As reported by Crain’s this week, problems for Chicago Public Schools worsened with the release of a report showing it will have to come up with an extra $400 million for its pension next year, $70 million more than had been expected. Bad as that is for Chicago schools, the broader lesson is much more frightening.
The report by actuarial consultants for the Chicago Teachers Pension Fund says the fund returned negative 0.4% last year, not 8% as it assumes it will make. That caused the fund to further report that it has just 54.1% of the assets it needs to meet obligations, down from 59.9% as it earlier reported.
Reports like this of worse-than-expected shortfalls in government pensions will never end as long as pensions can make phony assumptions that are easily manipulated, because reality gradually trumps the assumptions.
For an illustration, let’s look at that report by the actuarial consultants, linked here. It says the assumption that the fund will make 8% per year on its investments “appears to be at the high end of a reasonable range,” but questioning whether to use that same assumption isn’t done because, they say, that would be “beyond the scope of this report” and would take lots of work! An assumption of 8% is in fact far above any reasonable range, would never be allowed in the private sector and has been ridiculed by experts around the country. But questioning it — the very thing that caused them to have to restate the unfunded liability — is not part of their work? Politicians want pension deficits to be understated. They accomplish that by manipulating assumptions behind the pensions — by hiring consultants who are directed or expected not to ask the questions that matter.
By the way, you might notice in the Crain’s article who speaks on behalf of the Chicago Teachers Union on pension reform: Jesse Sharkey, the union’s No.2, who panicked when asked about his attendance at the Midwest Marxism Conference, as we earlier reported. Surprised to hear hear him say he would only be “willing to have a conversation” about pension reform after tax increases are on the table?