The Dumpster Fire of Illinois Public Pensions is Still Smoldering

[Tekward]

It's not getting better as pensions take on more risk to make up for their shortfalls:

https://wirepoints.org/chicagoans-pensioners-beware-a-stock-market-shock/

I figure most of the affected ER people here are watching closely but this will surprise many retirees.

 

[cooch96]

And all during a historic economic expansion. Absurdly irresponsible of the pension fund managers.

 

[MichaelB]

Just a technicality - the article is about City of Chicago pensions, not the State of Illinois.

 

[Ronstar]

And all during a historic economic expansion. Absurdly irresponsible of the pension fund managers.

The economic expansion bypassed the State of Illinois.

 

[Tekward]

Just a technicality - the article is about City of Chicago pensions, not the State of Illinois.

True, Chicago is just a (big) part of the problem:
https://wirepoints.org/indiana-keep...-illinois-is-still-stuck-near-junk-quicktake/

"Illinois, in contrast, is the nation’s worst-rated by all three credit rating agencies. And it’s just one notch from being rated junk by Moody’s and S&P. Illinois is the financial deadbeat of the country."

 

[MichaelB]

True, Chicago is just a (big) part of the problem:
https://wirepoints.org/indiana-keep...-illinois-is-still-stuck-near-junk-quicktake/

"Illinois, in contrast, is the nation’s worst-rated by all three credit rating agencies. And it’s just one notch from being rated junk by Moody’s and S&P. Illinois is the financial deadbeat of the country."

The only point I was making was the thread title says “Illinois” while the linked article is “Chicago”. They are different unrelated pension systems.

There are other state pension systems just as bad as Illinois and two that are worse, according to Pew Research https://www.pewtrusts.org/en/resear...fs/2018/04/the-state-pension-funding-gap-2016

I think the Illinois Pension funding is abysmal. If we want “the deadbeat”, however, New Jersey is worse. (A distinction without a difference. They both are unacceptable)

 

[Chuckanut]

The only point I was making was the thread title says “Illinois” while the linked article is “Chicago”. They are different unrelated pension systems.

There are other state pension systems just as bad as Illinois and two that are worse, according to Pew Research https://www.pewtrusts.org/en/resear...fs/2018/04/the-state-pension-funding-gap-2016

I think the Illinois Pension funding is abysmal. If we want “the deadbeat”, however, New Jersey is worse. (A distinction without a difference. They both are unacceptable)

You can add Kentucky to that sad list also.

Keep in mind that the sinking ship makes the news. Nobody is going to write a headline like "100+% Pension funding in South Dakota".

 

[Masquernom]

The city of Louisville, in Kentucky, is looking at raising taxes and/or dropping services already because of the state underfunding of the pension system. Everyone seems to be kicking the can down the road, but eventually I guess the bill has to be paid. Might want to look at unfunded pension plans for any state you're thinking about moving to in the future.

 

[Midpack]

"Illinois, in contrast, is the nation’s worst-rated by all three credit rating agencies. And it’s just one notch from being rated junk by Moody’s and S&P. Illinois is the financial deadbeat of the country."

You can add Kentucky to that sad list also.

Keep in mind that the sinking ship makes the news. Nobody is going to write a headline like "100+% Pension funding in South Dakota".

Kentucky and New Jersey are both worse.

And we've chosen the state we're relocating to largely on the basis of how they've managed their financial health (mostly public pension liability) vs the others we were considering. So some people do care.

 

[Masquernom]

Kentucky's pensions were fully funded as recently as 2000. Here's the story of how they imploded in 18 years....

https://www.courier-journal.com/sto...t-blames-underfunding-hedge-funds/1743292002/

 

[rk911]

the STATE pensuon funds in illinois are terribly under funded. by contrast the Illinois Municipal Retirement Fund is better than 90% funded. at least that's what they tell us. chicago is not part of IMRF.

 

[mrfeh]

Kentucky's pensions were fully funded as recently as 2000. Here's the story of how they imploded in 18 years....

https://www.courier-journal.com/sto...t-blames-underfunding-hedge-funds/1743292002/

Just watched a Frontline episode on this issue:

https://www.pbs.org/wgbh/frontline/film/the-pension-gamble/

 

[imoldernu]

A promise is a promise, but there are differences in the how and why promises are made, but learning is part of the process.

