Jim Dey: With pension system on brink, there will be hurt

Jim Dey: With pension system on brink, there will be hurt

What happens when the irresistible force meets the immovable object?

Or, to put it another way, who pays when a bankrupt municipal pension system collides head on with pension members armed with a constitutional right to be paid?

"We don't currently know," said Jeffrey Brown, dean of the University of Illinois College of Business. "But someone is going to have to go without."

This is not some academic inquiry. Scores of municipal pension systems in Illinois are underfunded. One of them, the firefighters pension in Harvey, recently was the subject of an unprecedented state appellate court ruling, which stated the fund is "on the verge of default or imminent bankruptcy."

Harvey, a poverty-stricken community, is under a court order to pay more money into its firefighter pension system. But what if the city doesn't have it?

Thanks to a variety of factors — a diminished tax base, government ineptitude and outright corruption — the firefighters' pension fund has only $11.1 million in assets as of 2014 rather than the $34 million it should have. The fund is in danger of exhausting its assets over the next five to 10 years.

Former Harvey comptroller Joseph Letke invoked his constitutional right to remain silent during his deposition on the pension issue. Among the issues he declined to address were why each alderman has an "un-monitored $80,000 expense account," why an alderman's son was paid $325 an hour for snow removal work, and why Harvey paid the mayor's son $88,000 to "develop a social media web site."

But corruption is almost a side issue when it comes to underfunded public pensions in the Land of Lincoln. The state's five public employee pension systems are underfunded by more than $130 billion.

A 2014 study by the Illinois Policy Institute reported that "many municipal funds for police and firefighter districts have less than 50 cents for every dollar they should have to meet their pension obligations going forward. The city of Cicero, for example, has just 29 cents for every dollar it needs for future firefighter pensions. The city of Elgin's police pension fund has just 39 cents for every dollar it needs, while the city of Waukegan has only 40 cents for every dollar it needs to pay for pensions."

The IPI reported the "local pension systems' unfunded liabilities" grew from $1 billion in 2000 to more than $12 billion in 2010.

The Illinois Constitution guarantees public pensions. But what does that mean when these systems, as some of them almost surely will, go belly up because they no longer have the required assets to meet mandated payments?

That depends on how a bankruptcy court balances the rights of taxpayers and pensioners.

UI's Brown said courts may require taxpayers to pay more, cities to cut basic services to fund pensions, or bondholders to be denied payments. Or, he said, the courts may decide pensioners will have to get less because of a municipal financial emergency.

Taxpayers already are contributing huge sums to municipal pension systems. The IPI study reported that "between 2001 and 2011" taxpayers yearly contributions increased "by $800 million reaching a total of $1.3 billion."

"In fact, in 2011, taxpayers paid $2.75 for every $1 paid by the active employees themselves, and this gap is only getting wider," the IPI study reported.

Harvey's firefighters system is not only financially distressed, it's upside down in terms of those paying in and those collecting. As of May 2015, there were 67 retirees collecting benefits and 47 firefighters paying into the system.

Further aggravating the problem is the extremely high benefits they are paid. A 58-year-old retired fire captain collects more than $63,000 a year in benefits. Given his relative youth, he stands to collect for many years to come.

The generous public pension is far in excess of private sector pensions, assuming private sector workers even have access to a pension.

Harvey has been under a long-standing court order to make required pension payments. The trial judge in the Harvey case ordered the city liable for more than $15 million in 2015. But, so far at least, the court orders have had all the effect of a man standing on the ocean shore forbidding the tide from coming in.

That's why one member of the three judge panel, Justice Bertina Lampkin, wrote in a concurring opinion: "This is not a matter of an underfunded pension plan. The severe fund deficiency and alarming rate of asset depletion, and Harvey's demonstrated inability to collect on its tax levies to support its obligations establish that the pension fund's ability to pay the beneficiaries will be extinguished in the near future."

That's when the fat (the constitutional pension guarantee) will hit the fire (a municipality's lack of funds) in bankruptcy court. Harvey will certainly be among the first cases to raise that issue. In a sense, it represents the pension canary in the Illinois coal mine.

No wonder, Professor Brown contends it will be an "important case" that will have tremendous consequences for taxpayers and municipal public employees.

Jim Dey, a member of The News-Gazette staff, can be reached by email at jdey@news-gazette.com or by phone at 217-351-5369.

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cjw61822@hotmail.com wrote on August 24, 2017 at 8:08 am

How much does the former City manager of Champaign make?


The former finance director for the City of Champaign make


How much will the City Attorney make when he retires?


How much will the current City manager make when she retires?


How much does Judy Weigand make in retirement


But blame the worker bees for the mess.


Remember............... Congress took away Social Security for the worker bees in exchange for their pension.


But you do not mention that.

airrecon wrote on August 24, 2017 at 10:08 am

That seems to be something that gets left out when the folks that really caused this mess want to divert the blowtorch of public opinion in the direction of public employees.


Berto71 wrote on August 26, 2017 at 2:08 pm

Of course, it's easy to blame the public emplyees for their ``fat" pensions. For the state employee pension system, the real culprits in the current debt crisis are certainly the politicians, not the state employees. It was the politicians of both parties, in the General Assembly and the Governor's office, who for decades pilfered the state pension funds by diverting the mandated state contributions to those funds  towards the state's current spending. In the meantime, the state employees were dutifully making their required copntribution to the pension system, as they were supposed to. In the private sector doing what the Illinois politicians were doing would be considered embezzelement, and the perpetrators would be sent to prison. 

Perhaps the judges dealing with the Illinois state pension crisis should consider issuing liens on the personal property, including real estate, investment and retirement accounts, of all the state legislators who have ever voted for state budgets that underfunded the state pension system, and of the governors who signed those budgets. 


Mickey S wrote on August 29, 2017 at 11:08 am

you are all trying to simplify a complex problem.

There is no money for pension benefits, and taxpayers are leaving the state in numbers.

Leaving the low level taxpayers-individuals and businesses.


The imminent threat is a severe and somewhatprolonged selloff in the stock and bond markets.

That wil drop trust assets by roughtly 50% meaning all these funds, in general will run out, exhaust assets, in 3-4 years.


As is, the IL budget submitted and past last month, lowered pension payments even further with the "promise" that it wil be increased in 5 years.

IL does not learn from mistakes. But really there is no alternative.

My take is public workers went on strike every few years. The governmnet agencies did not have current cash to raise say wages so higher pensions were promissed but in retrospect, there was no money to fund that either.

The workers, union bosses etc were effectivley silent all these years rather than going after government entities to fund these plans 20-30 years ago.

Throw in a Federal Reserve which dropped interest rates to almost zero, killed an chance of meetign the needed ROI of 7-8% which is stil too high not just for government pensions but private company pensions too.

When United went belly up, the polits pension was turned over to the Fed govt, and ht epilots took a60% haircut. The Western States Pension Plan went under 2 years ago and participants took a 70% haircut.

Something has to give but the participants can no longer look to the taxpayers; there are not enough nor do they make enough.

If the plans woudl have bought Bitcoin in 2009 at $2 buck, when its currently $4,600, the problem woudl not exist.

The plan is not going to grow much on its investments, taxpayers cannot handle it so only one avenue is left.

Guess what that is.


I have a lot of friends in the pension system. I advised them a decade ago to lump sum out and go invest themselves. They came back and told me they called the govt and the govt said the pensions were safe. Go figure.


Dallas had a problem with police oension. It stil does, and this past year participants retired and tried to lump sum out but there was not enough money. So lump sums were cancelled and they are trying to find a solution.

ya can't squeeze blood out of a turnip.