CHICAGO’S $43,100 DEBT PER TAXPAYER DRIVEN BY PENSION DEBT

Link:https://www.illinoispolicy.org/chicagos-43100-debt-per-taxpayer-driven-by-pension-debt/

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Chicago once again earned a failing grade from Truth in Accounting in their latest Financial State of the Citiesreport thanks to over $38 billion in debt – $43,100 for each taxpayer.

Every Chicagoan would have to send the city that amount just for Chicago to pay the bills it owes. Chicago has just $9.9 billion available to pay $48.6 billion in bills. The Windy City came in 74th out of 75 cities studied in the report, only besting New York City’s massive $204 billion debt with a per-taxpayer burden of $71,400.

The city’s financial failings stem from pension promises the city cannot afford to keep. “Chicago’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years. The city had set aside only 23 cents for every dollar of promised pension benefits and no money for promised retiree health care benefits,” the report notes.

Author(s):Justin Carlson

Publication Date: 8 Feb 2022

Publication Site: Illinois Policy Institute

Good Illinois pension news doesn’t alleviate underlying financial pressures, report states

Link:https://news.yahoo.com/good-illinois-pension-news-doesn-155356123.html

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The state saw its unfunded pension liability decrease in fiscal year 2021 for the first time in four years, due in large part to investment returns exceeding 20 percent, according to a new report from the Commission on Government Forecasting and Accountability.

Measuring by the current-day values of the pension fund assets, unfunded liabilities – or the amount of debt the state pension funds owe that they can’t afford to pay – dropped by nearly 10 percent, to $130 billion in FY 2021 from $144 billion in the previous fiscal year. That put the state’s five pension funds at 46.5 percent funded, up from 39 percent the previous year.

….

That’s the name commonly used to refer to Public Act 88-0593, or the state’s 50-year plan to bring the its five pension funds to 90 percent funded by 2045.

The actual target for that ramp should be a 100 percent-funded pension system within the next 25 years or preferably sooner, according to a letter attached to the COGFA report from its actuary, Segal Consulting.

Author(s): Jerry Nowicki

Publication Date: 10 Dec 2021

Publication Site: Yahoo News

Report: In a year marked by economic hardship, public pension funding is up

Link:https://www.americancityandcounty.com/2021/10/28/report-in-a-year-marked-by-economic-hardship-public-pension-funding-is-up/

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In a year filled with gloomy news of economic hardships and the ongoing pandemic, there’s a bright spot: the funded ratio of the 100 largest U.S. public pensions is up by more than 15 percent this year, according to Milliman’s annual analysis. 

“Surging market returns have propelled pension assets far beyond previous levels, driving the estimated funding deficit below $1 trillion for the first time since 2012,” the report says. “We estimate that nearly half of the plans in the study stood above 90 percent funded as of June 30.” 

Only 13 public pension plans were above 90 percent funded based on Milliman’s 2020 analysis. 

Author(s): Andy Castillo

Publication Date: 28 Oct 2021

Publication Site: American City and County

Original Sin (or Pandora’s Box) and Public Finance and Pensions

Link:https://marypatcampbell.substack.com/p/original-sin-or-pandoras-box-and?justPublished=true

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The kinds of messages that are welcomed are “innovative” in terms of telling you that you don’t have to do the thing you really don’t want to do (put more money into the pensions, promise less, cut back on many things, tax more, etc.)

Yes! You don’t have to fully-fund pensions!

Absolutely, pension obligation bonds will allow you to do really real arbitrage! Don’t worry about the extra leverage!

For sure, you should be chasing the waterfalls of alternative asset classes! You can get those high returns and not worry about extra risk! Otherwise, you’d have to decrease your discount rate!

Author(s): Mary Pat Campbell

Publication Date: 29 Jan 2022

Publication Site: STUMP at substack

5500 – Central States – 2020

Link:https://burypensions.wordpress.com/2021/10/15/5500-central-states-2020/

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We had some 5500 history in an earlier blog through 2016. This is where the plan was last year based on their 5500 filing for 2020:

Plan Name: Central States, Southeast & Southwest Areas Pension Plan

EIN/PN: 36-6044243/001

Total participants @ 12/31/20: 364,908 including:

Retirees: 191,550

Separated but entitled to benefits: 121,667

Still working: 51,691

….

Funded ratio: 21.91%

Author(s): John Bury

Publication Date: 15 Oct 2021

Publication Site: Burypensions

The 80% Pension Funding Myth

Link:https://www.actuary.org/node/14645

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Using an 80% funded ratio as a benchmark for whether pension plans are healthy is inappropriate.

No single level of funding defines a line between a “healthy” and an “unhealthy” pension plan.

Pension plans are generally better evaluated on the strategy in place to attain a funded ratio of 100% within a reasonable period of time.

The financial health of a pension plan depends on many factors in addition to funded status— including the size of any shortfall compared with the resources of the plan sponsor.

Projections under a range of scenarios can be particularly useful in evaluating the plan’s expected funding trajectory and assessing plan health.

Author(s): Pension Practice Council

Publication Date: October 2021

Publication Site: American Academy of Actuaries

State of Pensions 2021

Link: https://equable.org/state-of-pensions-2021/

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Link to PDF report:https://equable.org/wp-content/uploads/2021/09/Equable-Institute_State-of-Pensions-2021_Final.pdf

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State retirement systems in America improved from last year, but are still Fragile. 

