Cutting Pensions Won’t Solve State Budget Crisis

Governor Quinn and legislative leaders are calling for a two-tier pension system—with new hires having lower pension benefits than current employees. They say these changes are needed to address the state’s $9 billion budget deficit. AFSCME opposes such a two-tier system. Here’s why:

*Cutting pensions and undermining retirement security for state employees is the wrong path. AFSCME is opposed to any unfair two-tiered system that forces employees doing equal work to receive unequal benefits.

*The average retired state employee's pension is about $1,500 a month or $18,000 a year. Many retirees get by on significantly less than even this modest amount. These benefits are earned compensation that state employees make regular contributions toward over the course of their working lives.

*The real problem is the huge unfunded liability already accrued for benefits owed to current employees and retirees. That is the fault of past governors and legislators who for years have failed to pay the state's true cost for pensions into the pension funds for these employees—even as employees always paid faithfully and in full.

*Establishing a new tier of pension benefits for new hires will not reduce the current unfunded pension liability by one penny. By definition, that unfunded liability is for current employees, for the benefits they have already earned. The only way to solve that problem is to develop a disciplined repayment plan, including a realistic source of revenue, and stick to it.

*Establishing a new tier of pension benefits for new hires only reduces the cost of pension benefits for those new hires. Therefore, any savings from such a lower tier for new hires are minimal for several years, until new hires become a significant portion of the workforce. This is NOT a real solution to the current budgetary crisis, though the business community is insisting that this proposal is necessary before they will support an income tax increase.

*Cutting benefits for new hires harms current employees too. As more new hires enter the workforce at a lower benefit rate, it is very likely that they will resent the fact that they are doing the same work for less compensation, creating tensions in the workplace, as well as within the union.

*Cutting benefits for new hires creates future problems. Cutting benefits for new hires won't solve current fiscal woes. But it will create new ones when those employees come of retirement age if their benefits are too low to meet their living costs.