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The Chicago pension scapegoat that isn’t

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* Friday

Mayor Lori Lightfoot today declared “unsustainable” the 3 percent annual compound pension COLA many city workers and retirees have been promised—and hinted she would not object if further conversations occurred about amending the pension clause in the Illinois Constitution to allow change.

* Amanda Kass tried to set the record straight on Twitter

(A) few comments about the annual annuity increases, also referred to as the COLA.

First, police and fire do NOT have a compounded 3% COLA–these two funds account for ~51% of Chicago’s pension liabilities. Only municipal employees and laborers have had 3% COLA.

Second, that 3% COLA was only applicable for people hired before Jan 1, 2011….everyone else is now in Tier 2. Tier 2 COLA isn’t compounded, and is designed to basically guarantee retirement income doesn’t keep pace w/inflation. […]

so let’s now turn to the history of the 3%, compounded COLA (remember only applicable to 2 of the 4 funds). It was set in 1998. What did things look like at the time? well both labor and municipal funds were pretty well funded [in 2000 municipal fund was about 95% funded, labor was over 100%] […]

At the time, and until v recently, the city’s contributions were a multiplier of employee contributions. for every $1 municipal employee put in, city put in $1.25. This was already bad because it meant city’s contributions weren’t tied to cost of benefits or unfunded liabilities

To me, the 3% compounded COLA isn’t the root of the problem, it’s that lawmakers chose to enhance benefits while 𝓭𝓮𝓬𝓻𝓮𝓪𝓼𝓲𝓷𝓰 the city’s contributions and have those contributions be totally de-linked from the pension funds’ finances…and not changing for years.

the problem snowballed and snowballed, compounded by the recession.

changing COLA would mean changing benefits for Tier 1 members of 2 systems…there has been several attempts at cutting benefits, each one struck down by the state supreme court.

another thing to add is that Public Act 100-23 created a third benefit tier (Tier 3) for municipal employees and labor. Tier 3 COLA is same as Tier 2. tier 2 and 3 comparison for municipal is here meabf.org/legislature

posted by Rich Miller
Tuesday, Sep 3, 19 @ 11:57 am

Comments

  1. “To me, the 3% compounded COLA isn’t the root of the problem, it’s that lawmakers chose to enhance benefits while 𝓭𝓮𝓬𝓻𝓮𝓪𝓼𝓲𝓷𝓰 the city’s contributions and have those contributions be totally de-linked from the pension funds’ finances… and not changing for years.”

    And lets not overlook the voters who chose to ignore the contemporaneous warnings that these compounding chickens would one day come home to roost.

    – MrJM

    Comment by @misterjayem Tuesday, Sep 3, 19 @ 12:01 pm

  2. Can we EVER get a Mayor who gets it?? The “pension problem” is caused by governments taking PENSION HOLIDAYS and not matching the employee contribution.. Daley NEVER raised property taxes and just took holidays..

    Comment by NotRich Tuesday, Sep 3, 19 @ 12:08 pm

  3. The average pension in the Chicago municipal fund is just $34,413 a year.

    And city employees (municipal, laborers, teachers, fire, police - everyone) are NOT eligible for Social Security.

    If you care to live in Chicago on 34k a year, please raise your hand.

    Comment by Reality Check Tuesday, Sep 3, 19 @ 12:09 pm

  4. Since the constitutionality of the pension issues has been decided and upheld by the ILlinois Supreme Court, what more need be said? Trying to change the court? Throwing anything and everything at the wall and hoping one day it will stick?

    No. the 3% AAI, (not COLA), is not unsustainable. There is only one way that these money problems happened. It’s by politicians putting 0 dollars into them. What isn’t understandable about that? The nerve of them to blame workers/pensioners is unbelievablt. They never missed one payment from their hard earned paychecks!

