(Editor's note: This article was published first at Illinois Policy Institute)
President Joe Biden announced Dec. 8 the federal government will use nearly $36 billion to stabilize failing Teamsters union pension plans nationwide, preventing severe benefits cuts for more than 350,000 union workers.
The funding for the Central States Payment Fund is the largest allocation of American Rescue Plan dollars for pensions to date.
Without federal assistance, the Biden administration projected Teamster members would see their retirement benefits reduced by an average 60% as the plans approached insolvency in 2026. The new pandemic relief is expected to keep the system solvent until 2051.
Illinois is home to more than 20 Teamster’s chapters and the nation’s worst pension debt, estimated at nearly $140 billion by state authorities in 2022. Private investor services projected that debt as high as $313 billion, using more realistic assumptions on returns.
In September these state pension funds had just 47 cents for every dollar in promised pension benefits.
Springfield lawmakers cannot routinely rely on federal authorities to bail out overly generous and underfunded state and local pensions. Illinois public servants deserve to receive the retirements they’ve been promised in full – not the 40% that would remain after default.
The proposed “hold harmless” pension reform developed by the Illinois Policy Institute would tie all pension cost-of-living adjustments to inflation rather than a fixed rate of annual growth, saving more than $50 billion by 2045. It would also increase required government contributions to fund 100% of promised pensions rather than the current 90% target.
A ‘hold harmless’ pension reform plan similar to one originally developed by the Illinois Policy Institute – based loosely on bipartisan 2013 reforms – could help to eliminate the state’s unfunded pension liability and achieve retirement security for pensioners.
Previous analysis showed that changes such as capping pensionable salary, replacing cost-of-living adjustments with true cost-of-living increases, and adjustments to realigning benefits with historical inflation rates would have saved the state $2.4 billion in the first year alone, and more than $50 billion by 2045. It would also target 100% funding to fully secure retirements for those relying on pensions.
Pension reform would ensure thousands of Illinoisans relying on a public retirement receive what they’ve been promised.