By: Mark Glennon*
It’s scandalous enough that the Chicago pension system for police officers is just 22% funded, but it’s far worse if even half the claims made in a new report about the fund are true.
The Chicago Police Pension Accountability Group is comprised of retired and active Chicago police officers and their dependents. Concerned about the status and management of their pension, they hired outside help to conduct a forensic audit after the pension itself refused their request to do so on its own.
The pension is PABF, the Policemen’s Annuity and Benefit Fund, one of four City of Chicago pensions. Strangely, the only news reports we have seen on the report are from CBS Chicago.
The report on it was conducted by Chris Tobe. According to his bio, Tobe is currently Chief Investment Officer of the Hackett Group which consults to Public Pension plans where he has completed previous reviews of the $40 billion Maryland System and the $26 billion Utah Retirement Systems. From 2008-2012 he served as a Trustee and on the Investment Committee for the $13 billion Kentucky Retirement Systems and is the author of the “Kentucky Fried Pensions.”
Tobe’s report is devastating. Topics covered include lack of transparency, hidden fees, fees paid for nothing, ghost managers, pay-to-play, poor returns, poor management, bad governance and, of course, inadequate funding.
Some of the report’s findings will be familiar to Wirepoints readers, but some are new to us. The report might be criticized in part because in some places it contains what might be considered extraneous material, such as comparison to a troubled Dallas pension and general comments about corruption in Chicago and Illinois government. However, there’s no shortage of specific, serious charges made directly against the pension.
The report can’t fairly be summarized in short form because its 83 pages are packed with multiple allegations on different issues, many of which warrant separate news stories. Read at least the first 13 pages for Tobe’s own summary.
We’ve read the whole thing. Below are some of juicier items and statements taken directly from it. Drastic, corrective action clearly needs to be taken on many things if the report is correct.
- Chicago Police is the only pension fund I know of in 30 years’ experience that an unqualified trustee has inserted himself as Chief Investment Officer…. Thomas Beyna, an active-duty Chicago police officer, has served as CIO for the last 30 months. Beyna has no investment or any financial qualifications to be chief investment officer.
- Chicago city government has used the PABF like a credit card, underfunding it by approximately $300 million a year, resulting in an $11 billion balance in unfunded liabilities.
- The amount of annual contributions defined under state law does not even cover normal cost, let alone the interest on the unfunded liability for the next 11 years. This means the unfunded liability is projected to increase to a high of $12.2 billion in 2030, when contributions are finally sufficient.
- The city even underfunds the pension more than the statutory amount, blatantly breaking the law, with no consequences. While the law has an intercept function that works for some cities, it seems deliberately rigged to let Chicago off the hook with intercepts so small they are immaterial.
- The overwhelming majority of the most critical disclosure information we requested was summarily denied or redacted. Even the names of the underlying managers of fund of funds were denied. Regarding fee and contract information on investment managers, it appears that PABF repeatedly permitted the investment firms involved to unilaterally determine what to disclose under Illinois law.
- PABF has failed to monitor and fully disclose investment fees and expenses. Fees and expenses could be 10 times more than they disclose.
- Detail of the audited financial statements from 2019 shows poor expense control of the administration of the fund. Personnel salaries & benefits went from $1.827 mm in 2018 to $2.796 mm or 53% in 2019. We can find no explanation for this increase.
- All four Chicago funds including PABF have filed claims with the state comptroller that the city’s pension contributions have fallen short of the low statutory required payments. As of June 2019, approximately $24 million in claims had been filed by the four funds.
- Alarmingly, our investigation reveals that the Police Retirement System of Chicago (PABF) has long abandoned transparency of hiring practices of managers and fees paid, choosing instead to collaborate with Wall Street firms and others to eviscerate Illinois public records laws and avoid accountability to stakeholders. Predictably, billions have been squandered over time as transparency has ceased to be a priority.
- In examining PABF investments over the past 5 years, there seem to be at least 60 named investment managers and, if looking at individual funds, well over 100. Not one of these managers was hired in the traditional competitive bidding or RFP process. They were hired in secret no-bid contracts.
- The overwhelming majority of the most critical disclosure information we requested was summarily denied or redacted.
- A prudent fiduciary structure for public pensions is to have a combination of elected and appointed independent trustees and a professional staff. The Chicago Police Pension governance structure makes a mockery of this. 4 of the 8 trustees are direct employees of the mayor with another 2 elected active police officers report indirectly to the mayor via the police chief. This board structure inserts excessive conflicts of interest as the mayor’s immediate political goals of a city budget and political fundraising can overshadow the long-term fiduciary goals of running a pension.
- PBAF remains one of the worst funded plans in US history, and without changes, will continue to be in severe risk of insolvency.
*Mark Glennon is founder of Wirepoints.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
We’ve read the whole thing. Below are some of juicier items and statements taken directly from it. Drastic, corrective action clearly needs to be taken on many things if the report is correct.
