Opinion: Stop failing, tell the truth about pension mess
WRITTEN BY ED BACHRACH POSTED: 07/13/2015, 03:30PM
Members of the Chicago Teachers Union picket outside City Hall to protest $200 million in planned public schools cuts July 2 in Chicago. Chicago school and city officials detailed the cuts, including layoffs, scaled-back maintenance and reduced transportation, to the nation's third-largest school district on Wednesday, one day after the district paid a $634 million pension bill officials said it couldn't afford. (AP Photo/Christian K. Lee)
Stephen Stills wrote a line in a famous Crosby Stills & Nash song. “We never failed to fail; it was the easiest thing to do.”
The mess that is the collapsing public employee pension funds for the City of Chicago is the result of decades of failed public policy. Every step of the way, our elected leaders could have taken action to right the ship and connect the promise with the money. They could have had the discipline to either pay for their promises or not make them. Instead they took the easy way out and failed forward. They pushed the hard choices to those unborn and not yet in office.
Now we are coming to the end of that road. The bills are due — past due — and politicians are once again scrambling for a temporary patch. How can we learn from the mistakes of the past and stop failing?
In the beginning, when the plans were founded, the limit of the city’s liability was a multiple of the employee contributions to the plans. Over the years, as the employee groups were organized into unions and engaged in collective bargaining, the city gave away increases in pension benefits and pay in exchange for labor peace. Then, in 2010, the city agreed to change the formula for contributions to the police and firemen plans to “catch up” funding to the 90 percent level by 2040.
With woeful underfunding over the years, this now puts an onerous burden on the city and its taxpayers that did not previously exist. The city now has to pay for all the benefits, not just the multiple of employee contributions. The same scheme was built into the “reform” of the plans for municipal workers and laborers last year. That change is being challenged in court and might be thrown out.
The Center for Pension Integrity estimates that it would cost taxpayers at least $2 to $3 billion every year for the next 40 years for the four city plans plus the teachers’ plan to catch up. If this increase was financed by real estate taxes, it would require a 50 percent tax increase for generations, all to pay for promises made decades ago. Think that’s likely to happen?
We must insist that politicians stop failing us. Here are some measures that we should demand from our city’s leaders:
First, they should give us 15-year projections for the funding levels for the five major pension funds. Where will the funds be in 15 years? We should insist that these projections be made with an assumed 6% earnings, as recommended by the Society of Actuaries, and should include the most recent actuarial tables on life expectancies.
Then, if the city’s contribution to the plans will require a big increase — as predicted given the massive underfunding over the years — they should show us these amounts in terms of the percentage increase in real estate taxes. Whether the increases are funded this way or not, the easiest way for taxpayers to assess the magnitude of the tax increase is to translate it into their real estate tax bill.
Armed with this truth we should demand that leaders stop digging the pension hole. They should terminate the plans as soon as possible and put all new hires on either Social Security or some other affordable defined contribution plan. If it is possible to freeze benefits without diminishing or impairing them, then plan termination could also stop the accrued liability from continuing to pile up.
If leaders don’t take these actions, then one ugly truth is inevitable: bankruptcy. Either the plans will become insolvent or the drain on the city budget of paying for ballooning benefits will be unsustainable. Last year the five plans paid retirement benefits of $3.2 billion. These benefits have been going up by 6 percent a year. In 15 years they will be paying $7.2 billion in benefits annually. Where will this money come from?
Leaders can’t slap together a hasty plan to get them past the next election. It’s time to demand that they look at the big
picture, tell the truth, and stop failing.
Ed Bachrach is the chairman of the Center for Pension Integrity.
To the author of this article:
ReplyDeleteDear Ed,
In 1976 when I went to work as a laborer with the city and 9% of my paycheck was deducted as a pension contribution, I didn't hear a peep about the outrageous benefits I'd be receiving at the end of my employment. Instead, over the years, these benefit funds have been the personal piggy bank to fund social entitlement programs and investment schemes for well connected. All of the members of the trades, first responders and teachers kicked in their end. We kept our end of the bargain. Nobody said a word about the moneys we were doing without. Nobody argued about those receiving public pensions not being eligible for social security benefits outside of enrolling in Medicare.
Former Mayor Daley expressed surprise when a Sun Times expose revealed his nephew had borrowed millions of public pension dollars for a real estate investment that went south. "This is the first I heard of it" said the Mayor when asked. Its my understanding that 2 of the Mayor's cabinet members sit on each of the city's pension boards. Don't you think one of them, in conversation with the Mayor might have mentioned, "By the way Mr. Mayor, your nephew stopped by the pension board yesterday to borrow a few million dollars to purchase that old factory building on south Pulaski"?
The city failed to kick in their designated contribution for over 30 years. Its sad to have the taxpayers look at city workers and future real estate tax increases as some type of tumor they'd like to excise. On that count, I'd mention that we pay taxes too.
Ed, maybe you and your team could research all the social entitlement programs passed by the City and the State over the past 30 years and find out who introduced them, who were the beneficiaries and what the exact dollar costs were. Wouldn't it be prudent to have legislation like this be tied to an author and also have an expiration date instead of rubber stamping renewals in the city council and state legislature?
Over the last decade we hear politicians crow about transparency which to me is a watchword for pandering.
The last thing I'd like to mention is that public pensioners put in their time, their benefits are formulaic based on income averaging. We have families, we have financial responsibilities and in due time we'll have medical expenses over and above what medicare and insurance will cover.
Its frustrating to think the city and many of its taxpayers look upon us as with actuarial tables to see how long they're stuck with paying us. The bottom line is we paid our end for more than 20-30 or more years. The city didn't. We didn't have an option to use our pension contributions for personal investment or self entitlement programs. So when all the talk about excessive expense and public pensions come up, I suggest you look at what the city has done, or rather, didn't do. We kept our end of the bargain.
Sad
ReplyDeleteMichael Savage, a talk show host, claims there's a movement afoot to seize IRA and 401(k) money to bail out Social Security.
ReplyDeleteIt pains me to say this but this underfunding occurred only because union officials were bought off. I cannot tell you how troubled I am by all this. It hurts to think of the betrayal.
ReplyDeleteI used to take great comfort in the fact that I lived in the city. The full sized Chicago flag still hangs in our family room.
ReplyDeleteThere was trips via CTA to see Santa at sears on63 and Halsted, Officer friendly, nice attractive crossing guards, well maintained playgrounds, weekly tours to the firehouse and library, shots at the board of health. City government provided the basics.
Where did it all go? The city government is now something to be feared.
A way of life, a way of thinking, GONE.
DeleteI don't know anyone with a IRA or 401k that can actually retire. Bring back defined benefit plans, cut CEO pay and golden pensions over 100k.
ReplyDelete