REPORT: PENSION SYSTEMS MOST UNDERFUNDED
A new report by the Pew Center on the States confirms Illinois once again boasts the country’s most underfunded pension systems.
The recent Pew report, “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs,” shows the state’s retirement systems are only 51 percent funded. The Pew report noted that it’s recommended by most experts that states maintain at least 80 percent funding. Additionally, the report indicated Illinois has only set aside one-tenth of one percent of the almost $44 billion that will be needed to pay retiree health-care costs.
The reduction in the value of stock market investments has affected Illinois’ pension investments, but the deficit can be largely attributed to the failure of state officials to make the required contributions to the state’s retirement systems. In recent years, the state’s Democrat leaders have chosen to defer pension obligations to finance spending increases in other areas. The Pew report noted that “Many experts agree that making full annual contributions is key to effectively managing the long-term costs of state retirement systems.”
Although the report noted an immediate crisis—such as an inability of the state to make pension payments to retirees—is not likely, it is clear Illinois and other states must address massive pension deficits before the problem worsens. As the Pew Center warns, “a state’s failure to pay the annual bill for retirement benefits can mean it will have to pay more in the future.” Additionally, as more General Revenue Funds are dedicated to pension obligations, there will be less revenue for other state obligations, such as education and human services.
In 2010, the Legislature advanced pension reforms that would increase the retirement age and reduce benefits for new employees. Some state officials are now targeting the benefits of current employees. Proponents have floated ideas such as reducing benefits, requiring employees to work longer before they can retire, and mandating greater employee contributions toward pension and health-care costs.
The Illinois Constitution prohibits any reduction in benefits to current employees; however, there is a debate as to whether or not that protection prevents any changes to current employee benefits or only to those benefits the employees have already earned, but not to benefits they would earn in the future.
INSURANCE PROVIDERS SAY SWITCH COULD BE MORE COSTLY
On April 27, a Springfield hearing about a proposal to end the state’s contract with health insurance providers Health Alliance and Humana was heavily attended, with interested parties seeking to learn more about the potential switch.
Health Alliance and Humana were recently outbid by Blue Cross Blue Shield, a change which state officials say could save Illinois as much as $100 million annually for the next 10 years. However, the American Federation of State, County and Municipal Employees have joined Health Alliance, Humana and several lawmakers in disputing the purported savings.
During the hearing, Health Alliance CEO Jeff Ingrum contended a switch may actually cost Illinois and state workers and retirees more. Currently, Health Alliance provides health-care coverage in 98 of Illinois’ 102 counties. Blue Cross Blue Shield provides coverage in only 38 counties, and while a spokesperson said the company is working on implementing coverage in more counties, critics of the recent proposal point out that state procurement rules require bidders to have a provider network in place when they place their bid.
Both Health Alliance and Humana are seeking to overturn the decision, which could impact more than 100,000 employees. The state’s Chief Procurement Officer, Matt Brown, noted that the Procurement Policy Board will review the award to decide whether or not to re-bid the contract, though a decision presumably won’t be made until after the May 1 beginning of open-enrollment for state workers to choose their health-care plan. The spokesperson for Central Management Services said that if necessary the department could extend the enrollment period to give people more time to make a decision.
TOPINKA: ‘STOP SPENDING MORE THAN WE BRING IN’
Adding to the ongoing concern about the state’s financial condition, Comptroller Judy Baar Topinka warned this week that Illinois will likely end the current fiscal year in June more than $8 billion in the red, despite a 67 percent tax hike approved in January.
She noted that the state currently has a backlog of more than 208,000 unpaid bills, totaling $4.52 billion, along with another $3.8 billion in other outstanding obligations.
“The prescription for our financial recovery is simple: stop spending more than we bring in,” Comptroller Topinka said.