Sticker Shock: Our State Pols' Platinum Pensions

As part of our Rescuing Illinois Project, we investigative the millions of dollars in pension benefits guaranteed to former statewide office holders.

Illinois taxpayers are on the hook to pay millions of dollars in guaranteed pension benefits to former statewide office holders, including a couple of governors, and hundreds of retired lawmakers. And the meter is still running.
 

While a growing number of everyday people worry about having enough to live on after they retire, some of the state’s best-known politicians, including former governors and lawmakers, are reaping hefty and guaranteed annual pension payouts backed by Illinois taxpayers.

A Better Government Association investigation found that 27 of the 286 retired office holders—or nine percent—are enjoying annual pensions of more than $100,000. In some cases, retirees draw their pensions while also working in other government-related posts or lucrative private-sector jobs. Thirty retirees, or 10.5 percent, have drawn more than $1 million each so far.

The annual $100,000-plus pension club is a virtual "Who’s Who" of famous Illinois politicians, including former Govs. Jim Edgar and James Thompson; former Senate President Emil Jones; former Comptroller Dawn Clark Netsch; and former Attorney General Roland Burris.

Jim Edgar Roland Burris Jones Emil Dawn Clark Netsch James thompson
James Edgar Roland Burris Emil Jones Dawn Clark Netsch James Thompson

Moreover, Illinois taxpayers will keep paying for their politicians’ retirements well into the foreseeable future unless there’s a radical change in state pension law. The public-pension reform law that passed in 2010 won’t cut into payments for the current crop of state public office retirees or those of aging incumbents, who in the next few years could leave the state payroll to draw their own ample pensions.

That group of elders could include Gov. Pat Quinn, 62, who also served as state treasurer and lieutenant governor, and 69-year-old Michael Madigan, who was elected to the Illinois House of Representatives in 1970 and has been speaker for most of the past 30 years.

"No one really knew in the past how much we’re paying for these pensions," says suburban Chicago pension consultant William Zettler, who favors an overhaul of the current state-employee retirement system. "Nobody dreamt they are as high."

The General Assembly Retirement System (GARS), which administers the pensions for state lawmakers and constitutional officers, is one of Illinois’ five major public-pension funds, albeit the smallest.

Like other major state pension funds––which are estimated to be collectively underfunded by tens of billions of dollars—GARS is in dire financial straits. At the end of fiscal 2010, GARS was only 26 percent funded with $66.2 million in assets and $251.8 million in liabilities. (See Part 3)

The BGA investigation into politicians’ pensions is based on a GARS list dated March 7, 2011 and acquired from pension consultant Zettler, who obtained the data under the Freedom of Information Act and initially tabulated it for the non-profit Family Taxpayers Foundation. The pension data in this story and in the accompanying chart has been verified by the BGA. To view the table, click here.

GARS plan participants contribute up to 11.5 percent of their pay annually and their retirement payouts depend on the total number of years served. For example, those with 20 years of service can collect up to 85 percent of their final salary for their remaining lifetime. Moreover, if a participant retires at age 60 or older, that person gets a 3 percent pension increase every year.

Politicians Just "Following the Rules"

Leading the GARS list of annual pensions is former state Sen. Arthur Berman, who collects $203,428 annually, according to the March 7 pension data. He's drawn a total of more than $1.6 million in payouts.

The Chicago Democrat retired from the General Assembly in 2000 with a salary of $59,657. But he later took a higher-paid position with Chicago Public Schools and his pension was determined based on the higher salary under a reciprocal state-pension system agreement that ended in 1994.

"Everything I did was legal," Berman, 75, asserts. "I served in the Illinois Legislature for 31 years and survived 22 elections. People ask me how I did it and I tell them all I did was campaign 365 days a year."

The upper-echelon of state retirees also includes two retired governors who are drawing big bucks since leaving office.

Former Gov. Jim Edgar, who served from 1991 to 1999, is No. 5 on the list and is collecting $134,853 a year, while former Gov. James Thompson, who was in office from 1977 to 1991, and is No. 7, gets $127,215 annually.

Edgar notes that he was a CEO, running the government of a big state, but didn't earn the type of benefits awarded to top executives at public companies.

"I didn't get the stock options and bonuses," he says.

Edgar defends pensions for state officials and says curtailing benefits "is going to affect who you draw in" to serve public office. Pensions help attract and retain good candidates, he says, adding that retirement benefits were not the reason he sought office.

Edgar has collected more than $1.1 million in state pension benefits, while Thompson has drawn $1.9 million. Both men have had financially beneficial careers since leaving the Executive’s Mansion.

