The Chicago City Wire has a projection regarding pensions that matches my prior projections: Chicago’s police pension fund will be broke in 2021.
Without a taxpayer bailout, Chicago’s police pension fund won’t have enough money to pay benefits to retirees in 2021, according to a projection by Local Government Information Services (LGIS), which publishes Chicago City Wire.
At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following year.
Fund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS.
LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015.
The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015.
Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.
Even assuming Chicago taxpayers and active Chicago police officers continue subsidizing the fund at traditional levels, and that the fund manages to generate investment returns consistent with the last 12 years– 5.19 percent per year, on average– its assets will still race to zero, outpaced by faster-growing benefit payments.
Projected Broke by 2021
Income vs Benefit Projections
Higher Salaries Bigger Retirements
Read the article for more gory details but here is one key point: Chicago taxpayers are currently paying more retired police officers than they are active ones as salaries soared by 39% and pension spiking escalated.
2021 at the Latest
The above analysis assumes fund manages to generate investment returns consistent with the last 12 years– 5.19 percent per year, on average.
What happens if it’s even less?
The obvious answer is the fund will run out of money prior to 2021. And that is precisely what I expect.
Projected Returns
I am giving a presentation on Saturday and here are a few slides I will be discussing.
Shiller P/E Ratio
Median P/Es
Projected Returns
Tweet of the Day
Earlier today, Johnathan Tepper Tweeted “Two Powerful charts showing you what kind of equity returns to expect over the next 10 years. Enjoy”
Too Broke to Fix
Higher taxes will drive people and businesses away. Reform is too late to save Illinois public pensions.
On June 21, I commented Governor Bruce Rauner Screws Illinois when the governor proposed raising taxes while asking for virtually nothing in return.
Proposed Deal
- Four-year tax hike to 4.95%, up from 3.75%
- Expansion of sales taxes
- New taxes on cable and satellite TV
- Four-year property tax freeze
- No right-to-work reform
- No collective bargaining reform
- No pension reform
- No workers’ compensation reform
- No spending cuts
- No term limits
- No gerrymandering reform
The freeze will be off in four years so Republicans would gain nothing.
That’s not a done deal yet, as Democrats want even more. Hopefully, Rauner changes his mind.
“B” Word Hits Chicago
On January 20, Governor Rauner proposed bankruptcy for the Chicago Public School System. I commented “B” Word Hits Chicago
On May 3, I commented Puerto Rico Placed in Bankruptcy Protection: Illinois Needs Similar Deal.
In the above link, I stated that Illinois desperately needs five things.
Five Desperately Needed Reforms
- Municipal bankruptcy legislation
- Pension reform
- Right-to-Work legislation
- End of prevailing wage laws
- Workers’ compensation reform
Bankruptcy, the ONLY Solution
Number one on my list of Illinois reforms is bankruptcy legislation. It is the only hope for numerous Illinois cities strapped with impossible-to-pay pension liabilities.
As part of any budget package, Rauner must demand municipal bankruptcy legislation. Bankruptcy is the only solution for Illinois that works.
The system is simply too broke to fix.
Mike “Mish” Shedlock
The only hedge is consumption.
“Without a taxpayer bailout, Chicago’s police pension fund won’t have…”
The lead sentence shows Chicago City Wire’s bias.
A neutral sentence would read “Without a member bail-in, bankruptcy protection, or a taxpayer bailout, Chicago’s police pension fund won’t have…”
Screw the alternatives – go straight to the taxpayer bailout!
I vote in favor of California bailing out the ILL state. LOL
The taxpayers can’t do it…and won’t do it…Another property tax hike will finish off business in Chicago, and many homeowners on the South and West sides already cannot pay.
2021? THAT long from now…./
Article XIII, Section 5 of the Illinois State Constitution:
“SECTION 5. PENSION AND RETIREMENT RIGHTS
Membership in any pension or retirement system of the
State, any unit of local government or school district, or
any agency or instrumentality thereof, shall be an
enforceable contractual relationship, the benefits of which
shall not be diminished or impaired.”
I think it would be impossible to litigate this at the state level. And I can’t imagine the federal government doing a wholesale takeover of the government of Illinois, like they’re doing to Puerto Rico.
Can you imagine 13,000 pissed off ex-cops loading up their guns and heading to Washington? Definitely popcorn time.
What can’t be paid, won’t be paid.
And I see ZERO chance of Fedgov coming to the rescue … even if the Democrats control both Houses and WH.
It can be paid until it can’t. And that can be a long time from now. When 2021 comes around, the City will have to start cutting other services (road repairs, getting lead out of water) and divert funding to the pensions. Then they will start raising taxes. Then they will try and stop making payments. Cops sue. Judge orders City to raise taxes. Taxpayers start hitting the streets. I see this going on for a long time.
Of course you might be right.. but a meaningful downturn in the market would accelerate the end game. And raising taxes is not a zero sum game but something close. Eventually you’re raising taxes on a smaller and smaller tax base.
