Chicago Pension Reform

[ripper1]

The Illinois Supreme Court shot down pension reform for Chicago Laborer and Municipal workers. Any thoughts or any city of Chicago workers out there who care to comment?

 

[fosterscik]

Ill. Supreme Court strikes down Chicago pension rescue plan | Chicago Sun-Times

“These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members…were promised when they joined the pension system. Accordingly, based on the plain language of the Act, these annuity-reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits and exceed the General Assembly’s authority,” the ruling states.

 

[Greencheese]

Given that the city just pushed to raise property taxes it's probably the beginning of the end for the city. Now I don't think Chicago will be Detroit but there are several things to consider.

1. Chicago is near Indiana and Wisconsin which gives people the opportunity to work in the state but live in another. NYC experiences this too, a dedicated wealthy individual can either live and commute from those states or make an effort to cross the border by midnight daily if they truly want to. Not a big thing now but possibly puts a limit on the income tax hikes possible in the future.

2. The state of Illinois has a massive pension problem itself. Compounding that is Cook County has pension problems, the CPS pension is in trouble, fire and police pensions are troubled, and just about every other government entity in Illinois is as well. Previously Illinois tried to stop this by limiting the amount a government entity could borrow, but then politicians got around that by just making new entities. EVERYONE needs new funding and/or cost cutting but I don't think there is enough possible taxpayer money to go around.

3. Illinois is suffering population loss and Chicago is as well. Fewer people means fewer taxes. It only gets worse when you breakdown the people who are leaving vs arriving, higher income individuals leaving while lower income/no income coming in.

4. Alot of the job gains the city has been bragging about aren't really victories. For example Kraft Foods moved their headquarters from the suburbs to the city bringing 700 jobs downtown. However Kraft shed about 1,400 of the HQ jobs before moving their HQ. Sure Chicago got 700 more jobs but the state of Illinois lost 1,400 net and the city is expecting help from the state government. Another one in the news lately is the Nabisco bakery which is the loss of several hundred manufacturing jobs. Not seeing a lot of manufacturing going into the city either...

The city does have a lot going for it but weather and easy financial future decisions aren't one of them. I fully expect the income tax to exceed what it was "temporarily" hiked too and then some. And once that happens I fully intend to start looking outside of the state for other opportunities. As a young person I refuse to be left holding the bag for what another generation did.

I currently live in the suburbs outside of the city so maybe I'm just not "close enough" to the action.

 

[imoldernu]

Understanding public/municipal pension plans, is asking for long term depression. Unlike private plans, which are often titularly covered by the Public Benefit Guarantee Corporations... the only guarantee is the legal wording of the actual pension. Insolvency does not have a fallback.
With many teacher and municipal worker pension plans underfunded by as much as 50% to 75%... some plans are scheduled to have zero assets as early as the year 2020 to 2025.

For a better understanding of what many plans are facing, this can be an interesting read.

Public Pension: 9 Fallacies About Government Pensions

I have 2 friends, recently retired from Illinois school systems... one @ 92K/yr, and the other @ 63K/yr. Neither one indicates any concern at the current plight of their teacher's pension plan. I worry for them.

The PBGC is not involved in public employer pensions.

 

[ERD50]

While something must be done, this reform sure seemed to violate the Illinois Constitution, so I'm not surprised it got shot down by the IL SC. Was it just a show?

There's talk of bankruptcy - and if that happens who knows where the pensions will land in priority? Something along the lines of the PBGC caps on pensions might be appropriate. That's all the protection that those in the private sector get if their company goes bankrupt, plus they paid into the PBGC for that protection. I don't see why public sector should be given anything much beyond that (perhaps some adjustment if there were no other plans available, like 401/3, etc.).

It's not pretty - but at some point, the rubber must meet the road.

-ERD50

 

[imoldernu]

It's not pretty - but at some point, the rubber must meet the road.

-ERD50

Am afraid that has already happened. The Illinois teachers pension plan is only 41.5% funded, with a shortage of $65 Billion. Am not sure whether current pension assessments even covers the interest on this debt.

