Clearly, we need to do everything we can to cut the cost of our annual pension payments at both the state and local levels in order to continue to guarantee the retirement payments our retirees have earned and to reduce the unfunded liability that is such a burden to taxpayers.
That is why we have developed legislation to enable our state and local pension systems to add revenue-generating assets like water and sewage treatment systems, High Occupancy Toll (HOT) lanes, parking facilities and real estate to provide new, diversified sources of revenue for their investment portfolios.
The Chicago Park District pension funding overhaul approved by lawmakers moves the fund off a path to insolvency to a full funding target in 35 years, with bonding authority.
State lawmakers approved the statutory changes laid out in House Bill 0417 on Memorial Day before adjourning their spring session and Gov. J.B. Pritzker is expected to sign it. It puts the district?s contributions on a ramp to an actuarially based payment, shifting from a formula based on a multiplier of employee contributions. The statutory multiplier formula is blamed for the city and state?s underfunded pension quagmires.
“There are number of things here that are really, really good,? Sen. Robert Martwick, D-Chicago, told fellow lawmakers during a recent Senate Pension Committee hearing. Martwick is a co-sponsor of the legislation and also heads the committee.
?This is a measure that puts the district on to a path to full funding over the course of 35 years,” he said. “It is responsible. There is no opposition to it. This is exactly more of what we should be doing.”
The district will ramp up to an actuarially based contribution beginning this year when 25% of the actuarially determined contribution is owed, then half in 2022, and three-quarters in 2023 before full funding is required in 2024. To help keep the fund from sliding backwards during the ramp period the district will deposit an upfront $40 million supplemental contribution.
The 35-year clock will start last December 31 to reach the 100% funded target by 2055.
Spending plans that “fully fund” pension obligations by making statutorily required contributions — amounts required by legislators, by law — do not necessarily fully fund pensions. In fact, Illinois has a sad history of passing laws with funding that falls far short of actuarial requirements — the amounts necessary to keep pension (and related retirement health care) debt from rising over time.
For an example, take a peek at the Illinois Teachers’ Retirement System (TRS). Their annual report for 2020 is available here. The table on pdf page 2 shows that the system has accumulated more than $50 billion in invested assets, but this massive amount actually falls far short of the nearly $140 billion in present value obligation for future pension payments, leading to a nearly $90 billion unfunded liability.
The practice of distributing unfunded promises to pay money in the future has been a key of the tool chest that politicians have employed in misleading the citizenry that Illinois has lived up to constitutional balanced budget requirements, when in truth it has done anything but.
The Illinois legislature ended its regular legislative session on May 31, in a flurry of legislation passed late into the night. One of those bills was a set of changes to the 30% funded pension plan of the Chicago Park District. Were these changes long-over due reforms, or just another in the long line of legislative failures? It’s time for another edition of “more that you ever wanted to know about an underfunded public pension plan,” because this plan illustrates a number of actuarial lessons.
80% is not OK. Governance – who gets to set the contributions? Funded status can collapse very quickly and be very difficult to rebuild. Need to use actuarial analysis not just legislator’s brainstorms
Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. The state is set to contribute $9.4 billion in General Funds to pensions, pay $777 million in pension bond costs, and pay an estimated $1 billion in retiree health costs.
In total, that’s $11.2 billion of the $42.3 billion budget consumed by retirement expenditures.
On top of the payments from the General Fund, another $1.2 billion in pension payments will come from other budget funds, meaning the state’s total retirement costs will be an estimated $12.4 billion in 2022.
In 2015 Eureka started paying down its unfunded pension liability. These pension debt payments were $921,000 in 2015, $1 million in 2016, $3.9 million in 2017, $4.6 million in 2018, $5.4 million in 2019, and $5.7 million in 2020. Going forward, these debt payments will increase from $6 million in 2021 to $8.4 million in 2029, and are currently scheduled to continue until 2038. In 2015, Eureka cut $834,000 from the Eureka Police Department budget. Heading into budget talks in early 2020, EPD Chief Steve Watson talked of how EPD had seen a 19% reduction in staffing since 2016. Eureka followed up these previous cuts to EPD in its FY 2020-2021 budget with a funding cut of $1.1 million and loss of six more positions, including four officers, for EPD.
