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Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Full interview and summary linked here.
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Just keep writing checks till they bounce and then figure something out. Write IOUs to everyone. The courts can order payments, but they cannot order money to just appear, not so easy. After the checks bounce everyone will be willing to talk fairly about this major economic problem. As of now the public sector has gouge the taxpayer as much as possible.
Pretty big news even Brando admin’s opposed to TIER II “fix” (HB3657)? What would his CTU buddies say? As usual, nobody in press is asking Brando to make a statement?
(https://www.ilga.gov/Legislation/BillStatus/WitnessSlips?GAID=18&DocNum=3657&DocTypeID=HB&LegId=162421&SessionID=114&legdocid=205065&tabname=opp)
A key thing to remember about the rather good 2024 year for the pensions: It was an exceptionally good year for the markets, with the S&P 500 returning 25%. That’s well over 3X what the pensions can reasonably expect their assets to return in the average year. 2024 was an outlier.
TRS pension fund has earned over 9% on average over the last 40 years. They just keep blowing away expectations for the last several decades. Good for them.
True. Kudos to their investing staff.
Hmm……will TRS returns ever revert to the mean or will they always be above average?
The last 40 years TRS has averaged 9.3%. What do you mean “will they always be” above average? That IS the average. What average are you referring to? The S&P 500? That would be over 11%.
and despite beating their actuarially assumed investment return of 7.5% by 1.5% for those 40 years, the TRS funding ratio as of 12/31/24 is a miserable 45.8% (compared to IMRF’s 12/31/24 funding ratio of 95.8%). this is due in part to the state of IL under contributing for decades but also because the TRS retirement benefits are far too generous to be sustainable.
It’s caused entirely by underfunding. The costs to fund these pensions has been known for quite some time. Even if they increased the benefits, the increased cost is determined and it’s up to the state to adjust their actuarial contributions. Instead, the state doesn’t require actuarial contributions. Benefit being “too generous” is merely an opinion that has no relevance in actuarial science. Those opinions are meaningless and they will be paid. Also, the assumed rate of return is 7% and not 7.5%. They are beating it by about 2.2% for the last 40 years. Employees have never missed their contributions.… Read more »
But it’s a truism to say it’s entirely caused by underfunding. Yes, of course it is in one sense; that has to be. But that doesn’t answer the question of whether the benefits are too high and whether proper funding was ever affordable for the state. Nor does it answer the question of whether defined benefit plans are sensible, sound and transparent.
“But that doesn’t answer the question of whether the benefits are too high and whether proper funding was ever affordable for the state” Whether benefits are too high or not is irrelevant to determine who is at fault for underfunding. When the state enhanced benefits to a 3% annual increase, did they raise taxes to cover these benefits? Had they been forced to make actuarial payments there wouldn’t be underfunding. The state new about these benefits and decided to kick the can to spend that money elsewhere or keep taxes at a lower level than desired spending. If we hadn’t… Read more »
Then advocate that point instead of punishing pensioners. If I buy a house and pay 500k on a house when I should have only paid 400k, should the bank lower my mortgage by 100k to make up for my decision. Maybe my decision wasn’t sensible, sound and transparent enough for my spouse? Should the lender suffer because of my decision?
Lenders who are owed a debt that a borrower cannot afford reduce the balances day in and day out to protect the survival of the borrower. And we have advocated for years to replace defined benefit plans with a 401k style plan like SURS offers as an option.
Yes, borrowers who can’t afford it. Plenty of money for pensions just not enough for everything else you may want. Seek bankruptcy for a city if you are unable to pay or try to negotiate directly. The pensioners have told you to pound sand so Chicago’s choice is to pay or seek bankruptcy. The lender isn’t obligated to help you out. The state can definitely afford it by merely cutting other spending and or raising taxes. Those are your choices. Either way my original point stands. Pension members paid their share, investment returns have consistently beat expectations and the state/city… Read more »
Banks negotiate with debtors. So do credit card companies. Even the IRS will negotiate on the amount owed.
Who refuses to negotiate? Public employees. And gangsters.
You have nothing to offer them in a negotiation so why would they engage? Unions in New Jersey tried that. They agreed to cuts in pensions in 2011 if the state agreed to fund the pensions. It only took until 2014 for Chris Christie to break that deal and short the pension funds by $1.6 billion. So now they have less valuable pensions with nothing to show for it. Why would any union or pension member ever agree to a cut after this? Only a fool would think Illinois wouldn’t do the same thing and spend the money elsewhere. You… Read more »
Of course the most powerful gang in the world is the government. That’s why gangsters and public unions want government in their pocket.
That’s why banks use appraisers.
Pension funds have actuaries. We have known the costs for quite some time.
Mortgage companies don’t allow borrowers to vote on the mortgage. And they surely don’t allow the sellers to weigh in.
You guys are really bad at analogies.
I had a reminder a few days ago from some economic commenter on TV. He reviewed the stock market’s progress over many, many decades and said there something like 11 single days where the markets had spectacular rises, and missing literally any one of them would presen a darker picture of the overall market over the same period. He didn’t pursue the same concept about spectacular single-day market drops unfortunaately, but surely the same story applies there. The problem, of course, is that no one can foresee when such spectacular days nor those where severe drops will appear. The advice… Read more »
That’s absolutely right, IMO. Especially for those up-bursts, you just don’t know when they are going to come. That’s why buying and holding in low fee broad index funds is advisable for the average long term investor. Most financial advisors agree with that.
Mark – my recently deceased twin brother, an Illinois native, one of the best high school athletes to come out of Illinois, a Phd economist, and a small and mid-cap fund manager for 30 years,and managed to be top ranked year after year. One thing he was sensitive to, among many other matters, was the rate of turnover in his funds. So are pension consultants, This underscores the point you and James make. The rule he would tell you applied to his institutional investors, too, and he had them all over the world. (those were his investment cohort) Of course,… Read more »