Yet, the 64-year-old Edgar is a distinguished fellow with the Institute of Government and Public Affairs at the University of Illinois, a position he’s held since 1999. Edgar teaches and lectures for the U. of I. system and is contributing to a pension program for state university employees. He makes $177,630 at the U. of I.

Edgar also serves on two corporate boards, including nut marketer and distributor John B. Sanfilippo & Son and personal-grooming products giant Alberto-Culver Co. (Melrose Park-based Alberto-Culver agreed to sell to Unilever for $3.7 billion. That deal, announced last September, hasn't closed.)

In fiscal 2010, ending June 24, Edgar was paid $100,760 in fees and stock awards as a director of Sanfilippo. In fiscal 2010, ending September 30, 2010, he was paid $162,136 in fees and stock for serving on Alberto-Culver’s board, Securities and Exchange Commission filings show.

Meanwhile, Thompson, 74, has been a partner with the law firm Winston & Strawn since 1991. He was the firm’s CEO and chairman from 1993 to 2006. He’s currently the firm’s senior chairman. While there’s no breakout of Thompson’s compensation, Winston & Strawn reported profit per equity partner of $1.39 million last year, according to trade publication American Lawyer.

He is also head of the Illinois Sports Facilities Authority, which owns and operates U.S. Cellular Field. Thompson receives no compensation for his role.

Thompson didn't respond to requests for comment.

While Edgar and Thompson are collecting their pensions, the same is not true for former Govs. George Ryan and Rod Blagojevich. Ryan forfeited his pension because of his felony convictions. The decision was challenged and taken to the Illinois Supreme Court, which upheld stripping the former governor of his retirement benefits.

Technically, Blagojevich is eligible for his pension upon turning 55 but whether he collects depends on the outcome of his current legal proceedings. Should his current felony conviction for lying to the FBI be upheld on appeal, or if he is convicted of another felony, Blagojevich may be ineligible to collect his pension—a determination that will likely be made by state officials.

One of Blagojevich’s most controversial decisions was naming Burris to fill the U.S. Senate seat vacated in 2008 by President Barack Obama.

Burris, who is also a former state comptroller, is No.6 on the GARS list and draws a $129,162 annual pension, according to the March pension data. He's collected $1.6 million in state pension payouts.

"It’s legal and the law allows it and that’s all I’ve got to say," says Burris, who recently retired from the U.S. Senate and is not eligible for a federal pension.

Netsch, who logged 22 years of state service as a lawmaker and comptroller, gets an annual pension of $121,720, according to the GARS list. Since leaving office, Netsch has stayed active in Democratic Party politics and is also a professor of law emerita at Northwestern University. She's No. 10 on the list and has received more than $1.5 million in state pension awards.

"This is a continuing subject of debate and a good target for people who want to make all public officials look like thieves and crooks," says Netsch.

While big names of statewide office holders draw the most attention, the bulk of the General Assembly’s retiree roster consists of rank-and-file lawmakers from the House and Senate.

Among the state’s Top 10 retirees are former lawmakers Edward Petka of Will County, who ranks second-highest with $161,280; Judith Erwin of Chicago, who is third-highest with $141,476 and John Friedland of Kane County who is fourth-highest with $140,649.

Erwin, 61, is now a managing director at ASGK Public Strategies, a position she’s held since February.

"For nearly 30 years, I made employee contributions as required," she says. "I have been fortunate to work in state government but I never did anything to impact my pension. I followed the rules."

Petka is a 30-year legislator who retired as a 12th Circuit Court judge last year. Petka, 68, drew a salary of more than $174,000 as a judge but under a reciprocal agreement no longer permitted in Illinois, drew a much higher General Assembly pension. He's received almost $184,000 in state-pension payouts as of March.

Friedland served 25 years in the House and Senate. He retired from the General Assembly in 1992 but draws a big pension based on a salary he earned working for the Fox River Water Reclamation District until early 1993. He's been paid $1.9 million in state-pension benefits.

"I just followed the rules and regulations when I was in," he says.

After 20 years in the Legislature, Erwin went on to become executive director of the Illinois Board of Higher Education, a job she held from 2005 until August of last year. She resigned for mixing politics and state business. Among other things, she was accused of working for Barack Obama's 2008 presidential campaign using a state-issued cell phone and email account. She resigned from her $191,000 a year agency job, paid a $4,000 fine and agreed never to seek or accept state employment again. Erwin has received just under $77,000 in state-pension benefits as of March.

Nice Work...If You Can Get It

For incumbents, becoming eligible for a GARS pension is a fairly easy bar to reach in terms of time on the job and age.

A member is eligible to start drawing from a pension at age 62 if he worked at least four years in the system. Members with eight years of work can collect pensions at age 55.

