Chicago is a massive city — the 3rd largest U.S. city — and has a pension shortfall to match. A recent analysis offers a look at why the figures are what they are.
The Illinois Policy Institute (IPI), an independent research and education organization, offers a different take on why the city’s public pension plan is reported to have a shortfall of more than $20 billion. The IPI does not dispute that the system is heavily in debt, but it argues that what made the difference in the sharp increase in the shortfall is how figures are determined and reported — specifically, the application of new government reporting standards.
The IPI observes that for two of Chicago’s public pension plans, the increase in the pension debt and decrease in the funded ratios dramatically changed from 2014 to 2015:
Municipal Workers Pension Fund
Pension Debt: 2014, $7.1 billion; 2015, $18.6 billion (+$11.5 billion)
Funded Ratio: 2014, 42%; 2015, 20% (-22%)
Laborers Pension Fund
Pension Debt: 2014, $800 million; 2015, $2.5 billion (+$1.7 billion)
Funded Ratio: 2014, 64%; 2015, 33% (-31%)
What made the difference? IPI argues that rather than “some unforeseen financial calamity or economic collapse,” these changes are the result of complying with Government Accounting Standards Board standards that took effect in fiscal year 2015.
“Now that GASB is demanding that Chicago’s municipal-workers and laborers pension funds use a more realistic rate of return on investment, the funds are being forced to show the true extent of their financial woes,” says the IPI.
The IPI adds that the city’s public pension shortfall will be even higher when the pension funds for the city’s police officers and firefighters issue their 2015 actuarial reports — reports that also will reflect the application of the new GASB standards.
The Illinois Policy Institute (IPI), an independent research and education organization, offers a different take on why the city’s public pension plan is reported to have a shortfall of more than $20 billion. The IPI does not dispute that the system is heavily in debt, but it argues that what made the difference in the sharp increase in the shortfall is how figures are determined and reported — specifically, the application of new government reporting standards.
The IPI observes that for two of Chicago’s public pension plans, the increase in the pension debt and decrease in the funded ratios dramatically changed from 2014 to 2015:
Municipal Workers Pension Fund
Pension Debt: 2014, $7.1 billion; 2015, $18.6 billion (+$11.5 billion)
Funded Ratio: 2014, 42%; 2015, 20% (-22%)
Laborers Pension Fund
Pension Debt: 2014, $800 million; 2015, $2.5 billion (+$1.7 billion)
Funded Ratio: 2014, 64%; 2015, 33% (-31%)
What made the difference? IPI argues that rather than “some unforeseen financial calamity or economic collapse,” these changes are the result of complying with Government Accounting Standards Board standards that took effect in fiscal year 2015.
“Now that GASB is demanding that Chicago’s municipal-workers and laborers pension funds use a more realistic rate of return on investment, the funds are being forced to show the true extent of their financial woes,” says the IPI.
The IPI adds that the city’s public pension shortfall will be even higher when the pension funds for the city’s police officers and firefighters issue their 2015 actuarial reports — reports that also will reflect the application of the new GASB standards.
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