I had a quote in the Tribune article "Lawmakers press Chicago, suburbs on fire, police pensions"
Here is part of an article I wrote explaining the Multiplier that the pension fund is on vs the funding mechanism we should be on, called the actuarial required contributions.
Employer to Employee Multiplier vs. The ARC
Currently, 9% of our salary goes into the pension. This is matched by a 2:1 contribution from the City of 18%. There is absolutely no correlation between the multiplier and what it costs to operate this pension plan. Under the Illinois pension code, the contributions required by law for the City is 2:1 multiplier. This amount has been insufficient to maintain solvency for decades. The City has recklessly ignored the actuaries’ requests for more money every year in our annual report submitted to City Council. The Actuarial Required Contribution (ARC) represents the cost required to amortize the unfunded liability so the fund would be at a 90% funded level over thirty years (under GASB 25 & 43 rules). The actuaries also recommend a multiplier each year. The recommended multiplier from the actuary from the 2009 report was 5.87 to 1 as opposed to our existing 2:1. As stated by the actuary, this [contribution multiplier] ratio “is needed to adequately finance the fund.” Once again, the actuaries’ request went ignored from the City.
The Widening Gap of Revenues vs. Expenses
As these actuarial recommendations fall on deaf ears, the gap between contributions raised from employer and employee contribution versus the disbursements paid out has widened to alarming levels. In 1990, contributions were approximately $125 million. Disbursements were $135 million, creating a gap of $10 million. The $10 million paid out consumed .7% of the pension fund that year. The 1995 contributions were $151 million. Disbursements were $202 million. The gap grew to $51 million or 2.4% of the fund that year. In the year 2000, contributions were $196 million. However, disbursements grew to $323 million, which was 2.9% of the fund size. In 2005, the fund collected $225 million in contributions, yet disbursed $439 million, widening the gap to nearly $215 million in that single year, totaling 5.4% of the fund’s assets. Finally, the contributions in 2009 were approximately $285 million. The fund paid out $519 million. The gap for in the single year of 2009 was $242 million which was 7.3% of the entire fund’s assets. This has gone unchecked and unfunded for far too long! This clearly demonstrates how the 2:1 multiplier used by the City does not work.
Here is part of an article I wrote explaining the Multiplier that the pension fund is on vs the funding mechanism we should be on, called the actuarial required contributions.
Employer to Employee Multiplier vs. The ARC
Currently, 9% of our salary goes into the pension. This is matched by a 2:1 contribution from the City of 18%. There is absolutely no correlation between the multiplier and what it costs to operate this pension plan. Under the Illinois pension code, the contributions required by law for the City is 2:1 multiplier. This amount has been insufficient to maintain solvency for decades. The City has recklessly ignored the actuaries’ requests for more money every year in our annual report submitted to City Council. The Actuarial Required Contribution (ARC) represents the cost required to amortize the unfunded liability so the fund would be at a 90% funded level over thirty years (under GASB 25 & 43 rules). The actuaries also recommend a multiplier each year. The recommended multiplier from the actuary from the 2009 report was 5.87 to 1 as opposed to our existing 2:1. As stated by the actuary, this [contribution multiplier] ratio “is needed to adequately finance the fund.” Once again, the actuaries’ request went ignored from the City.
The Widening Gap of Revenues vs. Expenses
As these actuarial recommendations fall on deaf ears, the gap between contributions raised from employer and employee contribution versus the disbursements paid out has widened to alarming levels. In 1990, contributions were approximately $125 million. Disbursements were $135 million, creating a gap of $10 million. The $10 million paid out consumed .7% of the pension fund that year. The 1995 contributions were $151 million. Disbursements were $202 million. The gap grew to $51 million or 2.4% of the fund that year. In the year 2000, contributions were $196 million. However, disbursements grew to $323 million, which was 2.9% of the fund size. In 2005, the fund collected $225 million in contributions, yet disbursed $439 million, widening the gap to nearly $215 million in that single year, totaling 5.4% of the fund’s assets. Finally, the contributions in 2009 were approximately $285 million. The fund paid out $519 million. The gap for in the single year of 2009 was $242 million which was 7.3% of the entire fund’s assets. This has gone unchecked and unfunded for far too long! This clearly demonstrates how the 2:1 multiplier used by the City does not work.
Lawmakers press Chicago, suburbs on fire, police pensions
Legislation forcing municipalities to set aside more money is sent to governor
ct-met-pension-law-20101202
After decades of making retirement promises they weren't fully paying for, Chicago and many suburbs could be forced to set aside more money under sweeping changes to police and firefighter pensions headed to Gov. Pat Quinn's desk.
The legislation, approved Thursday on a 46-4 Senate vote, prompted an immediate rebuke from Chicago leaders who said it was draconian and would force financial pain on city taxpayers.
"This goes to the economic vitality of the city of Chicago and the county of Cook, the economic engine of the state," Mayor Richard Daley said.
The bill aims to address long-standing failures by Chicago and many of its suburbs to collectively put away hundreds of millions of dollars to cover the costly retirement benefits already earned by past and current public safety workers.
The measure could result in lower payments in the near future for some suburbs, although others may be forced to pay more if the measure is enforced.
Few sides were left completely satisfied. Reform advocates said it doesn't go far enough. Police and fire unions took a hit with benefits cuts for new hires.
Chicago was the most vocal opponent, unleashing an unsuccessful full-scale lobbying blitz to kill the bill because it said it would require a major property tax increase.
Supporters countered that the bill merely forces the city to start paying for its promises.
"The city can't just continue to ignore it," said Laurence Msall, president of the Civic Federation, which has long called for pension reform.
