CHICAGO — With the 10 largest Chicago-area public pension funds facing a combined unfunded pension liability of $16.5 billion, Mayor Richard Daley on Friday announced the formation of a commission made up of the region’s top fiscal managers that will look at how best to strengthen the funds.
“It’s clearly in the best interests of all stakeholders — annuitants, present and future city employees, the city of Chicago, and our city’s taxpayers — that the pensions are funded to a level much higher than where they are today,” Daley said in a statement.
The Commission to Strengthen Chicago’s Pension Funds is charged with coming up with ideas and reporting back to the mayor within 18 months on how to shore up both the city’s four funds and those of related governments including the Chicago Public Schools, the Chicago Transit Authority, the Chicago Park District, the Chicago Housing Authority, and the City Colleges of Chicago.
The city’s four pension funds range in their funded levels with the firemen’s fund at a dismal 40%, the police fund at 49%, municipal employees fund at 67% and the laborers fund at a strong 92% based on fiscal 2006 figures. The poor levels of three of the four funds remain even amid strong investment returns in recent years.
A report that reviewed 2005 figures released last year by the government watchdog group the Civic Federation of Chicago reported that the 10 largest government pension funds — including several Cook County funds — were continuing to deteriorate and faced an unfunded liability of $16.5 billion.
The creation of the commission lays the groundwork for what is expected to be a difficult process with labor concessions and legislative support needed to solve the governments’ pension crisis over the long term. City and employee contributions are based on a state-mandated formula and pension benefits are guaranteed in union pacts with the city. As part of new union pacts reached last year, the city also established a labor management cooperation committee.
“The strength of the city’s pension funds is a function of employee and taxpayer contributions, investment returns, and the level of benefits paid out,” the city’s chief financial officer Paul A. Volpe said. “The commission will be charged with evaluating all of these and determining appropriate recommendations related to each.”
Chicago has said it would use a piece of any funds received from a proposed privatization of Midway Airport to help better fund its pension funds if accompanied with structural pension reforms. The commission will be chaired by Volpe and his predecessor Dana R. Levenson, now head of North America Infrastructure at the Royal Bank of Scotland. The finance chiefs of the various local governments and other city finance officials and fiscal managers in the corporate sector will also serve on the commission along with representatives from the pension funds and labor.
The federation has recommended that state lawmakers ban any new pension benefits for employees in plans below a 90% funded ratio and new benefits be added for healthier funds only if covered by increased contributions. The group also believes lawmakers calculate contributions based on the actuarially required contribution needed to ultimately reach a fully funded level.