If this is true ^^^^ I would submit that the US Attorney should investigate, and bring fraud charges for any crime they can prove up. I suspect it would be a massive case…
Tobe’s report is devastating. Topics covered include lack of transparency, hidden fees, fees paid for nothing, ghost managers, pay-to-play, poor returns, poor management, bad governance and, of course, inadequate funding.
This is sad because the ones who suffer will be the cops and their families. 22% is devastating. If it was even 51% then they would at least get a majority of their pensions (if they paid out according to the funded level), but when you’re at 22% you are a dead duck. But when Gov touches something, they always wreck it…
So debtsor, how bad does it have to get, do you suppose?
I agree we aren’t that close yet, just close. I say end of 2022 it really starts, crisis and emergency mode.
As for Chicago, look to Detroit of the 2000’s or 1970’s New York for an idea of how bad thing can get. We aren’t even close yet. We’ll be a few degrees closer when the number of murders shoots north of the 1990’s and many of the gentrified neighborhoods revert back to the gangs. When Ukrainian Village becomes more like Humboldt park again, then we can talk. Albany Park is already making that transition back. As for far suburbs & downstate? We are already halfway there, as many towns are hollowed out. Look at Waukegan, Joliet, Elgin, they are dumps.… Read more »
Shameful. One of the most dangerous jobs there is, they have put their lives on the line. Our city should be ashamed of being Robber Barons.
Easy on the language, please.
URBAN DICTIONARY
noun
1. Pertains to a person, situation (or place that considered ridiculous or nonsensical
2. An alternative to the word “Bullshit”
3. Injustice
Why easy on the language? You his mommy ?
Mark is right. This is one of the few places on the Internet where intelligent discussion is appreciated. And while passion is great, no need to use vulgarity. It is not, as you say, about being paternal, rather, it is about setting standards. Cheers.
Years ago I had a few friends that worked in the financial district of Chicago. I forget if it was the city or the county that approached them about managing some pension money. My friends took a quick look at the proposition and turned it down because they would have to make three or four new hires if they took on the pension money. Of course they would have no say on who these hires would be, and these positions were to be compensated in excess of 100 G a year. Nice pay for a no show job.
My buddy did a city job once, it was a year long project and he had to provide an suv for the city inspector so he could monitor the progress of the job. He does a lot of city jobs now, doesn’t seem to have a problem getting the jobs.
Several more reasons to leave the City and the State: a) more police will retire ASAP so they can begin draining what’s left of the pension fund; b) more taxpayers will decide to abandon their underwater properties — leaving more properties that can neither be taxed nor sold; c) active police will look for jobs elsewhere; d) crime will continue to escalate; e) national guard or federal troops will be needed to maintain public order; f) Springfield may seek to take-over the plan and broaden the funding base to the rest of Illinois; g) Biden and Pelosi will look for… Read more »
“crime will continue to escalate;” Your keep thinking in old political paradigm i.e. high crime is bad, politians are supposed to fix crime and be held accountable…this no longer applies. The new political paradigm is anarcho-tyranny. Crime will continue to rise – that’s the point. Seasoned cops will retire. That’s the goal. The new recruits will have zero experience but will be ideologically pure, like a social justice force. The ‘new’ police force will not be concerned with crime, it will be concerned with enforcing social justice, and the mandates of the regime. Our new leaders view property crime as… Read more »
So: “tilt at windmills?” OR “if rape is inevitable, relax and enjoy it?” I often think the Wirepoints enterprise is to tilt at windmills. Or to act as Old Testament prophets — voices crying in the wilderness.
However many years we have left, I am confident that fairly soon historians will be looking back at what was once Chicago as they do Hitler: if only we had stopped him in 1936.
I walk around with a half empty glass … and I observe that you still read Wirepoints, painful as it is.
Wirepoints exists to spread awareness and to document the decline, in real time, for posterity.
Cook County, and greater Illinois, is not salvageable, at this time. Things will need to get much, much worse before they get better. Look at Detroit, it only recently started the upwards turn after a 60 year decline.
so,basically chicago is a sewer!-when people in milwaukee flush their toilets all the turds end up in chicago
Yea, but mostly on the south and west sides
lol!
Chicago should be forced to raise its property taxes immediately to fully fund the legal requirements of its public worker pension obligations.
Only when homeowners feel the consequences may they feel compelled to vote/not vote differently, or be moved to act in some other way motivated by self-interest.
Chicago property values have appreciated in the past decade, at <2% property tax rates. Woodstock IL property values have stagnated or fallen in that period, with ~4% property tax rates.
Chicago could easily and legally double its p-tax levy to meet these State-mandated-guaranteed entitlements of public defined-pension-benefits recipients.
What is stopping them?
“Beyna has no investment or any financial qualifications to be chief investment officer.”
That’s the Chicago way!
I’m sure this is going on throughout all of the other pension funds serving public employees in Chicago and Cook County. Get the names of those fund managers and you’ll find the scions of many well known local politicians were simply given the commissions and fees that those multi-million dollar accounts generate as their birthright.
