As we've known for quite some time now, Illinois is completely insolvent, and in large part due to enormous pension liabilities which as of December were underfunded to the tune of $111 billion. Not only is the state insolvent, its millionaires can't get out fast enough to avoid the massive tax hikes that will be coming in what is sure to be a failed effort to plug budget holes, as well as the soaring criminality in cities such as Chicago which recently just passed the historic milestone of 1,000 gunshot victims in the fastest time in decades.
Citing unfunded pension plans, Moody's downgraded Illinois to Baa1, and gave it a negative outlook back in October. The issue with the pension funds (aside for the massive shortfall in funding) is that per the Illinois Supreme Court, benefits cannot be altered. In a ruling last year, the state's Supreme Court overturned a 2013 law that tried to ease the burden of what was then a $105 billion funding gap.
"Crisis is not an excuse to abandon the rule of law. It is a summons to defend it." the supreme court said in its ruling.
In other words, regardless of the fact that the pension funds are insolvent, the state cannot cut benefits to any of its participants. This is in stark contrast to the multi employer private pension funds, which as we pointed out, are able to cut benefits in order to keep the funds solvent.
At this point, it's clear that without the ability to cut pension benefits, most plans will end up insolvent, at which point nobody will be receiving benefits. Until that point comes, however, there are a few who are living quite well off of the system.
As Forbes' Adam Andrzejewski reports, there are currently 7,499 teacher retirees that earn at least six figure pensions, and he estimates that in just six years, the number will be three times what it is today because, as we noted previously, the Illinois Supreme Court recently confirmed that pension benefits are constitutionally guaranteed and "the public employee gravy train is running faster than ever."
Now, there would be nothing wrong with these retirees collecting the "annuity" benefits after paying to the retirement plan for years as most other honest, hard-working employee do. There is just one problem: this was a human system, and like every human system (especially in Illinois) it was impeccably gamed from the beginning. Especially when Chicago is involved as it is here.
Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them.
And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!
Not unexpectedly, a well known culprit behind this systemic abuse emerges: the city of Chicago. As the following map showing where the 7,499 six-figure educator pensions located, most of the ‘heat’ is in the six-county area around Chicago.
The shifting of responsibility for funding retirement from the individual to the taxpayer at these levels is completely unsustainable.
This week, our organization at OpenTheBooks.com debuted our interactive info mapping platform giving context to the 7,499 retired Illinois educators who pulled-down a pension of $100,000 or more. These retirees cost Illinois taxpayers $900 million (2015). Individually, these pension millionaires contributed so little to the system that they ‘broke-even’ on their ‘cost-basis’ within the first 20-months of retirement.
It takes the equivalent of all income taxes paid by 330,177 individual Illinois taxpayers to fund the nearly $1 billion for the 7,499 ‘highly compensated’ six-figure retirees. By any estimation, this is unsustainable. Illinois only has 6.2 million people with jobs.
The article goes on to point out that by 2017, Illinois tax payers will be on the hook for more than 10,000 educator pensions that pay more than $100,000 a year, and by 2022 that number rises to over 20,000 people pulling in six figures after retirement. Readers can probably calculate on their own the nominal dollar taxpayer support that will be needed then.
Adam also draws attention to another critical issue further burying taxpayers, which is double-dipping.
[M]any administrators taking six-figure pensions really aren’t even ‘retired.’ Twenty-one highly compensated school administrators are now members of the municipal system, not the teacher’s system. It’s double-dipping: receiving a ‘teacher’ retirement pension, while also rehired by a school under the ‘municipal’ plan.
This form of doubling-dipping is not prohibited under Illinois law. It should be. For example, Mohsin Dada made $503,200 by double dipping the Teacher’s Retirement System (TRS) and the Illinois Municipal system (IMRF). Dada’s teacher pension is $254,700 and his current salary from North Shore School District 112 is $248,510 – up from $202,903 just three years ago (2012).
It gets wose: the public pension largess is not only for government educators, but also private education associations and union bosses. For example, Reginald Weaver was President of the National Education Association (NEA) in Washington, D.C. – the de facto national teacher’s union. Weaver’s Illinois teacher’s pension is now $22,759 per month, or $273,108 annually.
And lest we forget about the fact that outside of the tens of thousands of retirees who are making six figures, there are another 100,000 pensions for rank and file teachers who make less than that. Include these members, and an estimated $1 out of every $3 collected by the Illinois income tax now goes toward retirement annuities. That's the equivalent of all income taxes paid by 2 million Illinois taxpayers every year.
The systemic abuse of the system goes to the very core: locally, school districts are spiking salaries – granting raises near the end of a career to raise guaranteed pensions – which drives costs even higher. The fraud appears to be focused on the city of Chicago. Some examples:
- Northern Illinois school districts are driving the majority of $100,000 pensions. In fact, 6,706 pensions for over $800 million in annual payouts were conferred by districts in the Chicago metropolitan suburban area. Only 793 six-figure pensions totaling $95 million in annual payouts were conferred by school districts in the rest of the state. Yet, income-taxpayers across the whole state guarantee the retirement annuities for everyone.
- The Top 100 All-Time pensions: #1 $302,991 (Lawrence Wyllie at Lincoln-Way CHSD) to #100 $200,812 (Michael Radakovic at Aurora East USD 131). Read the Top 500 All-Time IL teacher pension list.
- The Top 5 school districts conferring six-figure pensions are Palatine TWP HSD 211, Palatine (449); Township HSD 214, Arlington Heights (419); Consolidated HSD 230, Orland Park (196); Northfield TWP HSD 225, Glenview (188); Maine TWP HSD 207, Park Ridge (180).
Given what we know about the situation, there is no path forward that will save these pension funds from going insolvent. This brings us to an interesting twist... Under Illinois state law, the pension system is required to reach 90% funding by 2045. We're curious if by that point, the state supreme court will view crisis as being a valid excuse to "abandon the rule of law."
For those who are curious about more details, the following interactive map courtesy of OpenTheBooks.com lays out all the 7,499 "retired" Illionois reveals all those who hope to abuse the system until the very last drop. Click on the map for the interactive version.