Well-funded pension attacks miss causes and effects

Bill Knight column for Mon., Tues. or Wed., Oct. 21, 22 or 23

Pension foes have shifted public attention to accounting so retiree benefits might be shifted to protect or expand corporate subsidies, like the $24 million that Archer Daniels Midland demands from the state of Illinois, according to a new report. It says the anti-pension campaign blames state or local budget problems exclusively on public pensions – pensions that were underfunded by legislatures for years so the money could be spent elsewhere, such as on corporate subsidies or politically popular tax cuts.

“This plot convinces states and cities to plead poverty to justify pension cuts, all while those states and cities spend massive amounts of taxpayer monies on stadiums, wasteful tax expenditures and other corporate subsidies,” said David Sirota, author of the new report “The Plot Against Pensions,” from the Institute for America’s Future.

“Those subsidies, in fact, are typically far larger than the public pension shortfalls,” Sirota writes, “yet they are preserved and retiree benefits are cut.

“Ultimately, this immoral bait-and-switch effectively finances corporate handouts with pensioners’ hard-earned money – and in the process, changes to pensions often end up enriching the banking industry,” he continues. “This is not pension 'reform'.”

Gov. Pat Quinn recently said he opposes any new business subsidies until the state’s public pensions are reformed, but Illinois already ranks at the top of states subsidizing corporations, according to Good Jobs First, a non-partisan group that documented at least 38 Walmart locations in the state receiving subsidies worth more than $152 million, for example.

It’s technically true that Illinois has a $100 billion “unfunded” pension liability, but that’s if all eligible recipients tried cashing out today.

“The most fundamental principle in ensuring a plan achieves a 100 percent funding ratio is ensuring that the plan sponsors pay the entire amount of the annual required contribution (ARC),” reports the National Institute on Retirement Security. “Anything short of a full ARC payment will have a negative impact on the plan’s funding ratio.”

Illinois, New Jersey and Rhode Island haven’t paid their obligations for decades, according to the National Public Pension Coalition.

In Springfield, a bipartisan committee of state lawmakers is supposedly close to proposing changes they say would save the state $138 billion, and Quinn said that makes him hopeful. But since the changes could include raising the retirement age and cutting Cost of Living guarantees, that hope isn’t shared by people affected.

“If true, these reports indicate that lawmakers do not yet appreciate how deep a cut in pension benefits a half-Consumer Price Index Cost of Living Adjustment [COLA] change represents,” says Dr. Howard Wial from the University of Illinois at Chicago. The “COLA adjustment would slash inflation-adjusted benefits by one-third for long-term (27-year) retirees.

“Only two of the 19 other state pension plans (in 10 other states) in which employees do not participate in Social Security [like Illinois] have less inflation protection,” Wial continues. “This change is an enormous cut in benefits – and for that reason potentially unconstitutional.”

Illinois’ constitution states that public pensions “shall be an enforceable contractual relationship, the benefit of which shall not be diminished or impaired.”

An overwhelming 80 percent of projected savings in the plan would be borne by retirees, Wial says, not the political or business interests that created the shortfall or benefited from it.

Courts have generally said that states cannot promise pension benefits to their employees as an inducement to get them to work for the state and then renege on those promises. Richard Kaplan, a law professor at the University of Illinois, says states trying to prove that reneging on their pension obligations is necessary to achieve some important public purpose would be difficult because that implies that the state cannot cut other expenses or raise new revenues to keep its promises.

In 2011, Illinois Senate President John Cullerton (D-Chicago) said corporate subsidies and tax exemptions would be part of the pension-overhaul debate, but that hasn’t happened. And that’s not surprising considering the money and power behind the pension attack, Sirota says.

“If you can focus the state budget debate on pension shortfalls, you can distract people from all the money going out the door for corporate subsidies,” he says. “It’s a brilliant political strategy.”

Further, framing the debate that way avoids the comparison that simple arithmetic would show. Sirota writes that annual pension shortfalls nationwide have been estimated at $48 billion, but New York Times data shows that states are spending about $80 billion a year in corporate subsidies.

[PICTURED: Photo from reclaimreform.com]