Daley creates commission to confront choked pensions
BILLIONS UNDERFUNDED | Benefit cuts, 401(k) plans may be options
January 13, 2008
BY FRAN SPIELMAN City Hall Reporteremail@example.com
Mayor Daley on Friday created a commission drawn from labor, business and banking to confront a problem that threatens to choke future generations of Chicago taxpayers: underfunded city pension funds.
The comprehensive solution Daley is seeking within 18 months could include everything from benefit reductions and increased employee contributions to a shift away from “defined benefit” pension plans and toward the “defined contributions” or 401-K plans favored by private industry.
The city could raise the age for new employees to become eligible for full pension, as the CTA has done. If union leaders agree to make sacrifices, half the net proceeds from the proposed privatizing of Midway Airport could be pumped into the pension funds, under legislation approved by the Illinois General Assembly.
The only thing certain is that something’s got to give. The city’s four pension funds alone have $10 billion in unfunded liabilities to employees and retirees. If they run out of money, Chicago taxpayers get stuck with the tab.
“They need to reduce the benefits. They need increased contributions by employees and… benefits more in line with what’s offered in the private sector,” said Civic Federation President Laurence Msall.
The 32-member commission that will confront the pension fund crisis at the city, Park District, CTA, CHA, City Colleges and Chicago Public Schools will be co-chaired by Daley’s Chief Financial Officer Paul Volpe and by Volpe’s predecessor, Dana Levenson, who now serves as head of North American Infrastructure for the Royal Bank of Scotland.
“There are no easy answers,” Levenson said.
Volpe stressed that the pension crisis is “not an immediate problem,” nor does he view the commission as “a forum by which we reduce employee benefits.”
But, he said, “The longer we wait, the harder this problem will be to solve.”
At the end of 2006, the firefighters pension fund had assets on hand to meet just 40 percent of its liabilities. The ratio was 49 percent for police, 67 percent for municipal employees and 92 percent for laborers.
Fraternal Order of Police President Mark Donahue questioned why the city’s two largest unions — police and fire — were not represented on the 32-member commission.
Donahue said his members are “realistic” and willing to consider increased contributions. But the FOP president said he would insist on maintaining defined benefits. And he rejected the widely held belief that pensions for city employees who get sharply reduced Social Security benefits are overly generous.
“Public service employees deserve better because of the sacrifice and commitment they make to the communities they serve. That’s the trade-off. There are more opportunities in the private industry for advancement and greater wage earning,” he said.
Last year, pension obligations cost the city $475 million — more than 15 percent of Chicago’s corporate budget.
The Chicago crisis mirrors the pension dilemma facing government agencies and private companies across the nation.
Levenson sounded the alarm about the pension crisis in June 2006, but his call for a dialogue with city unions went nowhere.
At the time, Chicago Federation of Labor President Dennis Gannon reminded top mayoral aides of what happened in 1997, when the city robbed Peter to pay Paul — and made the pension problem worse.
With union consent, City Hall reduced its contribution to the well-funded Laborers and Municipal Employees pension funds and funneled $20 million of that money into the underfunded police and firefighters pension funds. The landmark deal also paved the way for a $20 million property tax cut and $200 million worth of neighborhood improvements.
“I read ’em the riot act. I said, ‘You came to us 10 years ago and we gave you relief.’ We saved them hundreds of millions of dollars. They took money out of two good funds and gave it to police and fire. Now, they’re saying those two good funds are in the same mess. And I reminded them that early retirement [which made the problem worse] was their idea,” Gannon said then.
Great, Mayor Daley and his family will find a way to steal more pension money, said Patrick McDonough. Photo edited by Patrick McDonough.