    Comment by Ano Tuesday, Sep 3, 19 @ 12:14 pm

  5. One would think that learning history would be a precursor to running for Mayor of Chicago.

    Comment by A Jack Tuesday, Sep 3, 19 @ 12:22 pm

  6. Perhaps it’s time to expand the state constitution test from middle school students to all candidates for public office

    Comment by Michelle Flaherty Tuesday, Sep 3, 19 @ 12:23 pm

  7. ==The average pension in the Chicago municipal fund is just $34,413 a year.==

    For 24 years of service.

    Comment by City Zen Tuesday, Sep 3, 19 @ 12:25 pm

  8. To me, the whole point here is that the mayor has finally let slip her duplicity and her true feelings .
    Whatever happened to “A pension is a promise?”

    As the mayor’s eyes shift from side to side, she talks out of both sides of her mouth.
    And we’ve got four more years of this?

    Comment by TinyDancer(FKASue) Tuesday, Sep 3, 19 @ 12:29 pm

  9. ==hinted she would not object if further conversations occurred about amending the pension clause==

    How big of her. Since you’re already breaking contracts, how about reneging on the skyway and parking meter leases first.

    Comment by Jocko Tuesday, Sep 3, 19 @ 12:31 pm

  10. Hopefully she doesn’t waste scarce tax dollars that should be going to the pension funds on legal services to try to negate the pensions.

    Given the clear rulings, that would be more throwing good money after wasted money.

    Comment by RNUG Tuesday, Sep 3, 19 @ 12:32 pm

  11. The City of Chicago came to the General Assembly and asked for the Pension Holiday. They asked and the GA fulfilled their wishes. Pay the Piper Mayor. I realize you were not the Mayor when this vote took place but you asked for the job.

    Comment by Nagidam Tuesday, Sep 3, 19 @ 12:38 pm

  12. I would love to see what the funding ratios would look like if the city had made its share of contributions

    Comment by SAP Tuesday, Sep 3, 19 @ 12:38 pm

  13. it is most important for the public to understand that many in government were not paying into Social Security for a long time until rules changed. the pension…meager as it may be for many…is what they have. don’t mess with Tier One.

    Comment by Amalia Tuesday, Sep 3, 19 @ 12:48 pm

  14. ==It was set in 1998. What did things look like at the time? well both labor and municipal funds were pretty well funded==

    Plan returns of 18-20% for 1997-98 didn’t hurt either.

    1998 also brought ERI and the 2.2 multiplier.

    ==for every $1 municipal employee put in, city put in $1.25==

    Used to be $1.70 prior to 1998.

    Comment by City Zen Tuesday, Sep 3, 19 @ 12:48 pm

  15. == Since you’re already breaking contracts, how about reneging on the skyway and parking meter leases first. ==

    You can try bad faith arguments on those 2 deals. I would bet on that succeeding before the Pension Clause gets broken.

    Comment by RNUG Tuesday, Sep 3, 19 @ 12:49 pm

  16. I’d imagine that if everyone had done their share of funding, all funds would look like IMRF which is funded at something like 98%. So the argument that defined benefit pensions don’t work is blown away by IMRF.

    But since everyone wants to continue to shirk their end of the responsibility, we have to keep hearing about how unsustainable everything is. Deadbeat talk.

    Comment by Ano Tuesday, Sep 3, 19 @ 12:58 pm

  17. It’s not going to happen, Mayor Lightfoot.

    Comment by Stones Tuesday, Sep 3, 19 @ 1:00 pm

  18. ==I’d imagine that if everyone had done their share of funding…==

    …everyone’s compensation would be lower. The money for raises weren’t conjured out of thin air.

    Comment by City Zen Tuesday, Sep 3, 19 @ 1:12 pm

  19. ==For 24 years of service.==

    Your point?

    Comment by Demoralized Tuesday, Sep 3, 19 @ 1:18 pm

  20. ==Your point?==

    To get you to ask this question every time I bring up service years in the context of an “average” pension being “just” a certain amount.

    Comment by City Zen Tuesday, Sep 3, 19 @ 1:37 pm

  21. We don’t say this enough: Amanda Kass is a treasure, thank you Amanda. Almost singlehandedly rehabbing the Kass name.

