Private employers have largely abandoned the traditional defined benefit pension. Those that haven’t have frozen them, trimmed future benefits or otherwise attempted to manage their funding costs. While such changes are not beneficial to workers, the reality is that defined benefit pensions have declining value when workers are not employed for many years with the same company.
Not so with government where pensions are common. What is also common with state government is the failure to fund their pension promises or prudently manage their plans.
The Illinois Senate this week pushed through richer benefits for the severely underfunded Chicago firefighters pension plan.
The measure, already approved in the legislature’s lower chamber, would add $18 million to the pension liability in the first year, and $30 million in following years.
The state pension bill HB 2451, pushed by the Chicago Firefighters Union Local 2, would remove a birth date restriction for beneficiaries born after Jan. 1, 1966, in the Firemen’s Annuity and Benefit Fund of Chicago (FABF).
It would increase the annual cost of living adjustment (COLA) to 3% for firefighters born after the cutoff date, a doubling of the 1.5% rate earmarked for those beneficiaries under the current law.
The FABF is a severely underfunded plan. With $1.1 billion in assets and $5.1 billion in unfunded liabilities, the pension program is just 18.4% fully funded, as of the fiscal year ending December 2019.
That same year, the pension fund returned just 5.9%, failing to reach its 6.75% target return.
Source: Illinois Lawmakers Pass Firefighter Pension Bill Upping Benefits
Illinois is far from the only public entity mismanaging pensions.
Here is what I don’t understand. I get that the union officials did a great job of getting more benefits in this case a better pension that the city or the state can’t pay for. Good for them on getting more for their members.
What I don’t get is why the union is asking for more instead of ensuring that their current pensions are properly funded. Funding at 18.4% is a joke. Even funded at 80% is bad. In the last decade, cities that have filed Chapter 9 bankruptcies and businesses that file chapter 11 bankruptcies often have their pension obligations reduced or wiped out. As a union official, I would be more concern that my membership will get what is promised instead of ensuring that the politicians keep buying the union vote with more unfunded promises.
But I guess it is always better to lose a $100k pension instead of getting paid a $90K pension.
Illinois is a text book example of democrats failed ideology.
That’s certainly the case in Chicago and Cook County, which have never had another party ruling in government. However, there’s plenty of blame to spread around both parties in Illinois government.