Tariff troubles highlight Chicago’s precarious pension situation
Tariffs by President Donald Trump sent markets tumbling and temporarily hurt public pension investments. While the markets recovered, the episode showed Chicago’s pension systems are extremely fragile.
During a volatile market and possible recession, managing public pension obligations is crucial: Chicago’s will be in trouble.
On April 2 the Trump administration rolled out a broad array of tariffs. The market did not react well to the news and many pension funds took significant losses as a result.
As of April 8, the Equable Institute estimated Chicago’s four main pension funds lost $1.58 billion. About $983 million – more than 60% – vanished during the seven trading days after “Liberation Day,” when Trump’s near-universal tariffs hit, sending markets sliding. The S&P 500 saw its lowest four trading days since its creation in the 1950s, losing $5.83 trillion in market value.
These losses are not unique to Chicago. The top 25 state and local pension systems in the nation saw an estimated $169 billion in similar losses as of April 8 following the tariff enactment, contributing to $249 billion in total losses since Jan. 1. Such deep losses are particularly concerning for Chicago’s city pensions given their already precarious funding status.
Chicago is directly responsible for funding four pension funds: Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago, Municipal Employees’ Annuity and Benefit Fund of Chicago, Policemen’s Annuity and Benefit Fund of Chicago and Firemen’s Annuity and Benefit Fund of Chicago. These systems are the worst funded in the nation, according to Equable’s State of Pensions 2024, holding only 21 cents to 39 cents for every dollar owed in benefits.
Experts generally deem funded ratios for pension plans that fall below 60% “deeply troubled.” Those falling under 40% – which pertains to all four of Chicago’s funds – are considered on a fast track to insolvency without major reforms. The tariff‑driven sell‑off showed just how fragile a footing this is: a single week of market turmoil erased nearly $1 billion from Chicago’s pension assets, underscoring that even a short‑lived market shock can inflict permanent damage on the trajectory of pension funds.
Actuaries make assumptions about the market performance of their assets when keeping track of the state of pension systems. But investment return assumptions seem far too optimistic after April’s market changes. Chicago now faces a choice: continue betting on unreliable market performance to cover up its refusal to adequately fund its pension systems, or enact structural changes that shield both taxpayers and retirees from the next bout of volatility.
In light of the current economic situation, it’s increasingly important that lawmakers pursue a constitutional amendment to limit benefit growth for Tier 1 employees. They should also offer workers a 401(k)‑style option for those who want to manage their funds personally. Finally, they should start moving toward a funding schedule that prioritizes near‑term debt reduction rather than back‑loading costs.
These steps will put government pensioners and the city in a better position to handle future market shocks. Without them, Chicago will have to continue shouldering one of the nation’s highest tax burdens without delivering adequate financial security to its pensioners.