Guest commentary: Teachers' COLA targeted to mask pension fraud
By JOHN KINDT
Branded with "pension fraud" on March 11 by the U.S. Securities and Exchange Commission, one Illinois response consisted of new misdirection legislation which pushes teachers toward poverty via phasing out their "cost of living adjustment."
Social Security's COLA is basically a monetary raise tied to the inflation rate. The COLA is designed to keep anyone dependent on Social Security from being forced into poverty, as inflation reduces the value of each dollar.
Most states and savvy pension plans use COLAs modeled on Social Security, as informed by the U.S. Bureau of Labor Statistics. However, for 30 years the Illinois Legislature has been misleading its teachers and public employees by employing a low COLA rate of 3 percent when the federal Social Security rate has been an average of 30 percent higher at 4.13 percent. The Illinois Legislature has technically been keeping the difference between the higher inflation rates and the Illinois 3 percent COLA.
Then in 2009, there was a moment of poetic justice when the U.S. inflation rate dipped below 3 percent and retired public employees began to regain purchasing power lost over the previous 20 years. This low inflation rate alarmed Springfield's legislative leadership. Instead of adopting the fair and equitable model related to Social Security norms, Illinois legislative leaders opted on March 21 to pass HB1165, which is designed to virtually eliminate the Illinois COLA, forcing dependent retirees into lower economic levels each year.
HB1165 and similar bills shadow the Legislature's historical misappropriation of monies from the Illinois retirement systems — which manage the required contributions made by teachers and public employees. These legislative actions and associated misrepresentations resulted in the March 11 ruling by the SEC that Illinois was guilty of "pension fraud," and on March 13 the editors of the Wall Street Journal branded the Illinois Legislature with activities which would have landed private parties "in jail."
During the Carter and Reagan administrations, inflation rates often hovered at 10 percent, and when U.S. inflation returns, retired teachers and public employees will be locked into ever-increasing poverty.
Established in 1975 at 8 percent, the Social Security COLA reached a high of 14.3 percent but has averaged 4.13 percent to 4.46 percent. By comparison, the Illinois COLA in 1975 was 2 percent, and thereafter averaged 2.92 percent (currently set at 3 percent). Thus, the Illinois COLA has always been 30 percent less than the average Social Security COLA.
Alarmingly, HB1165 would now eliminate all adjustments for future inflation. As they currently try to educate the public regarding reasonable COLA solutions, the coalition of teachers and public employees known as "We Are One Illinois" will be economically condemned by HB1165 to become: "We Are None Illinois."
The simple and equitable solution is to tie the Illinois COLA rate to the BLS inflation rate. Then legislative gambling on the markets and inflation rates becomes irrelevant.
Alternatively, the Legislature should review the 2013 COLA recommendations of the Institute of Government and Public Affairs at the University of Illinois, as compiled by a team of academics from various Illinois universities. Since February 2012, the IGPA has prepared a series of reports with reasonable solutions. These reports and other academic acumen have not been considered or vetted by the Illinois Legislature — which seems determined to enact bizarre legislation reflecting poorly on Illinois.
Fortune 500 companies and other businesses are already avoiding and leaving Illinois. For example, Jimmy John's, as well as a recent Caterpillar expansion, have opted to leave Illinois.
Despite offering the best incentives and tax packages, Illinois was also recently snubbed by the $1.4 billion expansion of Orascom Construction Industries. Orascom even admitted that it chose Iowa because of the untrustworthy government in Illinois. As the Chicago Tribune editorialized: "Bye-Bye Jobs: Corruption, Pension Debt and Tax Fears Cost Illinois a Big Investment."
Current irresponsible actions by legislators to force Illinois over the economic cliff constitute a national embarrassment, comparable to the Gov. George Ryan and Gov. Rod Blagojevich scandals. Combined with the SEC's 2013 ruling that Illinois had engaged in "pension fraud," Springfield decision-makers should be sensitized to the federal agencies which are obviously beginning to focus more on Springfield's activities.
Professor John Kindt has served in various academic capacities addressing issues involving Illinois public employees and earned benefits for several years.