Chicago Pension Contributions are $2.4 Billion Short

by Ashley Muchow According to the Civic Federation, the City of Chicago is $2.4 billion behind on its pension contributions. In fiscal year 2009, Chicago pumped $423.9 million into its Municipal, Laborers, Police, and Fire pension funds. Using GASB standards, the Civic Foundation found that the city was $566.5 million short of what should have been contributed. So why...

by Ashley Muchow

According to the Civic Federation, the City of Chicago is $2.4 billion behind on its pension contributions.

In fiscal year 2009, Chicago pumped $423.9 million into its Municipal, Laborers, Police, and Fire pension funds. Using GASB standards, the Civic Foundation found that the city was $566.5 million short of what should have been contributed.

So why are these accounting standards not being met?

Unfortunately, in Chicago’s case, financing standards are not funding requirements. GASB standards require that local and state governments disclose their Annual Required Contribution (ARC), which is equal to the normal cost of retirement benefits and the amount needed to pay down existing unfunded liabilities over a 30-year period or less. According to the Civic Federation study:

ARC is a financial reporting requirement but not a funding requirement. The statutorily required City of Chicago contributions to its pension funds are set in the state pension code. However, because paying the normal cost and amortizing the unfunded liability over a period of 30 years does represent a reasonably sound funding policy, the ARC can be used as an indicator how well a public entity is actually funding its pension plan.

That being said, the City of Chicago’s pension contribution strategy is not ideal. The Civic Federationplot below details the gap between what the city is actually contributing and what it should be contributing.

To fund the city’s pensions at a level that would cover normal cost and amortize unfunded liabilities over 30 years, Chicago would have needed to contribute an additional 17.9% of payroll, or $556.5 million, last year.

It’s time Chicago considers the long-term impact of today’s funding practices.