Daley acknowledged reform is necessary, but said employees need to pay more into the pension plans. The bill doesn't do that.
Chicago leaders also complained of a key provision that changes how the city calculates the amount it sets aside for pensions starting in 2015, from multipliers of payrolls to more commonly accepted actuarial methods.
The change may seem mundane, but a recent Tribune investigation found the current formula allowed the city to claim it adequately set aside enough money for pensions at the same time it cut deals to boost benefits that helped spike the debt. The city police and fire funds now have less than 40 percent of the money needed to cover the eventual pension benefits already earned by past and current workers.
"This is the first time that anybody has acknowledged that the multiplier used to fund Chicago's pensions doesn't meet its obligations," said Mike Shields, a trustee for the police officers' pension. "They've been lying to themselves for the past 20 or 30 years."
Still, it's unclear if that requirement will survive, and in what form. Senate President John Cullerton, D-Chicago, pledged to work with city officials, perhaps pushing a bill next year to stretch the city's deadline to reach the required funding level.
Another Tribune analysis found that in some suburbs, funding levels aren't much better than Chicago's. Collectively, the suburbs have barely half the money the state says is needed to cover benefits already earned, partly because some towns haven't set aside enough. The current law directs towns to pay what actuaries tell them to, but many towns ignored it without punishment.
The bill adds some punishment. For towns that don't make minimum payments, starting in 2015, the state can divert some of a town's income or sales tax receipts to cover the pension payments. Municipal lobbyists suggested that will lead to dramatic tax hikes or service cuts in some communities already struggling with far higher pension payments they need to make to offset the low investment earnings of funds during recession.
But the measure also pushes pension debt further out, requiring suburbs to reach just 90 percent funding by 2040 instead of the current law: 100 percent by 2033.
And the bill would eventually save Chicago and suburbs by cutting benefits of new hires starting next year. The traditional retirement age would rise from 50 to 55 and it would become more difficult to spike pensions with end-of-career salary bumps.
But with no changes affecting current workers' benefits, reform advocates question how much of a bite the reforms will take out of pension debt.
"If they want to really reduce the cost of the city's pension obligations, they're going to have to look at active employees," Msall said. "Everyone is going to have share this burden."
Tribune reporters Joseph Ryan, Monique Garcia and John Byrne contributed to this report.
The legislation, approved Thursday on a 46-4 Senate vote, prompted an immediate rebuke from Chicago leaders who said it was draconian and would force financial pain on city taxpayers.
"This goes to the economic vitality of the city of Chicago and the county of Cook, the economic engine of the state," Mayor Richard Daley said.
The bill aims to address long-standing failures by Chicago and many of its suburbs to collectively put away hundreds of millions of dollars to cover the costly retirement benefits already earned by past and current public safety workers.
The measure could result in lower payments in the near future for some suburbs, although others may be forced to pay more if the measure is enforced.
Few sides were left completely satisfied. Reform advocates said it doesn't go far enough. Police and fire unions took a hit with benefits cuts for new hires.
Chicago was the most vocal opponent, unleashing an unsuccessful full-scale lobbying blitz to kill the bill because it said it would require a major property tax increase.
Supporters countered that the bill merely forces the city to start paying for its promises.
"The city can't just continue to ignore it," said Laurence Msall, president of the Civic Federation, which has long called for pension reform.
Daley acknowledged reform is necessary, but said employees need to pay more into the pension plans. The bill doesn't do that.
Chicago leaders also complained of a key provision that changes how the city calculates the amount it sets aside for pensions starting in 2015, from multipliers of payrolls to more commonly accepted actuarial methods.
The change may seem mundane, but a recent Tribune investigation found the current formula allowed the city to claim it adequately set aside enough money for pensions at the same time it cut deals to boost benefits that helped spike the debt. The city police and fire funds now have less than 40 percent of the money needed to cover the eventual pension benefits already earned by past and current workers.
"This is the first time that anybody has acknowledged that the multiplier used to fund Chicago's pensions doesn't meet its obligations," said Mike Shields, a trustee for the police officers' pension. "They've been lying to themselves for the past 20 or 30 years."
Still, it's unclear if that requirement will survive, and in what form. Senate President John Cullerton, D-Chicago, pledged to work with city officials, perhaps pushing a bill next year to stretch the city's deadline to reach the required funding level.
Another Tribune analysis found that in some suburbs, funding levels aren't much better than Chicago's. Collectively, the suburbs have barely half the money the state says is needed to cover benefits already earned, partly because some towns haven't set aside enough. The current law directs towns to pay what actuaries tell them to, but many towns ignored it without punishment.
The bill adds some punishment. For towns that don't make minimum payments, starting in 2015, the state can divert some of a town's income or sales tax receipts to cover the pension payments. Municipal lobbyists suggested that will lead to dramatic tax hikes or service cuts in some communities already struggling with far higher pension payments they need to make to offset the low investment earnings of funds during recession.
But the measure also pushes pension debt further out, requiring suburbs to reach just 90 percent funding by 2040 instead of the current law: 100 percent by 2033.
And the bill would eventually save Chicago and suburbs by cutting benefits of new hires starting next year. The traditional retirement age would rise from 50 to 55 and it would become more difficult to spike pensions with end-of-career salary bumps.
But with no changes affecting current workers' benefits, reform advocates question how much of a bite the reforms will take out of pension debt.
"If they want to really reduce the cost of the city's pension obligations, they're going to have to look at active employees," Msall said. "Everyone is going to have share this burden."
Tribune reporters Joseph Ryan, Monique Garcia and John Byrne contributed to this report.
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