Chicago Looks at Pension Reform

Pension Obligations tend to to be the 800 pound gorilla in the room for state (and if you include social security) the feed government. In a nutshell politicians promised generous packages for support with the hope that somehow the money will be there in the future to provide these substantial benefits to public sector unions, unfortunately the bill is coming due and people are already starting to scramble, case in point, Daley's Chicago:

CHICAGO — A special pension commission named by Chicago Mayor Richard Daley has recommended increased contributions and policy changes to address the city’s pension funding crisis, but several panel members panned the proposals as falling far short of the more dramatic action needed to avert looming shortfalls.The commission recommended pension plans adopt an actuarial-based funding policy rather than the current policy of employee contributions being based on a percentage of salary.

It also recommended requiring increased contributions from new, as-yet-unidentified sources of revenue and reducing benefits for new employees.

The report — publicly released late Friday — suggested pension obligation bonds are an option “that can be considered” but cautioned that borrowing poses risks and has been abused by other governments, and therefore would require careful evaluation.

Members of the commission from two organizations — the Civic Federation of Chicago and the Civic Committee of the Commercial Club of Chicago — called for more stringent reforms, including reductions in the future accrued benefits of current employees.

Fixing Chicago’s underfunded pension funds could cost taxpayers at least $660 million more annually by 2012, and without action all four funds face shortfalls in their ability to meet obligations by 2030 — earlier, if investment returns fall short.The taxpayer bill had stood at $710 million, but was reduced after the Illinois General Assembly’s adoption earlier this spring of pension reforms that reduce benefits for future employees. The legislation covered the city’s funds.

The $660 million annual bill by 2012 is based on the assumption that the city move towards a 90% funded ratio by 2062. Workers also stand to pay more.They currently contribute between 8.5% and 9.125% of their gross pay. Under current law, contributions in 2012 would be set at $793 million — $480 million coming from the city and $313 million from employees.

At the close of 2009, the city’s four pension funds had a combined actuarial liability of more than $25.4 billion and assets with a market value of $10.9 billion, for an unfunded liability of $14.57 billion that represents a collective funded ratio of just 43%.

I would stress this is just Chicago, not the whole state of Illinois which took its first tepid steps at reform earlier this year.