January 2014

Contracts Are Not Binding in Illinois

If you agree to work for 8 hours for $100, $60 to be paid today, $40 to be paid on Friday, and your boss only coughs up $20 when Friday rolls around, what is the best word for what has happened? To listen to Illinois's governor, state legislators, and major newspapers, you might think that the appropriate word is “reform.”

Under Illinois’s new “Pension Reform” law, workers will not be paid what what they were promised when the agreed to do the work. Among other things, the law will diminish scheduled annual pension increases for those who have already retired or who are about to retire. There would no longer be a 3% increase to the whole pension every year. Instead, to put it most simply, the increase would be on a lesser amount, and it would apply only to that amount each year. Thanks to the loss of compound interest, the reduction in the retiree’s income will become more dramatic with each passing year.

The supporters of the state’s action claim necessity: the state wants the money for other things. Doubtless everyone who wants to stiff a worker wants the money for another purpose, but that does not lessen the obligation to pay up. The state faces a crisis for the reason most people facing huge debts do: it spent without saving. While its retirees made real contributions to their pension plans, the state failed to make the promised matching payments. Instead, it made “notional payments,” matching real money from the workers with worthless IOU’s. It promised to make those markers good when the time came, and the time is now.

During the years I worked for it as a college professor, the state promised me retirement on stated terms. The deal was that I could retire at 55 after accumulating 20 years of service, and that I would then receive a pension to be figured by a set formula, a pension that would be increased by 3% each year. That was as much a part of the agreement—our contract—as that I would teach and do research and receive a salary nine months of the year. I did my part: I expect to state to do its part, too.

Some legislators and editorialists have tried to blame this crisis on the unions, which had too much influence over the craven legislature. But I was never represented by a union—and my university did all in its power to keep it that way. I simply took the deal the state offered. The state is responsible for all the agreements it entered into, even with those ogres the “union bosses.” But it cannot claim that people like me forced it to make unequal bargains, because we never had a chance to bargain with them at all. (If we had had a say, I think few would have given up Social Security benefits—the state did not care to pay its share of FICA—and many would have opted to have had the money deducted from their checks put into 403(b)’s beyond the state’s control.) The state cannot claim that its retirees receive payments thanks to the legislature’s largesse, and not by contractual right, because the Illinois Constitution explicitly states that a public pension is an “enforceable contractual relationship, the benefits of which shall not be diminished or impaired” (Art. XII; Sec. 5).

What is at issue here is the sanctity of contracts. No one claims that our contract was not valid: it was clearly agreed that my colleagues and I would exchange our labor for a salary, certain benefits, and a pension with annual increases of 3%. It is the responsibility of the people of the state of Illinois to honor that contract. The state is not bankrupt so long as it has the power to tax. The people of the state—who elected legislators who made promises that are now unpleasant to keep because they set aside too little year after year—are responsible for fulfilling that contract. They have no more right to hold onto what they owe us than a boss has the right to hold back a $20 bill from a casual laborer. Illinois has not enacted a reform; it is attempting a swindle.

N.B.: I have never been a citizen of Illinois, so I stand in relation to that state only as a party to a labor contract. While citizens of Illinois in my position may be blamed for failing to discharge their crooked or incompetent legislators and governors, I cannot. And the harm the state plans to do me is real. My annual pension is now in the mid-$30,000’s. If these “reforms” are allowed to stand, in ten years’ time, I will have lost about $30,00 of what was promised me.