|$10 billion in the hole|
|$10 billion in the hole|
|Written by by Mark Nichols|
The City of Chicago has a big problem - the four pension funds that city workers are counting on to have when they retire have a whopping $10 billion in unfunded liabilities. The situation is so dire that Mayor Daley established a commission to study the problem and come up with some solutions.
Daley is demanding that the group finish their work in 18 months. So-called solutions could include everything from benefit reductions and hiking the amount that employees pay into the plan, to a shift away from "defined benefit" pension plans and toward the "defined contributions" or 401(k) plans favored by private industry.
The city is also considering raising the age for new employees to become eligible for full pension. If the pension funds run out of money, Chicago taxpayers will get stuck with the bill unless the pension rules are changed.
"They need to reduce the benefits. They need increased contributions by employees and .. . benefits more in line with what's offered in the private sector," said Civic Federation President Laurence Msall. The 32-member commission will be co-chaired by Daley's chief financial officer, Paul Volpe, and by Volpe's predecessor, Dana Levenson, who now serves as head of North American Infrastructure for the Royal Bank of Scotland.
Volpe stressed that the pension crisis is "not an immediate problem," nor does he view the commission as "a forum by which we reduce employee benefits." But "the longer we wait, the harder this problem will be to solve," he said. But representatives from the city's unions were not invited to serve on the Commission.
Fraternal Order of Police President Mark Donahue questioned why the city's two largest unions - police and fire - were not represented on the 32-member commission. Donahue said his members are "realistic" and willing to consider increased contributions. But the FOP president said he would insist on maintaining defined benefits.
At the end of 2006, the firefighters pension fund had assets on hand to meet only 40 percent of its liabilities. The ratio was 49 percent for police, 67 percent for municipal employees and 92 percent for laborers. Last year, pension obligations cost the city $475 million -- more than 15 percent of Chicago's corporate budget. Chicago is not alone. Unfunded pension plans for both the public and private sector are common across the nation.
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