Chicago Pension Liabilities Jump 168%, Understated by $11.5 Billion | MishTalk
. . . don't worry, this dog and pony show is coming to your state soon!
"'Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Court and new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to an annual report presented to the fund’s board on Thursday. The fund serves some 70,000 workers and retirees.
Decisions that are now adding hundreds of millions of dollars to its annual bills have left Chicago with a lower credit rating than any big U.S. city but once-bankrupt Detroit.
The latest estimate for the municipal fund, one of Chicago’s four pensions, will add to what had been an unfunded liability estimated at $20 billion.
A key driver was the court ruling striking down Mayor Rahm Emanuel’s plan that cut benefits and boosted city and employee contributions. Without it in place, the fund is now set to run out of money within 10 years.
That triggered another change. New accounting rules, adopted to keep governments from using overly optimistic investment-return forecasts to mask the scale of their liabilities, require them to use more modest assumptions once pension plans go broke. As a result, the reported liabilities jump.
Under the traditional way of estimating the municipal fund’s obligations, which is how annual contributions are set, the shortfall rose to $9.9 billion as of Dec. 31, based on market value of its assets, according to the actuaries report. That’s up from $7.1 billion a year earlier. The pension is only 32 percent funded — meaning it has 32 cents for every dollar it owes — compared to 42 percent last year, according to the actuaries."
This is depressingly common, both the underfunding of the pension system, and the over optimistic investment-return forecasts. If you have a state or public pension, you should take the time to determine whether it is appropriately funded, or whether it is underfunded. Knowledge is power, and lack of knowledge will place you at the mercy of the most unscrupulous people on the planet, union bosses, and politicians. But it is your money . . .
Mish believes the way out is through bankruptcy, and I agree. The state of Illinois is in such bad financial shape that it cannot pay its bills, it is not going to find a massive pool of money to save Chicago from it myriad woes. The taxpayers can be further burdened, but at what point do they bolt? Once gone, they will not come back. Just ask Detroit.
I expect that Chicago will need to drop much closer to Detroit levels before reality sets in, people leave in droves, and the city begins the vortex slide.
You go Rahm!