Pension system can’t be viable
State pensions, which are being pushed back to the local level on schools, police and firemen, is all over the news these days. But in my opinion legislators do not seem to be addressing the real problem, which a poorly designed promise made by them in the first place. As I interpret the pension language, a contribution of 9 percent of a low starting salary is paid with the right to retire after 35 years of service. At which time the pensioner can retire at 57 with a 75-percent payout on a high salary, for potentially 27 years, in which case the math just does not work.
My simple spreadsheet indicates the money invested at a guaranteed 8 percent return each year will cover just about half of the total payout for the retiree at current longevity tables. A fully vested employee subject to the maximum pension of a $106,000 final salary would get about $80,000 in pension each year, increasing by 3 percent each year for the rest of their lives. The pension money if it had been placed in an individual fund like a 401(k) would run out about half way through the pension years and the taxpayer then pays for the remaining years, at which time the yearly pension is well over $100,000 per year.
The “average” Illinois teacher salary as reported by the Tribune is $77,000, which seems to include starting out salaries so the average retiring salaries would then have to be significantly higher. Even at this $77,000 level, the beginning pension is almost $60,000.
I don’t want to deny these pensioners the right to collect what they were promised, but compare it to folks on Social Security who paid in just a little less, then matched by their employer and whose max on the same high salary would be less than $30,000 (plus minimal if any annual increase.) If Social Security is going broke, how can the state pensions be viable?
I am not sure, but it seems the Quinn fix would merely pass this huge unfunded cost from future state income tax increases to our local property tax level which will then necessarily skyrocket. I believe that after the feds take what they want of my income, I already contribute enough tax money to the school system, the city and state as it is.
Gary Kolbe
Geneva