By: Ted Dabrowski*
A tweet foreshadowing the deepening pension crisis in Cook County got plenty of attention recently. It showed that by 2019 there’ll be more beneficiaries drawing pensions from the Cook County pension fund than active workers putting money into it. It doesn’t take a rocket scientist to figure out that’s not good news for active workers, especially the younger ones.
And with the pension plan just 57 percent funded, there’s a major risk the plan may go broke in the future. You can’t blame current county workers for thinking it all sounds too much like a Ponzi scheme.
But it’s not just Cook County employees who need to be worried. The same thing is happening across the state.
Police and firefighters across Illinois’ 653 public safety pension funds have similar concerns. Not only are the majority of those plans very poorly funded – some are already effectively bankrupt – but many already have more beneficiaries than active employees.
Today, 118 fire funds already have more pension beneficiaries than active workers, according to 2016 data from the Illinois Department of Insurance. Another 73 police funds are in the same dire position.
In total, that’s 191 of the 653 fire and police funds, or nearly 30 percent, that are upside down.
And by 2021, when all the funds are taken collectively, it’s likely there’ll be more beneficiaries than active workers if current trends continue.
Some of the worst-off cities include Alton, Danville, Moline, Oak Park, North Riverside and Cairo. And East St. Louis is particularly bad. Its police and fire funds collectively have 76 percent more beneficiaries than active workers (96 actives vs 169 beneficiaries).
Of course, the ratio of active workers to beneficiaries is just one measure of a fund’s health. But it is an omen of things to come, barring major pension reforms from Springfield.
Illinois’ public safety funds can’t withstand more stress. Over 30% of downstate pension funds have less than half the money they need on hand today to pay out future benefits.
And there are over 25 pension funds that are less than 25% funded.
Collectively, the 653 funds have seen their funding ratios collapse since 2000, when they were nearly 75 percent funded. Today, their funding ratios are below 60 percent. And that’s despite gangbuster stock market returns in recent years.
For some cities, a move to 401ks and decades of belt tightening might work to stabilize and eventually fix their finances.
But with so much mess, the days for structural pension reform have probably passed too many cities by. For those communities, bankruptcy might be the only option that can both protect retirees and allow cities to reorganize their debts.
*Ted Dabrowski is President of Wirepoints. Opinions expressed are his own.