Putting a Face On Public Pensions

For some time, I’ve been talking about the dire state of the Illinois’ public pension system. Mostly it’s been a discussion of the total amount by which all of the funds are underfunded, a number that runs into the hundreds of billions of dollars.

If you’re like me, you have a hard time wrapping your head around such amounts. I therefore thought it would be easier to put the situation into context by showing how much the state is behind on funding the vested pension benefits of one particular career employee. I scoured the state employee list and came up with a random career employee, and found one Rep. Jack D. Franks (D-Madigan).

Jack Franks is your typical career state employee, having been a member of the General Assembly for 18 years (9 terms after promising to only run for 3). As a career state employee, he’s a member of the Illinois General Assembly Retirement System, and thus has accrued benefits that are guaranteed by the Illinois Constitution for the rest of his life (with 2/3rds of his annual benefit going to his wife for life upon his death).

How much will he be paid upon retirement (or defeat in the 2016 election)? After this, his 9th term, Jack is eligible to receive a monthly pension equal to 75% of his final salary (if he wins, that percentage caps at 85% after his 10th term). Based on his annual salary of $67,836 (not including additional amounts for being a committee chair), Jack will be eligible for a legislative pension of $50,880 per year, or $4,240 per month, again, for life.
The chart below shows the amount that Jack will receive in pension benefits if he lives 30 years after electoral defeat. (I certainly wish him a longer life, but I had to cut off the calculation somewhere.)

Yes, folks, given the assumptions taken from the GA’s own plan document, Jack Franks will collect almost $2.5 million in constitutionally guaranteed pension payments over 30 years. The present value of that benefit stream (the amount that needs to be in the plan today to fully pay the benefit stream at an assumed rate of return, currently 7%) is $747,488. (I have all the calculations, if you want me to send them to you, please email me.)

The problem is, and as I’ve pointed out many times before, there isn’t enough money in any of the state’s pension plans to pay all of the benefits due. The General Assembly’s plan is in particularly bad shape, as it only contains 16% of the amount needed to pay benefits. So instead of nearly $750,000, the plan only has $119,598 on hand to pay our friend Jack his $2.5 million constitutionally guaranteed pension. What, oh what, are we to do? What we’re going to do, unfortunately, is devote an ever-increasing percentage of the state’s budget toward the privilege of making sure Jack gets his $2.5 million constitutionally guaranteed pension.

Think about that on April 15 when you have to choose between cutting a check for taxes to the Department of Revenue or paying your electric bill.

And what I’ve shown above is based on the plan’s assumption of a 7% rate of return on its assets. What happens if, as I’ve pointed out in a previous post, the actual rate of return is closer to 3%? In that case, then you, the taxpayers, owe $1,161,934.84 to fulfill your constitutional promise to a career politician who voted in 2005 for Rod Blagojevich’s 2-year “pension holiday”, probably the largest tax increase in Illinois’ history.

Of course, it doesn’t matter to him, his pension is constitutionally guaranteed. Think about that when you step into the voting booth in November.