By William S. Bike
Ed Bachrach of the Center for Pension Integrity (CPI), who is leading a movement to get the City of Chicago to operate under a city charter or constitution, also is part of a group taking on an additional challenge: pension reform in the City of Chicago.
The Center for Pension Integrity, Wirepoints, the Illinois Policy Institute (IPI), and the Technology and Manufacturing Association have formed the Taxpayer Pension Alliance (TPA), which is urging Mayor Brandon Johnson’s Pension Working Group (PWG) to consider several Society of Actuaries recommendations for dealing with public pensions in Chicago.
The City reports its pension shortfall at $35 billion for four City-run funds, but the TPA pegs that unfunded pension liability at a larger $52 billion figure when counting other City agencies such as the Chicago Public Schools, the Chicago Park District, and Chicago Transit Authority.
“We have a huge pension deficit,” said Dick Simpson, professor emeritus of political science at the University of Illinois Chicago. “It has been made partly less bad by the extra expenditures by Mayor Lori Lightfoot from Federal money, but it’s still bad.”
Mayor Johnson created the PWG shortly after taking office in May 2023, and it began working on June 21 “to address structural issues across the City’s four pension funds,” the mayor said, adding that he was looking for the group “to develop a sustainable path forward.”
He noted the group “will work with a broader set of advisors from the financial and advocacy sectors to develop actionable solutions to meet the City’s obligations to retirees, workers, and taxpayers.”
TPA members hope to be among those advisors.
Representation an issue
“The Pension Working Group that the mayor appointed included City Hall officials, executives of the pension plans, and union leaders, but we felt that there is no taxpayer representation in the group,” Bachrach explained in noting why he and his colleagues created the TPA.
Bachrach and Austin Berg of the IPI in 2019 wrote a book, The New Chicago Way: Lessons from Other Big Cities, on city management and problems.
“For the pension chapter, I looked at some of the major professional organizations and what they thought were best practices,” Bachrach said. “One of those was the Society of Actuaries. In 2014, they published a study called the Blue Ribbon Panel Report, which had recommendations for the best practices and best management of employee pensions—none of which have ever been followed by Chicago and the State of Illinois.”
In a City Hall news conference on Jan. 10, TPA suggested several of what Bachrach called “process oriented recommendations” based on the Society of Actuaries (SOA) report.
Among those recommendations are requirements to have any City pension proposal scored by independent professional actuaries, to reach and maintain 100% funding for all pension plans within 20 years, and to put a moratorium on any benefit increases until plans are 100% funded.
“The SOA recommends catching up over a short period of time, no more than 20 years,” Bachrach explained. “Whereas the current amortization schedules for the City of Chicago, sister agencies, and the State of Illinois are amortizing things over a longer period.”
Simpson noted some financial experts, however, advocate the City’s “taking a loan to take a longer time to pay into the pensions.”
State law requires four of the City’s public pension funds to be funded at 90% by 2058.
“Most of the pensions are only about 40% funded, which doesn’t mean they’re going to collapse tomorrow morning, but they’re going to need a lot more funding,” Simpson said.
Tier II factor
In 2010, the State Legislature modified the Pension Code for public pensions in Illinois by creating a new tier of retirement benefits, Tier II, for new public employees “that were significantly less than the benefits payable” to public employees hired earlier, according to the Center for Tax and Budget Accountability. The TPA also is calling on the City to enact “a requirement to enroll participants in Social Security if Tier II plan provisions are found to be in violation of ERISA.”
ERISA is the Employee Retirement Income Security Act, a Federal law that sets pension standards.
One impetus for creating the TPA was last year’s proposal by State Senator Robert F. Martwick (D-10th) to improve benefits for Tier II Chicago Firefighters, Bachrach noted.
Mayor Lightfoot “had her chief financial officer score the thing, and they saw that it would cost $3 billion and she put the kibosh on it,” Bachrach said, adding that TPA formed because members of the various groups comprising it were concerned similar proposals would be forthcoming for other City, municipality, and State public pension funds.
“Pension legislation needs to be very deliberate,” he added. “So before you try to legislate anything, you need to collect a lot of actuarial information. And it should be published so it’s part of the dialogue about what you’re going to be doing with pensions.”
Bachrach noted another responsible pension reform suggestion “is that whatever you do in terms of pension legislation should be over at least two legislative sessions, not just one, so there is plenty of time to figure out what might work and what might not.”
Johnson during his 2023 mayoral campaign vowed not to raise property taxes.
“But long term we’re simply going to have to raise taxes,” Simpson said. “So the issue is, which taxes need to get raised and at what rate?”
To contact Bachrach, log on to the CPI site at www.pensionintegrity.org. For more on the Pension Working Group, contact the Mayor’s Press Office at (312) 744-3334. For Simpson, email [email protected] or call (312) 413-3780. For SOA, log on to www.soa.org.