One Pension Crisis, or Many? | Bleader

Tuesday, December 21, 2010

One Pension Crisis, or Many?

Posted By on 12.21.10 at 12:07 PM

To celebrate the renewal of my CPL card, I went through the archives of the Tribune to read up on pensions, which are obviously in the news. One of the interesting questions about this latest rash of interest in our screwed-up city and state pension systems is this: is this a new problem? Or the continuation of the same old problem? I think it's sort of like asking whether light is wave or particle. I browsed around in the 80s, sending us back a nice round three decades to the year I was born, and found no shortage of warnings.

I can't help but think there's a boy-who-cried-wolf problem with pension systems that's baked into how they're evaluated: The impression I get from reading around on pensions, not just here but throughout the country, is that having 70% of current obligations funded is considered good (please correct me if I'm wrong, either definitely or arguably). Not great, since obviously you can fund them up to and beyond 100%. But 70% is good enough for government work.

But that doesn't mean everything falls apart once you get to 70%. In fact, if you're going to have some spirit-of-the-season forgiveness for your government, compare pension savings to personal retirement savings. Are you well on your way to saving $271k for medical costs alone for you and your possible significant other? I'm not. According to my financial calculator, which I started about four months ago, I'm already two months behind on retirement savings. Which is terrible! Or not. If I'm only two months behind when I get to 65, that's pretty good. If I'm a year behind, that's a slight problem. If I'm five or ten years behind, my kids are gonna have to pony up. (If you're reading this in 2045, son/daughter, remind me I want the nice hip replacement instead of a grandkid.)

What I'm saying is this: there's a fair amount of flexibility between "okay" and "completely fucked" when it comes to pensions, just as is the case with personal savings. While this arguably represents reality on a long timeframe, it also makes it easier to get lazy when it comes to funding. Not to mention that personal retirement savings are hard enough for one person, and maybe his or her accountant; pension systems are retirement savings for thousands of people, retiring at different times, and overseen by many politicians and investment managers (and, you know, voters) over decades. What's already sort-of fungible math gets even more complicated as legislatures play the "telephone" equivalent of funding multibillion-dollar systems.

Basically, pension systems are hard to run but easy to fuck up. Below, a handful of headlines and highlights about city and state pension systems over the course of the 80s.

"Assembly Passes Out Some Treats," Daniel Egler and Tim Franklin, 1/14/87:

The [state] legislation would increase the liability of the already underfunded 15 retirement systems by $389.8 million, with an annual increase of $66.2 million.

"Pension liabilities a bomb ticking into the future," Daniel Egler, 11/23/86:

Alarmed by the funding ratios in Chicago's four pension plans, especially those for police and fire personnel, the committee said that continuing to ignore the problem would "saddle future generations with what is properly a current obligation.

"City Ordered to Pay Millions to Pensions," Charles Mount, 9/24/86:

The City of Cihcago, already faced with a $79.9 million budget deficit, was ordered Tuesday by the Illinois Appellate Court to pay as much as $25 million into its four major pension funds.

The appellate court ruled that the city owes money to the pension funds—covering the Police Department, Fire Department, municipal white-collar employees and laborers—because for more than five years it kept the interest earned by pension fund revenues that were held by the city before being turned over to the funds.

"State Pension Systems Need Added Funding," 11/28/85:

[Comptroller Roland] Burris, in a report covering a 10-year review of the pensions, said the state in the last three years has reduced the funding level of the pensions from 100 percent of annual benefits to 60 percent.

"Chicago's Point of No Return," 3/31/85, from "the first in a series of editorials about Chicago's precarious financial condition:

City pension expenses will continue to rise at rates of 8 to 10 percent, and neither the mayor nor the city council can do much about that, either. The state legislature mandates the benefit levels and likes to win friends among public workers by making them very generous. Four years ago Chicago's pension costs ate up 30 percent of the city property tax. This year it will be 40 percent. If trends continue, by 1988 the pension funds, debt redemption and other fixed costs that draw on the city property tax will absorb the entire collection, leaving nothing for day-to-day expenses.

"5 State Pension Units Have High Liabilities," Dave Schneidman, 5/23/84:

An audit of five state-administered retirement systems for judges, teachers, and other state workers found that the systems have $6.6 billion more in liabilities than assets.

The pension assets of $6.3 billion are adequate to make benefit payments for at least seven more years, said the audit report, made public by the state auditor general. But the report cautioned that future increases in the cost-of-benefit payouts "suggest a need to examine alternate financing strategies."

"Pension Fund Trim OKd," Philip Lenz, 4/29/83:

After more than two weeks of haggling, the Illinois Senate passed and sent to the governor Thursday legislation to reduce the state's contributions to employee pension funds by $71 million.

The cut will help Gov. James Thompson reduce a $300 million budget shortfall in the current fiscal year.


"But let me emphasize that no one's pension benefits will be affected by the passage of this measure.

"With the [nonbinding] payback resolution passed by the General Assembly, there is ample guarantee that the state will repay this money in a timely fashion" [Thompson said].

"Study rips city pension investments," Tim Franklin, 12/10/82:

Poor investment returns have caused the city's municipal pension funds to be deeply eroded by inflation, and new investment practices are needed, according to a report released Thursday.


The study warned that unless changes are made, an increase in taxes, boosts in employee contributions or reduced benefits ultimately may be necessary.

"The Credit Side of the Budget," editorial, 11/17/80:

Some of the refinancing techniques used are rather too slick. For example the [$27.8 million] property tax increase—which the mayor [Jane Byrne] had said would not be sought—is tied to city pension funds, which means it can go into effect automatically without City Council approval.

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