My campground neighbor, whom I dearly love and respect, retired from the Chicago Public School system at age 52, 13 years ago,with a (then) pension of $65,000. No envy for me, but happiness for the security she attained at an early age.

Teacher pension contributions are out of sync with payouts. The average career teacher currently receives an annual pension of $73,350 and will receive a lifetime payout of over $2 million. The pension payout formula is based on Chicago teachers paying 9 percent of their salaries toward their pensions.

More here:https://www.illinoispolicy.org/11-things-you-need-to-know-about-chicago-teacher-pensions/

Note the part about 9% and the actual numbers.
............................................................................................

Chicago police also do quite well. The scandal from a few years ago was that the average last 2 years pay set the pension amount, and studies showed that, overwhelmingly, officers nearing retirement received the most overtime hours.

From a 2012 article:

Compare this to an average Chicago police pension of $62,000 starting at age 58. In this case, the estimated total pension payout over a normal lifetime is $2,500,000.” “The average Chicago police pension is worth three times that of Social Security with retirement four years earlier and with six years less work

https://taxpayersunitedofamerica.or...cial-security-pensions-with-less-time-worked/

However this works out, my heart goes out to those who were promised and worked in good faith. Hopefully some light at the end of the tunnel.

 

[Rianne]

I'm getting ready for SS and retirement taxation in Illinois state taxes. Recreational marijuana maybe legalized and sports betting. Our roads and infrastructure are a disaster. Pot holes everywhere from the winters. Big city plans for renovations of the downtown here in Champaign. University is booming. Property taxes through the roof.
https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/
Yes, we are #50.

Just raised minimum wage. Fingers pointed in every direction. And I'm tired of this frickin weather.
Did someone mention pensions? Oh right, pensions.

 

[GrayHare]

I see the creation of a "Chicago/Illinois Dollar" in the future, followed by Zimbabwe-style inflation.

 

[OldShooter]

the STATE pensuon funds in illinois are terribly under funded. by contrast the Illinois Municipal Retirement Fund is better than 90% funded. at least that's what they tell us. chicago is not part of IMRF.

That's not enough information. You also have to look at their investment return assumption. MN was assuming, IIRC, 8% and telling everyone that the public employees pensions were well-funded. Then one of the rating agencies blew the whistle. MN is now using 7.5% which IMO is still optimistic and they are saying the pensions are something like 50% funded.

Use of bogus investment return numbers is the easiest and least painful way for the politicians to kick the can forward.

 

[free2020]

That's not enough information. You also have to look at their investment return assumption. MN was assuming, IIRC, 8% and telling everyone that the public employees pensions were well-funded. Then one of the rating agencies blew the whistle. MN is now using 7.5% which IMO is still optimistic and they are saying the pensions are something like 50% funded.

Use of bogus investment return numbers is the easiest and least painful way for the politicians to kick the can forward.

Yes it is a convenient way to not take fiscal responsibility; governments are known for this. Not to justify this but corporate America has behaved despicably over the past 3 decades with underfunding pension funds. Guess how, by doing this exact thing that public institutions have done, assume ridiculous returns on pension fund assets. How many public corporations still have pension plans? That number is heading towards ZERO. They have basically let their employees fend for themselves with 401K plans with very questionable fiduciary responsibilities. Many companies have allowed the financial industry to pillage the 401K funds with fee laden products. It is the travesty of our generation.

 

[Spanky]

However this works out, my heart goes out to those who were promised and worked in good faith. Hopefully some light at the end of the tunnel.

It seems obvious that if they received 3x the payment of social security benefits, the new payment should be 1/3 of the current payout in fairness to everyone. Another method is to determine the amount to cut in order to keep the plan solvent. Raising tax or shifting money from the general fund, is not a viable or popular option.

BTW, my comments may raise a lots of angers from the public pensioners.

 

[Al18]

Rianne,
Interesting property tax info in your link. Property taxes for the medium home value in New York, New Hampshire, Connecticut and New Jersey are all higher than Illinois! New Jersey has the highest property taxes.