    Comment by The Captain Tuesday, Sep 3, 19 @ 1:39 pm

  22. CZ:

    No, I just want to get you to comment that you really don’t have a point other than to be an antagonist.

    If you had a point you would be able to adequately explain yourself. Which you never do.

    So tell us oh wise one what is wrong with an average pension of $34,413 a year for 24 years of service. You must think there’s something wrong with it or you wouldn’t have made your comment.

    I get tired of your insinuations that people make too much in their pensions.

    Comment by Demoralized Tuesday, Sep 3, 19 @ 1:42 pm

  23. At this point, some Chicago voters have to be asking themselves why they bothered to vote for Lightfoot over Bill Daley. Daley told the S-T that he thought the pensions were unsustainable and that an amendment to the Constitution was necessary to address the problem. Perhaps Lightfoot ought to realize that her position on pensions was one of the reasons she won, and that she should maintain that position if she wants to have future credibility with the voters.

    Comment by Bourbon Street Tuesday, Sep 3, 19 @ 1:44 pm

  24. =Can we EVER get a Mayor who gets it??=

    They all get it. And their surrounded by people who get it and explain it to them in excruciating detail? The fact that Lightfoot would mislead voters by pointing to 3% COLA tells me she knows exactly what she’s doing. The point isn’t to confront the reality of the situation, it’s too gin up dissention and distract from the real issue by having people blame city employees for being “greedy.”

    Comment by Pundent Tuesday, Sep 3, 19 @ 1:44 pm

  25. Obviously, Da Mayor is under the influence of the corporate types.

    Thank you Amanda Kass for ensuring facts get inserted into the debate. It’s a rare thing in today’s political environment.

    Comment by Norseman Tuesday, Sep 3, 19 @ 1:45 pm

  26. Amanda Kass, restaurant quality.

    That’s why you are so important to this discussion, and I thank you for all you do.

    To all that,

    The marrying of the politics and the brilliance Kass reminded us all.

    That’s the real. That’s not scapegoating anything.

    Comment by Oswego Willy Tuesday, Sep 3, 19 @ 1:49 pm

  27. =Daley told the S-T that he thought the pensions were unsustainable and that an amendment to the Constitution was necessary to address the problem.=

    Suggesting that the problem can be fixed by making changes to the constitution given the rulings of the ILSC and the contracts clause in the U.S. constitution is even more disingenuous. Glad the voters were able to see through that.

    Comment by Pundent Tuesday, Sep 3, 19 @ 1:58 pm

  28. ==If you had a point you would be able to adequately explain yourself.==

    Which I do. Every time. Average pension means nothing without service years. Context.

    Here’s a better question: Why do people post “average” pensions yet never mention the amount of years worked to achieve said pension? Perhaps it undermines their narrative.

    Comment by City Zen Tuesday, Sep 3, 19 @ 2:00 pm

  29. Her position on pensions is why she was elected, you say? Yes, So who leaned on her to change her tune? As if we don’t know.

    Comment by AnonymousOne Tuesday, Sep 3, 19 @ 2:02 pm

  30. One nit about Amanda’s excellent response: the part about the Tier 2 COLA being, “designed to basically guarantee retirement income doesn’t keep pace w/inflation.”

    While it is true that the uncompounded 3% rate will not keep up with the compounded 3% rate, the uncompounded rate has beaten the inflation rate 15 times since 1998. Even when inflation is compounded over than same 20-year stretch, the uncompounded return is greater by 7% (and for full disclosure, the compounded rate beats the uncompounded rate by more than 20% and the inflation rate by over 30%).

    This is not to say that inflation will stay lower forever and that one bout with hyperinflation doesn’t knock the whole scheme down. All of the facts and statements need to be considered and reviewed. Amanda certainly has brought light to a lot of these details that were sorely out of the spotlight, however her and others’ points about funding being the primary issue cannot be viewed without these other factors (and to be clear, it is a primary issue, just maybe not the primary issue). The “cost” of compounded or uncompounded AAIs at 3% was taken for granted that it would keep up with inflation rather than actually being a cost to the system.