The alternate plans that have been presented to resolve the shortages... AT BEST... do not begin to address the deficit. Many feel that the future of education in Illinois is at risk, as teaching positions become less desirable, and recent hirees may not get from the plan, even the amount they have paid in.

 

[Chuckanut]

My guess is that many of the public employees in these questionably run pension systems also were not contributing to the Social Security system. Not a good position to be in as one approaches retirement,

 

[pb4uski]

So when will the citizens of Illinois smarten up and amend their constitution?

 

[ERD50]

Am afraid that has already happened. The Illinois teachers pension plan is only 41.5% funded, with a shortage of $65 Billion. Am not sure whether current pension assessments even covers the interest on this debt.

The alternate plans that have been presented to resolve the shortages... AT BEST... do not begin to address the deficit. ...

Not exactly ( for clarity - your 'that has already happened' response to my 'rubber meets the road' comment). The IL Constitution says these pensions must be paid, 'funded' or not. So if they aren't funded, they take it out of current taxes and/or borrow more.

There is a lot of hand-wringing over proposals to increase property taxes, but I've also read that Chicago property taxes really aren't all that high (relative terms). The Chicago sales tax is high though.

Many feel that the future of education in Illinois is at risk, as teaching positions become less desirable, and recent hirees may not get from the plan, even the amount they have paid in.

Recent hires are on a different plan (including my DD who is an IL teacher, and missed the old plan by just one year).

I don't think we know if IL education is at risk or not. The question is, can they fill the slots with qualified teachers at a lower total compensation level? We don't fully know the answer to that, as the Union has negotiated/fixed the prices. What I do know is, DW sees literally hundreds of applications for teaching openings in our local school, and I'd assume there are plenty of qualified applicants in that pool.

-ERD50

 

[Bamaman]

There are many retirees in this world that have reason to be very scared about their future retirement income. We see this happening all over the country.

In the 1950's, civil service workers pensions were higher than their salaries and time on the job warranted. And the government employees often received below par wages but were paid great insurance benefits, liberal vacation time and the ability to "bank" sick leave.

Spring forward a couple of generations and salaries are as high or even higher than private industry. But the pensions remained at the same high formulas without employee participation. Retirement pensions have mushroomed to outrageous levels--much more than private industry.

The problem is that the governments never saved for those promised pensions. And the well is quickly being drained dry--in places like Illinois and California.

In our area, the TVA cut loose 20,000 of their 33,000 employees and subcontracted power plant maintenance. They knew they couldn't begin to pay their pension obligations. They're still $ billions in the hole and there's not enough money to catch up.

Our state is maybe at a 50% level on funding teacher pensions, and the pension program has done a terrible job at managing investments. The pension program has been spending a fortune building golf courses that lose $20 millon per year and they invested in $650 million in a rail car factory that owners stole blind. They're trying to be a job incubator instead of making sound business decisions with state pension money.

It's not going to be a pretty picture in the future when suddenly government workers' salaries are cut by 50%. It's bound to happen sooner than later, unfortunately.

 

[Texas Proud]

Greencheese...


I do not know about Chicago, but if you worked in NYC you had to pay NYC taxes no matter where you lived... so moving to another state will only save you taxes on other income that is not related to activities in the city...


Edit to add.... I knew of a few higher paid people who had to file NYC tax returns because they went to corp headquarters so often... even though they lived in Texas....


Then you have to pay state taxes in that state (not sure if there are any zero tax states up there)....

 

[LARS]

It's not going to be a pretty picture in the future when suddenly government workers' salaries are cut by 50%. It's bound to happen sooner than later, unfortunately.

Basically there are three possible outcomes: a) as you mention salaries come way down, b) taxes go way up or c) the most likely scenario: a combination of a & b.


Sent from my iPad using Early Retirement Forum

 

[ESRwannabe]

I work for a different state which is fortunately well funded on the pension.

