Unions Complicity in Pension Problems

Frequent McHenry County visitor Allen Skillikorn, an East Dundee Village Trustee, has submitted the following piece on our state’s pension problem:

Who’s Really To Blame For Illinois’ Pension Mess?

By Allen Skillicorn

Let’s go back to May 2005. Rod Blagojevich wasn’t in a Colorado prison cell yet, he was still in his first term as Illinois’ Governor.

Allen Skillicorn

Allen Skillicorn

2005 was the top of the housing boom, so the economy was humming along and tax revenue was flowing in.

The Illinois unemployment rate was only 5.9%, not as good as the national average at that time, but significantly better than today’s 9% rate.

We keep hearing IL’s public sector unions blame the legislature for missing pension payments.

While I agree that the State shares responsibility in the underfunding and promising over-generous benefits, that’s not the entire picture.

Illinois has a May 31st deadline to pass fiscal bills, so they can be enacted January 1st of the next year.

Governor Blagojevich, Speaker Madigan, and Senate President Jones had a plan to spend the annual pension payment on more social programs instead of investing the payment in the pension system.

Today we call it a “pension holiday.”

The plan also included pension sweeteners and the infamous government-pensions-for-union-bosses scheme.

It was passed by Democratic Party members in both the House and Senate on May 31st, 2005. Details can be found in Senate Bill 27.



Today if you listen to the public sector unions, they blame the state for this pension holiday.

Unfortunately the truth is that the unions were aware of the pension holiday and fully supported the pension holiday.

Let’s look at the actually witness slips filed by four of the biggest public sector unions in Illinois.

SB 27 Proponents:

  • Rich Frankenfeld, IEA (Pension double dipper with a Teacher’s Pension)
  • Derek Blaida, CPS
  • Steve Preckwinkle, IFT (Substitute taught for one day, now receives a full TRS Pension)
  • Laura Arterburn, IFT
  • Michael McGann, SEIU
  • Kurt Anderson, SEIU

Records confirm that SEIU (Service Employees International Union), IEA (Illinois Education Association), CPS (Chicago Public Schools), and IFT (Illinois Federation of Teachers) all supported the 2005 pension holiday in exchange for these sweeteners and payouts for union bosses.

Also to be completely fair, the Retired State Employees Association opposed this holiday.


Unions Complicity in Pension Problems — 7 Comments

  1. Bingo.

    Just one of the money games that were played.

    The unions had the clout to fully fund pensions.

    They didn’t want to fully fund pensions.

    They wanted to hike salaries, pensions, and retiree healthcare benefits.

    Because hiking salaries is a double win.

    More money now and more money in retirement.

    Which is what they did.

    The unions thought they had an ace in the hole with the sentence added to the constitution in 1970.


    Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

    The unions and others benefiting from the pensions and retiree healthcare thought their pensions will somehow magically get funded.

    Now it becomes a guessing game.

    When will taxes become too high or property values start to tank if there is a run to leave the state.

    People need to be prepared to move out of state if that happens.

    Here’s the SEC basically calling the 1994 Edgar back loaded 50 year pension funding ramp a bogus piece of legislation.


    Here’s a retired IEA teacher that recently moved to a lower tax state.

    Fleeing Illinois For Tennessee In Retirement

    She received a $50K pension in 2014 after working 21.5 years and retiring in 2007.

    How much is your Social Security and 401K after working 21.5 years, and how much would you have contributed.

    Teaches typically receive their lifetime employee contributions back in their first 1 – 3 years of retirement.

    And apparently some retired teachers think other suckers can stay in state to fund their pensions.


    “The Reeds sat down with their financial advisor at Vanguard and ran a plan showing projections of how likely it was that their assets would carry them through a comfortable retirement.

    “They got a disappointing answer: 60%.

    “But by making the move to Tennessee, the chances of their money lasting jumped to 80%.
    The main reason: a lower cost of living.”

    So if you stay in Illinois and your retirement benefits are less, what are the chances that your asses will carry you though a comfortable retirement?

    Better get on the phone with Vanguard.

    If you want the equivalent of a teacher pension, it’s called an annuity.

    Find out how much it costs for a $50,000 Vanguard annuity.

  2. oops I meant to say “assets.”

    You’ll see what I mean when the comment posts.

    Not the aforementioned comment is in the Skinner que, “Your comment is awaiting moderation.”

  3. So it was public sector union’s fault that they did not see the eventual harm the housing bubble would do to pension funding; that it was the lack of opposition (minus SERS) to (now banned) pension holidays as evidence of union support in under-funding the pension system at a time when Illinois was experiencing near record revenue without an end in sight – or so America through.

    Skillcorn’s evaluation argues that unions were complicit with pension holidays because of “sweeteners to union bosses” and offers signatures as evidence of their complicity.

    What sweeteners does he mention?


    In fact, he fails to state that Union boss’s salaries are at the mercy of their membership – effectively a union can only go as far as their members are willing to go and will only pay their leaders as much as they deem reasonable.

    Cinda Clickna, the President of the IEA, is paid $197,000 annually, which is .3% of what Tea Party Bruce Rauner made last year.

    And who’s the fat cat?

    Additionally, Skillicorn Texas Sharp Shoots a particularly egregious violator of public trust, like lobbyist Steve Preckwinkle, who will receive a $108,000 a year pension despite teaching only one day, however his payout remains only .0001% of Illinois’ total liability.

    Finally, Allen forgets that programs like Rebuild Illinois borrowed from the teacher’s pension system, yet years later, taxpayers are supposed to forget that loan.

    Skillicorn surmises that Illinois unions are now trying to lobby for a progressive tax as a means to pay for the pension liabilities of their members.

