Don't kick the pension can down the road

Rahm Emanuel, in his previous life as the President's Chief of Staff, famously said in 2008, "You never want a serious crisis to go to waste." Rahmbo and his home state of Illinois might want to take that advice as the Land of Lincoln's public pension system unravels at the seams. Rather than place their hopes in a failing system, public workers deserve a fundamental rethink of their retirement options.

Public workers deserve a fundamental rethink of their retirement options.

Gov. Pat Quinn has proposed a major reform, one radical enough to gain the approval of the Wall Street Journal editorial board. This plan simply hammers on workers and retirees, however, without improving portability of benefits or ensuring that young teachers get a fair chance at accruing retirement wealth. Illinois should consider 401k-style defined-contribution plans or cash-balance accounts instead of its legacy pension system for teachers.

Special interests predictably claim reforms cannot and will not save money due to transition costs, a fact noted by the University of Arkansas' Robert Costrell in a policy brief released today by the Laura and John Arnold Foundation. The Teachers' Retirement System of the State of Illinois makes just this claim.

Prof. Costrell's brief lays out in helpful detail why this isn't true, but the following graph tells the story succinctly, using California as an example:

 

It's clear that transitioning away from defined-benefit pensions plans can save money in the long run. The question is whether lawmakers are willing to make short-term adjustments to ensure long-term sustainability.

For systems in crisis, the time for reform is now, not tomorrow. This is especially true for teacher pensions—bad policy today can drive away a generation of high-potential young teachers away from the profession, or at least make packing up and moving to the next state more attractive. Rhode Island has provided an example for its blue-state brethren on how to fix a toxic situation and save money. Illinois lawmakers should resist the urge to kick the can down the road, instead passing radical reform of the pension system and providing teachers with a forward-thinking retirement plan.

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