My earlier remarks have me walking down the bad side of memory lane. In the early 2000’s, Orange County California had a financial mismanagement crisis and their Deferred Compensation Plan had to be bailed out by a major insurance company. The DC plan of the Chicago Housing Authority had to be bailed out in a similar situation by the same company to keep their financial officer, the son of a Commonwealth Edison big wig from exchanging his new home in Lake County for a cell in Joliet. The payoff was a number of major contracts with City/ County entities. Good… Read more »
In the early 2000’s, Orange County California had a financial mismanagement crisis and their Deferred Compensation Plan had to be bailed out by a major insurance company.
Not true, OC filed BK, raised taxes and cut expenses, they were not “bailed-out”. And their idiot fund manager, OC Treasurer Citron went to prison.
I’ve said this before. When we the taxpayers get our bill for property and other taxes we assume that our obligation for services for that year is paid in full. Regardless if we have total pension pickup for teachers or partial or even none for police/fire/park/etc where does the money go after it leaves our hands? You have heard the term from farm to table. Simple concept. The fruits and vegetables come directly from the farm to you like a farm stand. No or few middle men. Cost effective and fresh/healthy produce to boot. So who exactly is causing the… Read more »
“When we the taxpayers get our bill for property and other taxes we assume that our obligation for services for that year is paid in full.” You assume wrong. Let’s say you have a 2k mortgage and 3 room mates. 2 of the 3 of you voted to only pay $1500 per month, shorting your mortgage $500 per month. Your mortgage company agrees to allow negative amortization and add the debt to your balance and continue to charge you interest on the outstanding debt. You all think you’ve been paying your mortgage in full agreed upon amount but you have… Read more »
I understand only in part that it is the voters. How does the ordinary person vote out a politician when sometimes up to 60% of them run unopposed? There is no choice and write in candidates are not allowed because many would write in Bozo or Godzilla. With the redistricting maps that are in place and new ones coming soon the politicians choose their voters not the other way around. So yes it’s the voters who choose but the politicians have chosen the voters by map boundaries. I think you misinterpreted my farm to table analogy. No matter how many… Read more »
It’s not ‘voters’ that are responsible. It’s ‘Democrat’ voters that are responsible for the morass you described above, where most elected officials run unopposed because every district is draw for the sole purpose of minimizing Republicans and maximizing Democrats. Democrat voters refuse to vote for anyone on the other side because they have erroneous and false ideas that that Republicans are somehow the ‘racist’ ‘religious’ party of handmaidens and they want nothing to do with that. So, for their love of abortion, the sacrament of abortion, the only issue that ever matters to them, they vote straight Democrat every election.… Read more »
To complete the circle, the public sector unions are the ones who funded and engineered the Democrat takeover of IL politics. And yet PPF wants to blame “the voters”? It all comes down to the same place, and public unions can look in the mirror for the source of the problem.
Correct. Also, my past experience in trying to influence the Dem voter with logic and facts proved pointless. That’s why I saw the situation as hopeless and left Illinois. That’s why I want the state to completely crash and take down all the Dem voters with it. Some might say that is a cruel way of thinking but I consider it justice. The non Dem voters caught up in this liberal utopia and conservative nightmare have had plenty of time to get out of Illinois, hence no sympathy from me. If you don’t jump out of the pot as the… Read more »
PPF – so the problem is with Democratic voters who either don’t care or are misinformed? So it is not people who are envious of public sector pensions? I understand you are not wishing for this, but pay as you go would be a disaster and would have a domino effect on other plans, as the pay as you go amounts paid would be in lieu of statutory contributions to other funds, which already are unrealistically low. This is why I think the focus on legal rights and obligations is of a lesser importance than the economics. When one of… Read more »
You may get your farm to table pension system wish. If the funds become low enough you’ll see a “pay go” system and taxpayer money will skip the pension funds and go directly to pensioners.
Math is clearly not your strong point. When/if it gets to the pay-as-you-go system there will NOT be enough $$ to make full pension payments, it will simply be Game Over, and cuts will come, because IL and the sub-divisions cannot print their own $$$$.
“…blatantly breaking the law, with no consequences.”
That seems to be the common thread in all things Democrat.
Another chapter in the Illinois Pension Scam.
Perhaps Mr. Tobe’s next client will be members of the Chicago Fire Pension Fund.
And after that?
Is it possible that things are significantly worse than everyone expected? I guess it is. Sounds like time for some serious breach of fiduciary obligation law suits.
22% funded means a new retiree receives 22% of their money and 78% of working contributors.
With $11 billion in unfunded pension, this leaves approximately $3 billion in the pension. Per the report, unfunded will increase to $12.2 but the explanation is missing. Unsure if that means the pension will maintain $3 billion or drop to $1.8 billion. Either way, the report assumes Chicago can afford the contributions, and the report infers Chicago can underfund.
I assume the missed pension payments start in 2025 for some Pension in Illinois.