 According to the Chicago Sun-Times, Moody’s Investors Service has said the four
funds’ investment returns “ranged from -1.5 percent to +1.8 percent.” Moody’s
noted that’s “far below assumed returns of 7.5 to 8 percent” that the funds need
to achieve.
Pension investments are part of the same markets as private-sector 401(k)
investments, and are subject to the same ups and downs everyone experiences with
the markets. But because investment returns are key for funding pensions – and
because these funds have so many participants – weak returns are an even bigger
problem, and lead to increased funding deficits. This increases the cost to
taxpayers because the government has to make up for the shortfall by paying more
to the pension fund.
This is bad news for city employees, too. Achieving high investment returns is
extremely important to Chicago’s pension funds, which are all massively
underfunded. According to new government accounting standards, Chicagoans are on
the hook for approximately $40 billion in pension debt for the city’s four
funds, or more than $43,000 per household.
Moody’s also warned that more years of poor investment performance would throw
Chicago’s finances into even greater crisis: “Additional weak investment
performance would increase the city’s pension payments over current projections,
creating additional operating stress and forcing Chicago to make difficult
budgetary decisions.”
Unfortunately for Chicagoans, the city’s more recent “budgetary decisions” have
forced residents to open their wallets again and again. The city has passed a
record $700 million tax increase and a police and fire pension “fix” that will
increase Chicagoans’ property taxes automatically in 2020 and beyond.
The pension funds’ latest investment failure is yet another setback in Chicago’s
ever-escalating pension crisis, and it highlights the reasons why
politician-controlled pensions fail:
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 Not only are pension plans inherently broken,
but they are also inherently political, opaque and void of
accountability. As long as politicians maintain control over
pensions, they’ll always find ways to exploit them – whether through
payment holidays, picking up employees’ required contributions or
borrowing.
Politicians have granted pension benefits to government workers
and government unions over the past several decades that are simply
not affordable for taxpayers. Government workers can retire in their
50s, receive generous cost-of-living adjustments, and are living
longer. That in turn allows many workers to collect over $1 million
in lifetime pension benefits.
Those unaffordable benefits, along with politicians’ underfunding
have brought Chicago’s pension funds to the brink of total
insolvency. The city’s laborers and municipal pension funds are 33
percent funded and 22 percent funded, respectively. Both the police
and fire systems have less than a quarter of the funds they need on
hand to pay out benefits.
If Chicago moved to self-managed plans such as a 401(k)s,
politicians would no longer be in control of workers’ retirements.
Both the city and its workers would contribute directly to portable
retirement accounts owned and controlled by the employees.
That would protect city workers from mismanagement by city
officials and would protect taxpayers from having to pay twice for
the games politicians play with pension dollars.
Every day Chicago fails to enact a real solution to its pension
crisis, the city’s pension debt grows by over $4 million, and the
four pension funds move closer to total insolvency.
Offering 401(k)s-style plans for new workers, with optional plans
for current workers, is the only way Chicago will be able to both
reduce the burden on taxpayers and protect workers’ retirements.
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