 

[Gumby]

BTW, my comments may raise a lots of angers from the public pensioners.

Then why make them?

 

[JoeWras]

It seems obvious that if they received 3x the payment of social security benefits, the new payment should be 1/3 of the current payout in fairness to everyone. Another method is to determine the amount to cut in order to keep the plan solvent. Raising tax or shifting money from the general fund, is not a viable or popular option.

BTW, my comments may raise a lots of angers from the public pensioners.

Social Security is not a pension. A municipal pension is a pension. They cannot and should not be equated.

Now, the fact that some of these pensions (especially in IL) had their participants opt out of SS is part of the travesty.

 

[ERD50]

That's not enough information. You also have to look at their investment return assumption. MN was assuming, IIRC, 8% and telling everyone that the public employees pensions were well-funded. Then one of the rating agencies blew the whistle. MN is now using 7.5% which IMO is still optimistic and they are saying the pensions are something like 50% funded.

Use of bogus investment return numbers is the easiest and least painful way for the politicians to kick the can forward.

DW is IMRF, and their site says:

https://imrf.org/cmsmedia/files/multi-site-files/annual-reports/2017/2017 pafr.pdf?la=en

IMRF’s long-term goal is to earn an annualized total fund return of 7.5%, after investment-management fees. With a return of 15.73% in 2017, IMRF achieved its goal. IMRF has also achieved its investment return goal over longer time horizons. For example, over the last 5 years, IMRF has earned 9.70% after paying investment-management fees.

2017 - 15.73%
2016 - 07.77%
2015 - 00.20%
2014 - 05.76%
2013 - 19.99%

That tracks very close to a (very) rough benchmark I did, based on 45/20/35 (US EQ/INTL EQ/Fixed). I got ~ 9.80% CAGR.

So 7.5% going forward could be optimistic, but at ~90% funding, I think they will be alright. It looks like they can increase the contribution amounts if needed, w/o jumping through too many hoops - the docs say something about setting contribution rates on a smoothed 5 year analysis. And a rough pass says that at 7.5% expected, they are getting about half their income from member/employer contributions. So a few percent lower over along period could be made up with a few % higher contributions. Not the end of the world.

-ERD50

 

[ERD50]

Originally Posted by Spanky View Post
BTW, my comments may raise a lots of angers from the public pensioners.

Then why make them?

Because real life isn't unicorns, puppies and rainbows? Ignoring real problems won't solve them.

-ERD50

 

[Gumby]

Because real life isn't unicorns, puppies and rainbows? Ignoring real problems won't solve them.

-ERD50

One of the things that is best about this board is that people try to get along. If we were standing at a cocktail party with a bunch of public pensioners, would you tell them that their pensions should be cut by two thirds? I think not. Because it would be rude, even if you thought it was a) a problem that was your responsibility to solve and b) that your suggestion would solve the problem. To maintain some semblance of harmony here, we discourage people from purposefully picking a fight with other members.

It is also wrong to be rudely dismissive, as you have just been.

 

[beowulf]

+1 for Gumby. My response to Spanky and ERD50 is that maybe we should cut public services by 1/3 to make up for the pension shortfall while keeping taxes the same. 1/3 less public transportation, 1/3 less police and firemen, 1/3 fewer public hospitals, schools, etc. Sure that would cause a lot of current employees to lose their jobs, but they can get new ones in the private sector that will have to take over all those functions. That way Spanky and ERD50 can get the best of both worlds - keep the promise made to pensioners while reducing the number of public employees. Of course, the final result will be higher taxes as private companies have to make a profit. In reality, nothing will be saved - you just rearrange the deck chairs. When the federal government hired contractors to perform tasks previously done by federal employees, the total number of contractors and feds went up, not down (due to all the extra contract personnel). And the money spent on contractors exceed the salaries of the federal employees being replaced. I have actual experience in that area - as a contractor I was paid $75 and hour, plus profit sharing, medical, commuting costs, etc. My company was charging the government $220 an hour for my work. At the time, my federal counterparts with similar training and experience were earning about $60 an hour as GS-15s. BTW, my profit sharing averaged 7% a year and there was also a 5% 401K match.