Chicago Pension Fund Now $11 Bill Short

The Chicago pension fund is now $11 billion short of what is required to finance pensions for the next ten years. The shortage is due to a set of new accounting rules and to the Illinois Supreme Court defeating Chicago Mayor Rahm Emmanuel’s retirement-fund overhaul. The city now finds itself with alarmingly low funds.

Crain’s Chicago Business has more on the situation:

Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Courtand new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to an annual report presented to the fund’s board yesterday. The fund serves some 70,000 workers and retirees.

The new figure, a result of actuaries’ revised estimates for the value in today’s dollars of benefits due as long as decades from now, doesn’t change how much Chicago needs to contribute each year to make sure the promised checks arrive. But it highlights the long-term pressure on the city from shortchanging its retirement funds year after year — decisions that are now adding hundreds of millions of dollars to its annual bills and have left it with a lower credit rating than any big U.S. city but once-bankrupt Detroit.

“The longer they wait to get this fixed, the more expensive it’s going to get for the city’s taxpayers,” Richard Ciccarone, the Chicago-based president of Merritt Research Services LLC, which analyzes municipal finances.

The latest estimate for the municipal fund, one of Chicago’s four pensions, will add to what had been an unfunded liability estimated at $20 billion.

A key driver was the court ruling striking down Mayor Rahm Emanuel’s plan that cut benefits and boosted city and employee contributions. Without it in place, the fund is now set to run out of money within 10 years.

That triggered another change. New accounting rules, adopted to keep governments from using overly optimistic investment-return forecasts to mask the scale of their liabilities, require them to use more modest assumptions once pension plans go broke. As a result, the reported liabilities jump.

The Chicago fund is notable because there have been very few governments that have been affected by the change, according to Ciccarone. “The investment returns are not going to fix the problems themselves,” he said.

The pension fund is currently 32 percent funded.