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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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It’s important to understand the evolution of AAI / COLA. As Mike stated, when it was first implemented decades ago, it was 1.5% simple interest at a price of 0.5% employee contribution. Now it’s 3% compounded but at the same price. Never once was any increase negotiated. If you went to purchase a life insurance annuity today with a COLA rider, the price you pay is dependent on the % increase you want and the interest method you chose (simple vs compounded). Amazing how Illinois can both raise the rate and interest calculations on their AAI and offer the same… Read more »
Mike, the so-called COLA (it is really a 3% automatic annual increase that has never been linked to inflation in any way) is ancient history. It was changed to the 3% compound increase in 1989 for Tier 1 employees and has not been changed since. For around 10 years prior to this, it was 3% but not compounded. On a side note, I find it interesting that SURS has the lowest state contribution as a % of payroll of any of the systems, yet it bore the largest benefit cuts under the pension reform bill that was unanimously struck down… Read more »
Once again, the COLA benefit hike resulted in hiked contributions. COGFA then attributes the underfunding mainly to shorted contributions not the COLA & other benefit hikes In Charts 3 & 4, COGFA only accounts for that years benefit hikes, not the cumulative effect of the benefit hikes. Furthermore the pension benefits should not have hiked while the pension systems were underfunded, especially since the pension sentence added to the state constitution in 1970 obligates the taxpayers in that retirement benefits are contractual and cannot be diminished or impaired. What happened after the pension sentence was added to the state constitution.… Read more »
COGFA minimizes the impact of salary & benefit increases (Chart 3 and 4).
As one benefit increase example, the COLA was hiked from 1.5% not compounded to 3% compounded.
Hiked salaries and hiked COLA results in hiked employer contribution.
Yet the employer shorting the employer contribution is a separate factor from salary hikes, benefit hikes, investment returns, changes in assumptions, and other factors.
COGFA has been doing this same analysis for years.
Creative math.
COGFA is part of the Illinois General Assembly, and it was the ILGA and Governor whom hiked the benefits.