The rhetoric does not match the arithmetic. Pension debt payments are funding taken out of the budget and represent tax dollars that are not invested in the community and that citizens see no current services for. Not exactly keeping funding local. With so many governmental agencies in the same debilitated economic situation due to pension obligations, the economic evidence does not support the claim of governments being prudent in their spending. Constant increases in funding for pension obligations along with cuts to law enforcement and other services do not support the idea that tax dollars are the taxpayers’ dollars as a priority expenditure.
The city [Chico] has been receiving more sales tax, property tax, developer fees, and Utility Tax revenues every year as development brings more people to Chico. Instead of maintaining and improving infrastructure, Staff has poured these funds into their pension deficit, $11,500,000 this year, by 2025, $13,000,000. This money is allocated from all the department funds, at the expense of infrastructure and services.
Instead of pursuing new taxes that will hurt our local economy, council needs to switch from CalPERS’ defined benefit plan to a defined contribution plan, like 401Ks. Why should the taxpayers but never the employees bear the burden of the risks taken by CalPERS? The POB scheme, which Dowell admits is “gambling,” puts ALL the burden on the taxpayers, forever. Any new revenues will go to the pension obligation first.
The first metric is net amortization, which measures whether total contributions to a public retirement system are sufficient to reduce unfunded liabilities if all actuarial assumptions—primarily investment expectations— are met for that year. Plans with positive net amortization are expected to retire pension debt over time and therefore improve their funded status.
Pew reviewed the three-year average for net amortization. This figure provides a more complete picture of contribution adequacy given the impact of volatile investment performance and demographic experience on plan assets. In total, the 33 cities in Pew’s analysis achieved positive amortization (104% of the benchmark) from 2015 to 2017. However, individually, more than half of the cities had negative amortization. Notably, Chicago and Dallas contributed less than 50% of the benchmark. In contrast, New Orleans contributed 174%, or $132 million, which was well over the city’s benchmark over the time period. For cities that are poorly funded, net amortization can indicate that they are on a path toward sustainably funding their pension plans. For example, New Orleans and Philadelphia have both increased their contributions significantly in recent years to achieve positive net amortization and decrease unfunded liabilities. On the other hand, better funded cities that fell short of the benchmark may face growing pension debt absent a policy change or adjustment.
Between roughly 1997 and 2009, legislators decided to pay less of the employer contribution amount than statisticians deemed necessary. In kitchen table terms, those legislators chose not to pay their bills.
Now that creditors are demanding those bills be paid, critics are claiming the payouts are undeserved, and too generous.
It’s really a shame so many seem to feel it’s OK to not pay bills from the past because the interest is too high. I bet few business owners would accept nonpayment because customers chose to not pay when billed and now claim payments are too high.
A Harvey, Illinois, pension fund claims it’s entitled to share in the Chicago suburb’s American Rescue Plan funds and wants to block the distribution of aid until a judge decides.
The financially stressed suburb south of Chicago, which has battled over the last decade with its public safety pension funds, the city of Chicago, and bondholders about its obligations, settled a legal dispute with its police and firefighters’ over past due payments in 2018.
The Firefighters Pension Fund is now staking a claim on Harvey’s share of the $350 billion for local, state and tribal governments in the coronavirus relief package President Biden signed in March, arguing Harvey’s share is subject to the 10% claim on city tax funds that flow through the state and are sent directed to the fund the city agreed to in a 2018 settlement.
Almost all of that is in the required contribution the city must make to its pension system. Yes, San Diego politics will always somehow find a way back to pensions. Pensions and Mark Fabiani.
Nick Serrano, the mayor’s deputy chief of staff, even clapped back at a critic who accused the mayor of giving more money to the police department while making cuts elsewhere.
“Because the City has a pension obligation we have to fulfill. The increase to the police budget is the City’s pension payment — it’s not a service level increase. Nice try,” Serrano wrote on Twitter.
The pension spike: This year, the city is grappling with a $49.3 million increase in its pension payment. To the extent pensions matter as a civic issue it’s in this: the payments. That amount of money can pay for a lot of things – parks, rec centers, libraries, firefighters and cops, etc.
About $36.8 million of the increase is tapping the city’s general fund, and police make up 42 percent of the general fund. Here’s how pension increases have affected the police department’s budget over the last five years: