A pension solution — use Social Security formula

A pension solution — use Social Security formula

In the classic “sword vs. gun” scene from Raiders of the Lost Ark, Indiana Jones encounters a massive assassin ominously wielding a three-foot sword. We all remember Indy taking pause, shrugging, grabbing his pistol and killing his adversary with one shot. Simple. Effective. In the ongoing Illinois pension saga, Gov. Pat Quinn and the incoming General Assembly should adopt this Indy-inspired approach.

In each of the past three years the mind-boggling complexity of the current system has overwhelmed our political process. Reform proposals have included optional 401(k)s in 2011, voluntary benefit reductions and property tax increases in 2012 and mandatory benefit reductions in 2013. All have failed.

Let’s learn from our mistakes. The proposed solutions failed for the same reason — they all tinker with the same convoluted elements inherent in the pension system. COLAs, normal costs, retirement ages, amortization, defined benefits, spiking, cost shifts, yada, yada, yada. Who really understands this stuff anyway?

Did Indiana Jones brandish a sword because he was facing a swordsman? No! He chose a different weapon — simple and powerful. Here is ours. Stop negotiating arcane details and move to something everyone understands.

Social Security.

Calculate benefits for current and retired state workers and teachers according to the same formula used for Social Security. Problem solved.

Comparing the current pension system to Social Security illuminates why we are on a path to insolvency.

* Social Security is based on inflation-adjusted earnings averaged over 35 years, while Illinois pensions are usually based on the (often spiked) four highest income years.

* Cost of living adjustments for Social Security are based on inflation while Illinois pensions increase 3 percent annually, in excess of recent inflation. Social Security replaces about 45 percent of average wages, compared to the Illinois pension’s 75 percent.

* Finally, Social Security benefits increase very little on wage levels over $58,000 and there are no benefits on wages in excess of $113,000. Illinois provides the same 75 percent wage replacement on high incomes as it does on lower incomes — and it is these higher income benefits that are bankrupting the pension system and the state.

But wait, haven’t state workers contributed more to their pensions than they would have under Social Security? Yes. And the state can and must repay them every penny of the excess.

Clearly the change will lower benefits. Any serious reform attempt will. But benefits based on Social Security are affordable by the state and consistent with the private sector. If local school boards or universities want to add additional retirement benefits, they can do it — offer 401(k)s with an employer match. Just leave our state budget out of it.

Adopting the Social Security benefit calculation just works. It eliminates the massive unfunded pension liability immediately. We could stop the shameful squeezing of programs for our most vulnerable citizens. The “temporary” tax increase would quietly expire. Illinois would stop chasing away businesses, jobs and families.

On cue, union bosses will cry foul. It’s what they do. Springfield politicians will drone on about their interpretations of the state constitution. That’s what they do, too.

So let’s ignore them and fix the system. Perhaps the change will require a constitutional amendment. That would be fine. Amending the state constitution is a well-established process that our state has invoked on numerous less consequential occasions.

Adopting the principles of the popular Social Security program will solve the Illinois pension crisis. Simple, huh? No unfunded pension debt. Nada. And all past, present and future state workers would receive the same retirement benefits that the rest of us rely on. It’s how Indiana Jones would take on the Illinois Pension Python.

Marc Levine publishes LevineOnPolicy.com and is a senior pension adviser to House Republican Leader Tom Cross. This article originally appeared in the Illinois State Journal-Register and appears here with permission from the author.

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