Police and their union brethren are not a special class of citizen. Their union reps and the politicians they bought off scratched each other’s backs for decades while the rank and file never bothered to demand a sound pension plan.
“rank and file” don’t want a ‘sound pension plan’. They want MORE $$ NOW – hence the raises in the face of failing Plans…..
Yeah, there’s probably one or two who get the Big Picture…..but most want it now….just like everyone else out there….
Very few good funded pension plans ANYWHERE now….all gone to 401K’s etc. Probably a good idea for everyone….then YOU own it.
“Very few good funded pension plans ANYWHERE now”
Inevitably so, as “you pay me now, someone else pays you back later” is not a plan. It’s a scam.
Those who hawk the plan, are scammers.
Those who pay in, get scammed.
And everyone else, who never had a lick to do with any of it; get robbed. In an attempt to cover up the scam.
Ah, the joys of collectivization of what is inevitably an individual responsibility…..
Well said. I agree with KD when he writes that any contract which violates the laws of mathematics (at least in the context of markets) is void from the beginning.
I used to work for Herb Kelleher down here in Texas. At one of our Contract negotiations in the early 80’s, it was ‘time’ for our young Company to give us a bona-fide retirement plan…..we thought.
Herb told us in no uncertain terms…….”I will pay you very well, NOW, for the work you do, NOW. I will NOT pay you anything, LATER, for the work you DON’T do LATER.”
So we were one of the earliest Fortune 500 Companies to get a 401(k) with significant matching from him. And probably every pilot who has ever retired after a career with Southwest Airlines has taken a million or (LOTS) more with him/her. All of that $$ is in OUR name – untouchable and not dependent on the future of SWA.
THAT’s the way everyone, IMO, should have their retirement plans. Especially the public sector workers who are so dependent upon budgets and deficits that fluctuate with the whims of the latest politician…….
In the 401k() the money goes IN, every year. None of this underfunding “future pensions” that is so rampant. The ‘underfunding’ just NEVER seem to be caught up. The Sorry Airline Business was well known for such shenanigans……and left tens of thousands employees holding an empty bag in the airlines’ bankrupt proceedings.
“I see ZERO chance of Fedgov coming to the rescue … even if the Democrats control both Houses and WH.” – Medex Man
I see EVERY chance that the Fedgov will come to the rescue, regardless of party/branch control.
The establishment will go down fighting – or more accurately, printing. And by the time they finish printing bailouts for everyone (and they will), the currency won’t be worth spit.
Avoid the inevitable.
Start paying the pensions in Zimbabwean dollars now.
Mpower69 — good luck getting blood from a stone
The political class is not going to take money from themselves, and no one else has any.
@mpower1969 the illiterate — you might also want to learn to read carefully before misquoting other commenters.
Tony Bennett wrote the statement that you mis-attributed to me.
The Fed already said they won’t bail out State or local Governments….but if they do, hyperinflation is in the cards…
But they’ll bail out the Federal government that bails out the state and locals.
Heck, the reckless asset pumping the Fed has engaged in over the past decade, has likely already served to, at least temporarily, bail out some state and local pension plans.
From the very first line of the article “Without a taxpayer bailout….”
These people really do live in a fantasy world, in no way connected to reality.
Yet the citizens of IL do and say nothing. Makes you wonder if they ever will ?
Correction: the politicians of Illinois promised endless unicorn farts to the public unions.
The public made no promises. the public was told to shut up and hand over more money. That is called robbery, not voting.
Of course they wont. Boobus americanus illinoisensis is no different than the other varieties of Boobus americanus.
The citizens of IL who pay taxes are doing something–they are leaving!
I believe Hussman’s 12 yr return forecast will be fairly accurate.
A lot more than Illinois will be KaBoom.
Glad I’m not a retired Chicago cop. Also glad I don’t live in Illinois. I live in a liberal haven, but at least our local governments rake it in thanks to our proximity to DC.
it’s time to make the donuts (and raise the taxes)
Does anyone really believe that Illinois taxpayers or the Feds won’t bail them out? Almost always it is the people who have saved money who get to bail out the financial miscreants and sycophant politicians
$928 million promised to 14,133 retirees = $65K/retiree
The unions complain the loudest about income inequality only to find they are the 1%
Yup. And most likely the cops get $120k and the librarians get $15k. All the while complaining about inequality.
remember that’s excluding plush post retirement medical which run over $20k/year per retiree.
that’s also after ‘working’ a whole 20 years.
Nobody in their right mind makes 10 year forecasts and expects them to be right. Anyone remember Business Week’s “Death of Equities” article in 1979?
We LOVE the Democrat party…Don’t worry y’all, I hear the Clinton and Obama families are ready to donate millions from their personal accounts to help the people of Illinois in their time of need…
In my town the average police/fire/man retires at 55 and has a general life expectancy of 25 years. The average pension pays out $100k per year including health care; that’s $2.5 million total payout which is more than the lifetime earnings of 60% of the population. I would imagine that Chicago is double this.