    Sorry for the long post.

    Comment by Downers Delight Tuesday, Sep 3, 19 @ 2:25 pm

  31. Amalia –
    I’m tier 3 and I am also not paying into Social Security — that rule did not change.

    Comment by Anoni Tuesday, Sep 3, 19 @ 2:41 pm

  32. The scariest part of the pension crisis is that the discount rates being used are still unrealistic. The state is going to need to help Chicago at some point. I also think the state should seriously look at allowing municipal bankruptcy.

    Comment by Chicagonk Tuesday, Sep 3, 19 @ 2:54 pm

  33. Amanda is right about Tier 2 pensions not keeping up with inflation by design. They aren’t just non-pounded 3%; they are the *lesser* of 3% or 1/2 of the CPI - meaning they are by design only half of inflation. So, the only time they will be 3% again is if CPI is 6% or greater.

    Comment by Katiedid Tuesday, Sep 3, 19 @ 2:58 pm

  34. Anoni-

    It depends on which pension system you’re in as to whether or not you pay into Social Security. TRS folks do not pay into SS. SERS mostly pays in to SS but I think there may be a few that don’t pay into SS under SERS. Your pension contribution percentage reflects whether or not you pay into SS.

    Mostly TRS that doesn’t pay into SS, as I’ve seen anyway.

    Comment by Stemp Tuesday, Sep 3, 19 @ 3:22 pm

  35. Stemp — In response to the post, I’m referring to MEABF.

    Comment by Anoni Tuesday, Sep 3, 19 @ 3:25 pm

  36. ==Why do people post “average” pensions yet never mention the amount of years worked to achieve said pension?==

    And you took care of that for them. And have yet to explain what you are attempting to say with your snarky comment about the average pension number given being for 24 years of service. Again I say, what is your point? You must have a thought about the average pension number as it relates to the years of servie or you wouldn’t have made your usual comment.

    You are all snark when it comes to this topic.

    Comment by Demoralized Tuesday, Sep 3, 19 @ 3:36 pm

  37. Thanks Katiedid, I incorrectly labeled the non-compounders of Tier 1 as Tier 2, which was catalyst of my point. I can’t undo that other than to say that part of my comment was completely wrong.

    However, the point still applies to the rest of the 1998 giveaway for the police and fire.

    Chicagonk, completely agree. Municipalities all across the country are slowly lowering them (partially thanks to the rating agencies and their more stringent view of liabilities). Chicago and the rest will need to lower their respective discount rate more in a new negative interest rate environment if the FOMC chooses to follow Japan and the EU.

    Comment by Downers Delight Tuesday, Sep 3, 19 @ 3:51 pm

  38. Why does anyone still advocate for a constitutional amendment to solve the pension crisis. The Supreme Court of the bankrupt State has already stated that you cannot touch anyone’s existing benefits once they commence service. The legislature can’t get rid of the 3 percent annual bump nor can you do it by amending the pension clause. The State has already dealt with the 3 percent for post 2011 employees thru tier 2 which frankly is akin to a Ponzi scheme for the post 2011 crowd who will never achieve parity with tier 1 but contribute the same percentages. In reality the tier 2 folks are subsidizing tier 1 participants. Talk about involuntary servitude. There is no way to save money on the States existing pension obligations absent a change to the State Supreme Court- as far as the municipal pensions allowing for bankruptcy would work but that ain’t going to happen in our lifetimes. If individual taxpayers want to save money on Illinois pension obligations there is a simple answer- MOVE out of State

    Comment by Sue Tuesday, Sep 3, 19 @ 4:01 pm

  39. Stemp: members of SURS also do not pay into SS and don’t receive SS benefits.

    Comment by IllinoisBoi Tuesday, Sep 3, 19 @ 4:01 pm

  40. Sue: Remember that there are fewer Tier 1 pensioners every day. Eventually they’ll all die off.

    Comment by IllinoisBoi Tuesday, Sep 3, 19 @ 4:09 pm

  41. =…everyone’s compensation would be lower. =

    An assertion not backed up by any evidence.