Moreover, legislators are basically part-time employees who work about eight months of the year. Often, those lawmakers have businesses on the side that can include practicing law or owning a company.

On top of that, lawmakers and all state public pension employees are entitled to free health care, a benefit that wasn't touched as part of the reform last year.

"A guy who retires at 60 is going to cost $15,000 to $20,000 a year in medical benefits, too," Zettler says. "It's a huge benefit."

However, Berman counters that public pension and health care insurance is a well-earned benefit necessary to draw capable people to serve in office.

Netsch agrees with those sentiments, saying public pensions are "a cost of doing business" needed to help recruit and keep good workers and office holders.

Moreover, she says it is unfair to paint legislators as part-timers because "most people have to dramatically cut back or give up outside activities."

Yet while politicians are guaranteed a pension, many of their constituents fear the prospect of retiring, especially in a fragile economy, say industry experts.

More than any time in the past 20 years, Americans are more pessimistic about their chances for a comfortable retirement, according to Washington-based Employee Benefit Research Institute (EBRI), a non-profit organization that studies retirement and other worker issues.

And while many Fortune 500 CEOs and Wall Street financiers are pulling down huge compensation packages and fat bonuses, it is very rare for a middle manager or an everyday worker to draw $100,000 a year in retirement, says Jack VanDerhei, director of the research group.

Indeed, many Americans fret about outliving their life savings, he asserts.

Half of the more than 1,000 workers surveyed by EBRI recently said they worried they won’t be able to afford retirement. The survey also found that 34 percent of workers last year had to tap into an Individual Retirement Account, 401K, retirement savings or investment account to pay basic expenses such as mortgages, health-care insurance or utility bills.

Fifty-six percent of those surveyed had less than $25,000 in savings and investments for retirement. Only 59 percent surveyed said they or a spouse currently were saving for retirement, down from 65 percent in 2009.

Twenty percent surveyed said they intend to retire at a later age than originally planned. Fourteen percent have retirement savings of at least $100,000 and 10 percent have savings of $250,000 or more.

Undoubtedly, General Assembly and other state employees enjoy a level of security that private-sector retirees could only wish to have.

For instance, if a private company can’t fund its pensions and a benefit plan is taken over by the federal Pension Benefit Guaranty Corporation (PBGC), retirees are only promised a portion of their retirement savings. In 2005, for example, a U.S. bankruptcy judge ruled United Airlines could default on its pension obligations, leaving 122,000 workers and retirees with diminished retirement plans. The highest paid workers lost half their pension benefits.

The maximum guaranteed PBGC pension amount is $4,500 a month—or $54,000 a year—for workers retiring at age 65 this year, in 2010 or in 2009.

In comparison, an Illinois state employee is constitutionally guaranteed to get his or her full pension—no matter what the financial condition of the pension fund.

Governor, Speaker Open to Making Changes

Among those enjoying that guarantee is the current flock of incumbent state lawmakers and constitutional office holders including the current governor and speaker of the house.

Asked about the possibility of Madigan drawing a large pension some day, his spokesman Steve Brown defends his boss, saying that the speaker ran a "multi-million dollar operation" for decades. Madigan performed a job comparable to a private-sector business, Brown says.

Madigan is open to additional public-pension reforms, and the General Assembly pensions will be subject to any additional changes that may occur, Brown adds.

Gov. Quinn’s budget spokeswoman Kelly Kraft wouldn’t comment on her boss eventually drawing a sizable state pension. "Governor Quinn is currently working and not collecting a pension," she says.

But Kraft says Quinn is interested in discussing greater restrictions on state pensions. The governor "feels large state pensions that are already being collected need further review, and is open to further discussions on this matter," she says.

Some changes are already in place, sparked by a pension-reform bill signed into law last year.

Under the new law, legislators and state officials who begin their jobs after Jan. 1, 2011 are subject to new eligibility rules.

Now, new hires—including brand new lawmakers and office holders—will have to wait until they are 67 years old, with 8 years of service, to qualify for benefits. A General Assembly member with 8 years of service can retire at 62 but will receive decreased benefits under the revamped pension rules.

Retirement benefits will be figured on a maximum salary of $106,800 while cost of living increases will rise at the rate of inflation or no more than 3 percent (whichever is lower).

Backers of the pension law say these reforms will save the state $200 billion over the next 35 years.

Others are not so sure it’s enough.

Of all the states facing problems funding their pension plans, Illinois has the dubious distinction of being the worst in the nation, according to the Washington-based Pew Center on the States.

"Illinois has some extraordinary challenges to deal with," says Kil Huh, research director for Pew’s state policy arm.

Until those challenges are confronted and the pension system is reformed, Illinois taxpayers will continue to dole out millions of dollars to retired public servants.