At age 55 the average remaining life expectancy of US males is nearly 28 years (and that includes men born with congenital diseases or who suffer permanent impairment before they are of an age old enough to become police/firemen and they mostly die younger than able bodied males). So the ex police/fireman will live perhaps 35 years after age 55 (or another million on top of your 2.5 million). How will you pay for it?
It should be clear to any thinking adult that we live under a police state today. This amounts to nothing less than financial terrorism on the ordinary taxpayer to ensure to cops live like kings and queens in retirement with their multi-million dollar pensions starting at age 50-55.
When the pension fund starts to collapse Chicago will bring some slick financial guru on the scene like Hanky-Panky Paulsen with a few “tanks in the streets” remarks that will culminate in a another big taxpayer bailout to maintain the status quo.
Trust me. There will be no pension bankruptcy. There won’t be discounted pensions either. The police state would never allow it. You’ll pay through the nose to bail the cops out and make them whole – just like you paid through the nose to save Wall Street.
You’ll do it reluctantly. But you’ll do it because they tell you to. Just like you did last time.
And if you have to eat dog food for dinner as a result – so be it.
As a society veers towards totalitarianism, security apparatus members’ socioeconomic status always climbs dramatically; in order to ensure their loyalty.
“You beat up and rob the working and middle class peasants on our behalf, oopps Freudian slip…….. You enforce the laws we write (that transfers wealth and power from the working and middle classes to us), and we in return make sure you are enshrined as a privileged warrior class…”
WATCH what happens in DALLAS. Perhaps there will be something happening here that is a precursor…?
A year ago it was announced that the Dallas Police & Fire Pensions were going broke – FAST. Some smart ones retired early – took the money and ran. Started a ‘run-on-the-plan’ causing others to hear about the gross underfunding, and TRY to leave. I think DALLAS stopped the ‘cash-out’ program but still cannot pay what it already owes.
But police are in such demand – they can then go to nearly any other town/city – and start all over with ANOTHER retirement plan there…..
Only solution is collapse bankruptcy and reduction in benefits to pennies on the dollar for retirees. They won’t be the first or last it happens to.
“But police are in such demand – they can then go to nearly any other town/city – and start all over with ANOTHER retirement plan there…..”
Yes except almost all the cities are on the same trajectory as Chicago.
Surely they can raise the state income tax to 7%% to cover the deficit.
Janet Yellen could raise interest rates to 7%. Pension funds could then meet needed investment returns. The US Treasury would have some difficulty meeting interest payments. However there is plenty of waste, fraud, and abuse to correct in the federal government.
Wow, sweet job. Average $66000/year for the rest of your life for what? 20 years on the job? I am glad they are contributing to my pension fund, Oh, Yeah right, they aren’t. So why am I paying them a pension when they aren’t paying me? Hmmmm…
they have the guns and make certain you don’t
That’s the way dystopias work!
And also, they have the whip, and make certain you pick “their” cotton for them.
Since a pension scheme has to be valid way off into the future, it should be guided by the very real prospect that pensions are a sort of ponzi operation. Paying out depends on raising the customer base in the face of a declining economy. As the economy declines and workers get less and less job opportunities, pensions will become too expensive to stay viable.
Enter the Fed. Only the Fed, with its unique power to create money, will be able to sustain pensions indefinitely. This is unavoidable!!!
I bet Rahm Emanuel departs before it goes broke.
Reblogged this on World4Justice : NOW! Lobby Forum..
Politics vs. Mathematics
People will move to the underground economy to survive and many will vote with their feet and leave! Idiots.! Demands for Services will grow but with no money, many will perish if they stay!
California is a close second, followed by New York! l They are going down the tubes and the sad part is we are seeing the tubes being formed exponentially!
A step back~housing is only propped up by the flippers and that
is dying! In addition a lot of inventory is being created by the mod. resets! No real income gains to justify the higher prices and student loan burden keeping buyers out of the market, .the current market is all smoke and mirrors! As the idiot Fed increase interest rates it just makes it worse.
Politicians make promises that somebody else has to keep down the road, they spend $ on things that will give them political benefit between now and the next election cycle so of course properly funding pensions is a very low priority so they repeatedly “kick the can down the road” .Elected officials ,the Mayor,police union president,pension fund officials and other do not get elected by telling the electorate the truth about problems, the only concern is how to point the finger of blame when disaster occurs
So how many of the “boys in blue” will have each other’s backs when the SHTF? That whole wall of blue silence thing I think will be coming down pretty fast.
Beyond that, the Gub’mint WILL step in. It’s called the Pension Benefits Guarantee Corp (PBGC) that essentially takes over pension plans that have failed…
…and typically pays the recipients pennies on the dollar….
…because, it too, is also broke….
…but this one has to stick in full because you don’t piss off your retirees who have guns…
MF: Dunno? Does the PBGC cover public pensions….or just those in the private sector – those that have been paying some insurance premium into it…? I dunno’?