Members of our pension fund may have read the recent Wall Street Journal (WSJ) Editorial – Chicago Pensions on the Brink: Some city funds can be considered ‘technically insolvent’. The Retirement Board, which administers our pension fund, responded with a letter to members of the pension fund stating several of the statements are untrue and misleading. In my opinion, as a former pension fund trustee, the WSJ Editorial Board did get some of their reporting wrong. For instance, it was inaccurate to state that ‘Mayor Brandon Johnson had to dip into the city’s cash reserves to cover retirement checks that a city pension fund couldn’t pay.’ Our pension fund could have liquidated assets to make the monthly payment without any assistance from the city.
The Retirement Board also criticizes the article for labeling the $28 million advance payment a loan; I agree. Given the circumstances of the reported computer glitch, I think it is a misrepresentation to call the advance a loan. The Retirement Board has a good understanding of when and how much property tax revenue will be received each month from historical data and the tax levy ordinance passed by the city. Based on that information the Retirement Board makes difficult strategic investment and liquidation decisions after considering those projected cash flows. It makes sense for the city to identify another revenue source to backfill the delayed payments from property tax revenues, so the city sponsored pension funds are not left scrambling to pivot to a new investment and liquidation decision on short notice.
The real story here is not how the advance is categorized, it is the fact that our pension fund is so sick it can’t afford to stand next to someone who sneezes. Essentially Cook County elected officials, with their inability to manage a computer system migration, sneezed ineptness all over our pension fund. That is really the gist of the editorial piece – our pension fund is so fiscally deficient that it can not afford additional mismanagement, either internally or externally. What our Retirement Borad did not dispute is the WSJ’s report that Chicago’s chief financial officer wrote to Illinois’ deputy governor that “many actuaries consider a funded ratio under 20% to be technically insolvent.”
What I find really disappointing about the Retirement Board’s letter to participants is the display of complete ignorance and unwillingness to address root causes of our pension fund’s fiscal crisis. The editorial piece goes on to report on the recent legislation passed, which burdens our pension fund with additional benefits and liabilities without providing any revenue sources to cover them, and then writes – “This is what happens when public unions essentially run the city and state government.” The Retirement Board’s response to that commentary is to almost feign confusion while simultaneously lofting up a typical government public relations denial of – Be Assured!, Not Accurate!, and some legal disclaimer that they are following the statutorily enacted Illinois Pension Code.
The topic of Local 2’s reckless pursuit of additional benefits for the membership without identifying adequate resources to pay for them had been discussed frequently and vigorously at the Retirement Board. I know because I was part of the discussion. The institutional amnesia of our Retirement Board should be of concern for all pension fund participants. The WSJ editorial board attempted to identify a serious fiscal problem for the City of Chicago and also identify the root cause. Unfortunately, the Retirement Board that has a fiduciary duty to serve our interests and protect our benefits will not hear it. The political class in our city and state refuse to see or hear any uncomfortable news. I’m sorry, but the financial principles which a defined benefit plan operate under are well established and ignoring them does come with consequences. Our poor funding status is not an act of nature, nor an act of God; the cause stems from poor political choices and continuous willful ignorance of clearly understood financial principles.
As many participants may know, I engage with the membership often on our pension fund and in particular the topic of our poor funding status. Back in May 2016, I distributed to every firehouse one of my first newsletters as a pension fund trustee asking the membership to contact the Governor to veto SB777. SB777 was the result of an agreement between Local 2 and the legislative leadership which allowed the city to again postpone sound funding of our retirement security. In return, Local 2 secured additional benefits which further burdened our fund. That decision by Local 2, the city and the state legislature was reckless and shortsighted. This is what the WSJ editorial board meant when they wrote “This is what happens when public unions essentially run city and state government.” It is concerning that the Retirement Board forgets the history, which played out right in front of their eyes, that has gotten us into this mess.
Be safe and stay informed!
Captain Tim McPhillips
Former pension fund trustee