    He cries that progressive tax would hurt middle class families, when in reality, the proposal would require dual incomes less than 100,000 to pay a 5% rate – equivalent to the rate for families living in Alabama, Mississippi, and Louisiana making the same amount per year.

  4. The article is just one of many examples of special interest groups lobbying for counter productive legislation.

    The primary drivers of underfunded pensions:
    – Legislative benefit hikes.
    – Collective bargaining pay hikes.
    – Pay hikes for management and the scant few rank and file not covered by a collective bargaining agreement.

    The primary driver of underfunded retiree healthcare:
    – Legislative benefit hikes.

    The madness escalated after 1 sentence was added to the Illinois State Constitution at the 1970

    Constitutional Convention.

    Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
    That sentence was allegedly a protection from the state underfunding pensions.

    It was a ruse.

    It emboldened the hiking of benefits and pay, because presumably the resulting hiked pensions were now guaranteed.

    Legal and sneaky.

    If the real goal was to fully fund pensions, instead of the legislative benefit hikes, and pay hikes, the money would have gone to fully funding pensions.

    Then hike benefits and pay.

    But no.

    Benefits were hiked.

    Pay was hiked.

    While pensions were simultaneously being underfunded.


    Because it’s a double win.

    Win 1: Pay hike now.

    Win 2: Hiked pay means hiked pension.

    Then, are politicians and special interest groups going to admit they conspired to hike pay and
    benefits while simultaneously shorting the pension contribution?

    Never in a million years.

    Blame the state for not fully funding pensions.

    To reiterate, hiking benefits and pay while simultaneously underfunding pensions makes absolutely no sense.

    It creates a bigger underfunding.

    Which is exactly what happened.

    Here’s another way to look at the fiasco.

    There is a pension bucket.

    A full bucket represents a fully funded pension.

    The bucket is not full.

    What to do?

    A logical person would fill up the bucket.

    That’s not what happened.

    Instead the through benefit hikes the bucket was replaced with a larger bucket.

    Now it takes even more water to fill the bucket.

    That happened over and over and over from 1970 until today.

    The bucket size kept getting bigger.

    The bucket became so large it’s likely impossible to fill the bucket.


    Because taxpayers can move out of state.

    So now it’s a game.

    How much can we hike taxes before enough taxpayers move out of state that the tax hike actually results in less revenue.

    That’s the concept behind the Laffer curve.

    Another way to look at the legislative benefit hikes, and pay hikes.

    A mafia street tax.

    The mafia keeps increasing the street tax until eventually the shop owner can’t afford the tax.

    Right now we have an unsustainable public sector pension bubble.

    And a public sector retiree healthcare bubble.

    What was done to public sector pensions and retiree healthcare in Illinois had nothing to do
    with long term sustainability.

    It was the tried and true special interest campaign contributions, votes, and electioneering assistance in exchange for favorable legislation and pay hikes.

    Read the Illinois Pension Code.

    That’s the history of legislative pension hikes.

    It’s all there in black and white.

  5. Well someday my comments awaiting moderator approval will pop up here.

    They are similar to the comments I posted earlier today.

    In the meantime some more analysis of public sector pensions and retirement in general.

    How much money do you need for retirement?

    It depends on the unique situation.

    A rough guideline is 75% of your current income prior to retirement.

    Let’s say current income is $100,000.

    75% of $100,000 is $75,000.

    By the way the IL TRS teacher / administrator pension fund uses 75% of the average of the last 4 years pay as starting pension for full retirement benefits.

    Next how much do we need in the bank at the start of retirement, to receive $75,000 per year in retirement.

    Well the exact answer once again depends on some assumptions but here’s a rough guideline.

    Take starting pension and divide by expected rate of return.
    $75,000 / 5% = $1,500,000.

    But what if we think we are great investors and can expect an 8% rate of return.
    $75,000 / 8% = $937,500.


    Just by using a higher expected return, we need a lot less money at retirement.

    That’s one of the concerns of many people who examine public sector pension funds.
    Each of the 19 pension funds in the Illinois Pension Code uses its own rate of return assumption.

    TRS was using 8.5%, then lowered it to 8%.

    If TRS makes 5% instead of 8% the pension is even more underfunded than TRS is publishing.

    Plus because it’s defined benefit the taxpayer bears all the risk of a lower rate of return.

    The public sector worker doesn’t contribute an extra dime if the public sector pension funds under achieve their investment return target.

    TRS has in the past justified the 8.5% or 8% rate of return by stating that’s the rate of return we’ve achieved for the past x years.

    Cherry picking the time period to achieve the desired answer.

    But even if it was accurate for the lifetime of the fund, past performance does not guarantee future results.

    Plus, since the pension fund has been underfunded, even if it has been achieving its desired rate of return, that’s not enough, because the fund was underfunded.

    The rate of return assumption presumes fully funded pension.

    So you can look at your expected retirement, be it Social Security and 401K or whatever, and compare it to the public sector pensions by playing around with numbers.

    When you understand how little the public sector workers in most of these pension plans are contributing on an annual basis compared to your social security and 401k, to achieve identical benefits, your eyebrows will raise.

    Plus, it’s seemingly never good enough though, they are always trying to get a better deal.

    For instance, employer pension pickups of the employee contribution to the pension fund.

    Exchanging unused sick days for years of service.

    Increasing the number of unused sick days that can be exchanged for years of service.

    Increasing the maximum percentage of final average salary one receives as starting pension for
    full retirement benefits.

    Lowering the retirement age to receive full benefits.

    Lowering the years of service to receive full benefits.

    Generous salary hikes which hikes final average salary input in starting pension calculation.

    Early Retirement Option (ERO).

    That’s what’s been happening the last 40 years.

    That’s what we mean by hiking pension benefits through state legislation.

    It’s seemingly endless.

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