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.
Illinois is far from the only public entity mismanaging pensions.