Unions to bankrupt Chicago pension funds
A group of Chicago unions, including AFSCME Council 31 and the Chicago Teachers Union, have sued the city over a recent attempt to reform two of the city’s four pension funds.
Two of Chicago’s four city pension funds will be bankrupt within a few years, according to Chicago Mayor Rahm Emanuel. You’d think that’s a scenario unions – the supposed champions for public-employee retirements – would want to avoid.
But not in Chicago. Unions are fighting to block any kind of pension reform, effectively locking in bankruptcy for city-employee pension systems.
A group of Chicago unions, including AFSCME Council 31 and the Chicago Teachers Union, have sued the city over a recent attempt to reform two of the city’s four pension funds. The reform plan, focused on the city’s municipal and laborer pension funds, scaled back cost-of-living adjustments and increased employee and employer contributions. The lawsuit, filed Dec. 16, argues these reforms violate the state constitution.
The plan actually doesn’t achieve much in terms of bringing stability to the city’s pension systems. And it completely ignores the Chicago police officers’ fund, which has just $0.25 for every dollar required to pay out future benefits. The firefighter fund has just $0.31.
Yet the unions suing over the bill are fighting to maintain the status quo and preserve pension plans that are slated to go bust in a few years.
Chicago’s official pension shortfall is now $29 billion. Detroit, by comparison, had just a $3.5 billion shortfall when it filed for bankruptcy last year.
Not surprisingly, the rating agencies have caught on. Moody’s Investors Service slashed Chicago’s credit rating in March, leaving it just three notches above junk status. Of the nation’s largest cities, only Detroit has a worse rating.
Even if Chicago is allowed to move forward with the pension-reform bill, the city will still be in trouble, according to The Bond Buyer:
“The overhaul is considered a good step, but would have only a mild impact on the city’s massive unfunded obligations in the early years, Moody’s cautioned in its special commentary at the time of passage. ‘Even with reform, pensions will continue to weigh heavily on Chicago’s credit quality,’ analysts wrote.”
For all the complexity of government-run pension systems, the scenario here is fairly simple: If the reform plan is upheld, the city’s pension funds will still face the risk of insolvency. Without any reform, bankruptcy is certain.
By blocking any reform to the system, unions are effectively fighting for the latter.