Last week, I attended the 40th annual meeting of the American Legislative Exchange Council (ALEC) in Chicago, a city I love; a city bursting with memories from my law school days, a city both vibrant and ill at the same time. I was honored by the invitation from the folks at ALEC to present a new publication titled "Keeping the Promise: State Solutions for Government Pension Reform" at the conference. Released on Tuesday, Keeping the Promise is a educational resource for state lawmakers to help them understand the ins and outs of pension policy and to assist them in charting an appropriate, measured course towards meaningful pension reform.
Chicago was the perfect backdrop for the pre-release of the report. Here is a city, built on commerce, industry and banking, overflowing with cultural treasures from the Art Institute to the Shedd Aquarium to the Museum of Science and Industry, venerated by sports fanatics as the home of "Da Bears," "Da Bulls" and "Da Cubs," full of architectural creativity made possible only through the flames of destruction from a gas lamp and Mrs. O'Leary's cow.
Here also, is a city burdened by $26.8 billion in unfunded pension liabilities, beleaguered by high unemployment among the working class with few prospects for growth, besieged by gangs of young men trading gunfire in the streets without a sufficient police force to restore order, balancing on the precipice of bankruptcy with very few options left. Chicago is in desperate need of pension reform.
Keeping the Promise posits three main objectives for meaningful, lasting pension reform: (1) to ensure, as far as possible, that pension obligations already incurred are fulfilled, (2) to reduce and eventually eliminate pension related insolvency risk and (3) to develop new retirement options that are affordable, portable and facilitate retirement security. To meet these objectives, lawmakers should work to close existing open-ended defined benefit pension programs to new enrollees, migrate new employees into retirement programs where costs (to both employers and employees) are predictable and defined, fully fund the actuarial required contributions for the legacy plans, and, where necessary to prevent pension fund insolvency, make reasonable adjustments to pension benefits for existing employees and retirees.
While a bit heavy on the intricacies of pension policy, Keeping the Promise also offers suggestions on how to advance reforms through the legislative process. For example, policy leaders should engage with public sector workers and union leaders early in the process. The topic of pension reform elicits strong emotions from all sides, often devolving reasoned debate into hysterical hyperbole; open communication between pension stakeholders is critical. Skilled, compassionate leadership can calm down the rhetoric, ease concerns and keep reforms on track.
Politicians must also resist the temptation to score political points by blaming the pension crisis on public employees. This is not only wrongheaded, but also horribly unfair. Public employees simply accepted the terms of the defined benefit pension plans that were offered to them, relying on state and local governments to meet their commitments. To fault them for acting (rationally, I might add) in their own self-interest is hypocritical. After all, nobody I know seems to feel bad about taking every legal deduction on his or her income taxes; it is hardly fair to turn around and blame such a person for running up the national debt.
I hope Keeping the Promise will be useful to policymakers as they wrestle with the complexities of pension reform. I also hope that, somehow, it might help Mayor Rahm Emanuel save my beloved Chicago, and its good people, from bankruptcy.
Dan Liljenquist is a former state senator and U.S. Senate candidate.