Anyway my attitude is "they better live up to the contract they signed". Same goes for SS and medicare. This nonsense that the money will not be there for me (generation x) by the time I can collect is BS. They better pay me my money.

If taxes have to be raised or services cut to pay for it then so be it. I will vote against any politician that disagrees.

P.S. I have not read any comments other than OP and will not be checking back as I'm sure its another flame fest going on in here.

 

[imoldernu]

The IL Constitution says these pensions must be paid, 'funded' or not. So if they aren't funded, they take it out of current taxes and/or borrow more.

For your sake and mine...let's hope they're able to do that.

from here:http://www.illinoisnewsnetwork.com/2016/03/24/il-supreme-court-halts-chicago-pension-plan/

Now, with even more pensions needing relief, it could rest on residents who are already among the highest-taxed in the nation. Recent tax surveys found Illinois to have the second-highest tax rate in the nation, .05 percent behind New Jersey. But that study was conducted before the recent tax hike. A second massive increase could find Illinois with the less-than-honorable distinction of being the highest-taxed state, a label that does not bode well with also being rated among the worst-performing states economically and holding the worst credit rating.

Moody’s Investors Service, one of the credit rating agencies, has already given the city’s bond status as junk, warned of more downgrades if the city does not come up with “an alternate plan to fund non-public safety pensions should the Illinois Supreme Court rule the city’s 2014 reform statute unconstitutional.”

Am gettin' too old to move out of state.

 

[mickeyd]

All of this just looks like another reason to live in Texas.

 

[daylatedollarshort]

Most voters do pay taxes, do not like huge tax increases and do not have large pensions, so I can guess how the public pension issue will ultimately play out across the U.S. In California the voters did not like a Supreme Court Justice's stance on the death penalty and she was removed from office by the voters.

My personal prediction is that it will take some time but ultimately the cities and municipalities will file for bankruptcies over pension debts and more and more state constitutions will be changed to allow diminished benefits. State supreme court justices not allowing that will go the Rose Bird route and be removed from office by the voters.

 

[Big_Hitter]

All of this just looks like another reason to live in Texas.

news - Texans for Local Control


"Texans for Local Control is an advocacy organization seeking to return local control over municipal pensions to local governments. Few Texans realize that the Texas Legislature has usurped control of many of our local pensions, such as the Houston policemen, firemen and municipal employee pensions."

 

[MichaelB]

news - Texans for Local Control

Please, no naked links. A snippet or short summary, in you don't mind.

 

[Big_Hitter]

Please, no naked links. A snippet or short summary, in you don't mind.

done - fleeing to Texas isn't a panacea, just sayin...

 

[MichaelB]

done - fleeing to Texas isn't a panacea, just sayin...

Thanks.

 

[Bamaman]

Texas has outrageous property taxes, partially in lieu of state income taxes.

My best friend lives in Highland Park (N. Dallas), and when his property taxes hit $50K, he sold his house and rented a luxury apartment.

 

[Big_Hitter]

Texas has outrageous property taxes, partially in lieu of state income taxes.

My best friend lives in Highland Park (N. Dallas), and when his property taxes hit $50K, he sold his house and rented a luxury apartment.

HP is about the most expensive neighborhood in Dallas.

 

[Teacher Terry]

Most retired state workers do not end up with huge pensions-those are not that common. For instance in Nevada the average state worker gets a pension of 20k. Illinois government workers do pay into SS. I agree that the states need to pay what was promised. In my field I worked for less $ in return for that pension. I could have made more $ in private. Both my siblings are retired from IL and the same was true for their professions.

 

[ripper1]

The State of Illinois and Chicago took pension holidays for several years while the employees were paying their fair share all along. Agreed there is some fat cats and double dippers but that is in private industry as well. They just need to bite the bullet and pay up.

 

[imoldernu]

To fix the unfunded liability shortage in the Illinois State Teachers Retirement System (TRS) Pension fund, every man, woman and child in the state would have to pay $5,000.00.

What to do when reality happens.