    =Average pension means nothing without service years. Context.=

    The money is what matters. What is actually owed, payed etc. when it gets down to brass tacks it is about the money.

    =Eventually they’ll all die off.=

    “with advances in modern science, and my high level of income, I mean, it’s not crazy to think I can’t live to be 245, maybe 300.”

    Comment by JS Mill Tuesday, Sep 3, 19 @ 4:45 pm

  42. ==You must have a thought about the average pension number as it relates to the years of service==

    My thought on a pension that is “just” $34,413 for “just” 24 years of service which is “just” about 60% of the duration of a full working career?

    It is just.

    Comment by City Zen Tuesday, Sep 3, 19 @ 5:00 pm

  43. Illinois Boi- yea and in the long run we all will be departed. Absent some miracle in terms of investment performance - Illinois will need pretty massive cash infusions into the 5 pension systems to pay off the Tier 1 populations many of whom just entered State employment 9 years ago. As for investment performance, I remain mystified why neither Rauner nor Pritzker didn’t impose greater oversight to ensure the Boards are retaining competent investment professionals. Although many commentators defend the Systems’ investment performance- the returns have been substantially below the S &P 500 since the 2009 recovery.

    Comment by Sue Tuesday, Sep 3, 19 @ 5:01 pm

  44. Sue, ==Absent some miracle in terms of investment performance==

    Add to the equation that a recession most likely will occur within the next 24 months.

    Comment by Southwest Sider Tuesday, Sep 3, 19 @ 6:04 pm

  45. ==Tier 2 folks are subsidizing Tier 1 participants. Talk about involuntary servitude==

    And so we are seeing teacher shortages. Wise college kids choose money making careers that people don’t spit on them for doing. Just sayin’ Reap what you sow Cannot blame them.

    Comment by AnonymousOne Tuesday, Sep 3, 19 @ 6:21 pm

  46. ==My thought on a pension that is “just” $34,413 for “just” 24 years of service which is “just” about 60% of the duration of a full working career?

    It is just.==

    An appeal to tautology? That’s odd, and misplaced. The point is that with a system “average” careers are the result of the number of years “averaged out” as well. Are we to conflate one’s working lifespan with system “averages”? Again, that’s odd.

    Comment by Ipso Facto Tuesday, Sep 3, 19 @ 6:42 pm

  47. City Zen

    So now you’re defining how long a career needs to be? Unbelievable. My career will likely end after 33 years. Is that acceptable to you? What does the all knowing City Zen think a career should be?

    I knew there was a reason nobody should take anything you say seriously.

    Comment by Demoralized Tuesday, Sep 3, 19 @ 7:55 pm

  48. ==there is a simple answer- MOVE out of State==

    Bye. Don’t let the door hit you

    Comment by Demoralized Tuesday, Sep 3, 19 @ 7:57 pm

  49. Demoralized- your such a fool. Illinois would certainly miss my mid 5 figure contribution to the pension deficits- having said that I will certainly be out of the State before I contribute to many years of taxation at 8 percent should that come to pass

    Comment by Sue Wednesday, Sep 4, 19 @ 7:22 am

  50. A fool? Pot meet kettle

    If its foolish to tell people who are constantly whining that if they aren’t happy then leave then so be it. You included. So bye

    Comment by Demoralized Wednesday, Sep 4, 19 @ 7:25 am

  51. ===taxation at 8 percent should that come to pass===

    - Sue - I’ll put you down as a yes for the graduated income tax.

    Comment by Oswego Willy Wednesday, Sep 4, 19 @ 7:35 am

  52. “your such a fool.”

    *you’re

    – MrJM

    Comment by @misterjayem Wednesday, Sep 4, 19 @ 9:12 am

  53. Sue -

    ==If individual taxpayers want to save money on Illinois pension obligations there is a simple answer- MOVE out of State.==

    You hit the nail on the head. But - Don’t forget businesses….

    Comment by Looking down the Road Wednesday, Sep 4, 19 @ 10:11 pm

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