Here’s a pension crisis waiting to happen
“Anything and everything is on the table because we do have to stabilise the city’s finances,”
What is being talked of is Chicago’s pension promises. The FT reports the words of it’s Mayoral candidate, Susana Mendoza and there is no one defending the situation the City is in.
Chicago’s four city employee pension funds reported an aggregate funded ratio of 28.1 per cent last year, compared with a national average of 82.5 per cent, leaving the city’s retirement system among the worst funded in the US.
Yes you did read that right, over 70% of the promise in Chicago is not funded but dependent on the City coughing up the money out of public revenues. That leaves the police force, the firemen as well as those working for the City with a doubtful wage when they retire.
Chicago has also become a test case for how state and local governments may cope as cash-strapped public pension plans edge towards insolvency.
Points out FT reporter, Sun Yu in New York.
In the UK we have a well funded system of Local Government , currently embarrassingly in surplus, in stark contrast to the state of some of the Councils (West Midlands step forward). If you were not prejudiced by being American or British you might think that the British system is as overfunded as American is vice versa.
To suppose that Britain has inadequate pensions is to ignore a large part of our working population whose retirement promise goes beyond what’s paid as the universal right to our State Pension.
So long as people are in public funded pensions (whether funded or unfunded) there is no doubt that pensions will be paid. This is not the case in Cities in America which like Chicago are seeing what little fund they have disappearing.
Few US cities better exemplify the country’s public pension crisis than Chicago, whose retirement plans’ aggregate funded ratio has fallen by more than two-thirds since 2000. For decades, successive city administrations cut contributions to Chicago’s public retirement system to ease short-term budget pressures, contributing to tens of billions of dollars in unfunded pension liabilities.
The recent US stock boom has done little to change the broader picture as the rally has failed to help the funds balance their books and they remain vulnerable to a downturn, Susana Mendoza warns
“We have missed quite a significant wave of excellent returns and we can’t get that back,” she said, adding that the funds would be “toast” if the market turned lower.
De-risking?
American Cities like Chicago are living with a level of risk to public servants retirements that would not be countenanced in the UK
“The pension debt is caused by the failure of the city to pay what it owed in the past,”
said Anders Lindall, a spokesperson for AFSCME Council 31, Illinois’ largest public employees’ union,
“saying that you won’t talk about future benefits is actually not addressing the problem. That’s kind of a misdirection play”.
Mendoza also proposed expanding voluntary pension buyouts, allowing eligible workers to take lump-sum payments in exchange for giving up certain future benefits, while directing any surplus city revenues towards pension stabilisation and the city’s rainy-day fund.
