broke fifty-fifty before the Great Recession hitting. At present information technology is roughly 300 days behind in its payments to vendors—despite having tried every bookkeeping play a trick on in the book to hibernate the ruby-red ink. In fact, awareness of the problem inspired the land legislature to raise taxes and deposit some actual coin in the alimony fund last year, rather than toss in the usual IOUs.
(MORE: Why We Need Pension Reform)
The problem is … well, at that place are several problems, the first of which is leadership. Illinois did not take much during the period when former Gov. Rod Blagojevich followed his predecessor, former Gov. George Ryan, out of office and into federal prison on abuse charges. As the Chicago Tribune has amply documented, Illinois labor leaders, lobbyists, legislators, aldermen—even longtime Chicago Mayor Richard M. Daley—have been more likely to pad pensions than to properly manage them, starting with their own comfy retirement cushions.
Lawmakers promised more than and more benefits to retired teachers, law officers, firefighters, and other regime workers over the past decade; meanwhile, the pool of money to pay these pledges was neglected. The estimated shortfall of nigh $100 billion between now and 2045 is, believe it or non, a rosy scenario, given that a) it assumes robust investment returns and b) doesn't include local pension disasters, like the estimated $20 billion pigsty in the City of Chicago organisation.
Quinn and Chicago Mayor Rahm Emanuel both urged the legislature to tackle the crisis during final yr's session. "The 24-hour interval of reckoning has arrived," Emanuel warned. All sorts of repairs were floated: raising the retirement age for public employees, increasing employee contributions, freezing cost-of-living increases, shifting younger workers into 401-(k) style savings. Quinn even proposed that responsibility for teacher retirement plans should be shifted to local school boards. You lot tin guess what the locals thought about that.
(More: Fiscal Cliff Aftermath: New Option for 401(1000) Savers)
Even after Squeezy's debut, the result was nil. Public employee unions are a powerful force in heavily Democratic Illinois, and they have not only clout merely the law on their side. The contracts that grant retirement benefits to public employees are guaranteed by the state constitution, the unions argue. Such promises must be kept. Stymied by so many unpleasant options, the legislature stalled during its regular session, dodged Quinn'due south call for a special session, and punted during a lame-duck session that ended early this month.
So much for the day of reckoning.
The Pew Center on united states, which tracks the pension funding problem nationwide, says Illinois now faces the worst mess in the country, with less than one-half of its pension obligations currently covered. But other states are suffering from symptoms of the aforementioned illness. According to Pew, 34 states were curt in 2010 of the recommended lxxx-percent funding level considered safe for pension systems. (That is the most recent yr for which data is available; defenders of public pensions argue that 2010 figures exaggerate the problem because they collected near the bottom of the bad economy.) In all, Pew estimates the total shortfall in country pensions to be $1.38 trillion.
Fixing issues of this scale, where the political toll is immediate while the benefits are stretched out over decades, is never like shooting fish in a barrel. The widely acclaimed reforms passed in Rhode Isle last year are bogged downwards in litigation, as unions fight to preserve the deals they negotiated. But each solar day that passes without major reforms, the mathematics of the Illinois crisis grind on: ever more retirees, collecting steadily larger checks, as tumbling bond ratings brand it more and more expensive to borrow money to mask the pigsty.
As a new legislature, dominated past Democratic supermajorities, takes another whack at the serpent in the coming months, leaders in other states around the country should picket Springfield and listen the lesson: tempting though it is to practise nothing, information technology only makes the problem worse.
MORE: How Bad Is America's Alimony Funding Trouble?
Source: https://swampland.time.com/2013/01/18/why-illinois-is-going-bankrupt/
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