This an annual report on the current status of statewide public pension systems, put into a historic context. State and local governments face a wide range of challenges in general – and some of the largest are growing and unpredictable pension costs. The scale and effects of these challenges are best understood by considering the multi-decade financial trends and funding policy decisions that have brought public sector retirement systems to this moment. 

The financial market volatility over the past 18 months of the COVID-19 pandemic has ultimately been a positive investment climate for institutional investors like state pension plans. And the federal government has provided substantial financial aid to states and municipalities, smoothing over what could have been seismic budgetary shortfalls in some jurisdictions due to tax revenue declines. The combined historically unprecedented nature of these events continues to create an unpredictable environment for state pension plans. However, in this report Equable uses patterns of behavior from the past two decades as a guide to what might happen in the coming decade while also a means to identify areas of concern that should be monitored closely or acted upon immediately.

Authors: Anthony Randazzo, Jonathan Moody, PhD

Publication Date: Accessed 23 Sept 2021

Publication Site: Equable Institute

Stock Market Helps State Pension Debt Hit 10-Year Low, But Crisis Still Looms Large

Link: https://www.forbes.com/sites/lizfarmer/2021/09/23/stock-market-helps-state-pension-debt-hit-10-year-low-but-crisis-still-looms-large/

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After state pension debt grew to more than $1.4 trillion last year, two new reports estimate that gap between the total amount states have promised to retirees and what they’ve actually set aside in their pension investment funds will shrink dramatically. A recent analysis by the Pew Charitable Trusts says the gap could dip below $1 trillion this year. And a report released today by the Equable Institute estimates that 2021 returns will shrink state pension debt to $1.08 trillion.

The gains in the stock market played a big role. Equable’s report calculates that preliminary 2021 investment returns averaged an astounding 20.7% return. That’s nearly triple the average assumed rate of return in any given year. Those gains will boost the average pension plan to about 80% funded, the highest funding ratio since 2008.

Author(s): Liz Farmer

Publication Date: 23 Sept 2021

Publication Site: Forbes

California Pensions Improve Slightly, Still Deep in the Red

Link: https://www.theepochtimes.com/california-pensions-improve-slightly-still-deep-in-the-red_4003251.html

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The 80 percent mark long has been considered the minimum threshold for a pension fund. However, that’s actually still too low. An Issue Brief by the American Academy of Actuaries called it, “The 80% Pension Funding Standard Myth” (pdf).

It said, “An 80 percent funded ratio often has been cited in recent years as a basis for whether a pension plan is financially or ‘actuarially’ sound. Left unchallenged, this misinformation can gain undue credibility with the observer, who may accept and in turn rely on it as fact, thereby establishing a mythic standard. … Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time.”

Author(s): John Seiler

Publication Date: 19 Sept 2021

Publication Site: The Epoch Times

Elorza’s pension proposal relies on a risky approach and an adviser linked with 38 Studios

Link: https://thepublicsradio.org/article/why-elorzas-latest-proposed-pension-fix-faces-a-lot-of-questions-

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Providence’s pension crisis has its roots in the late 1980s. That’s when the city’s Retirement Board approved unusually generous compounded cost of living adjustments for more than 2,500 city workers and retirees. Decades later, that move helps explain why there’s a $1.2 billion gap between the pension balance and the amount owed to current and future retirees.

The pension crisis has defied attempted solutions for years. Providence officials say the city has just 22% of the money needed to meet its long-term pension obligations. And the amount of the city budget consumed by the pension is growing 5 percent a year, to about $93 million currently. Without a change, that annual payment will rise to $227 million by 2040.

Mayor Jorge Elorza said these pension costs are unsustainable.

“It’s only a matter of time before they continue to squeeze everything else out of our budget, so that we’re cutting deeper and deeper into the bone,” he said during a recent news conference.

Elorza’s plan involves selling $704 million in pension obligation bonds. The idea is that these bonds could generate enough of a return to boost the pension system’s funding to more than 60 percent.

Author(s): Ian Donnis

Publication Date: 1 June 2021

Publication Site: The Public’s Radio

Chicago Park District pension revamp takes fund off road to insolvency

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106081343SM______BNDBUYER_00000179-ec17-d1ac-a5fb-ef37eda90001_110.1

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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.

Author(s): Yvette Shields

Publication Date: 8 June 2021

Publication Site: Fidelity Fixed Income

2021 Update: Public Plan Funding Improves as Workforce Declines

Full Report: https://crr.bc.edu/wp-content/uploads/2021/06/SLP78.pdf

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The aggregate funded ratio improved from 73 to 75 percent from FY 2020 to 2021. At the same time, contribution rates rose from 21 to 22 percent of payrolls.

While initial expectations for public pensions were low due to COVID, financial markets rebounded and municipal tax revenues were quite resilient.

Yet one other COVID-related factor – cuts to the state and local workforce – impacted public pension finances in FY 2021.

These cuts had little impact on funded status and required contribution amounts, but they do explain the rise in contribution rates, which are expressed as a share of lower payrolls.

Author(s): Jean-Pierre Aubry, Kevin Wandrei

Publication Date: June 2021

Publication Site: Center for Retirement Research at Boston College