If Chicago’s pension systems become insolvent, the city will have to reduce benefits or make serious cuts to city services. The only way out is constitutional reform.
By LyLena Estabine | Illinois Policy Institute
Pension insolvency isn’t a distant hypothetical for Chicago: the city is setting itself up to be consumed by pension obligations.
Chicago’s four pension funds have more combined debt than 44 states. Seven of the nation’s 10 worst-funded local pensions are in Chicago.
To make matters worse, the state recently passed a police and fire pension sweetener that adds $11 billion in new liabilities. Some estimates say these benefits have dropped the funding ratio for Chicago police and fire pensions to 18%.
In mid-September, Mayor Brandon Johnson had to dip into the city’s cash reserves to cover $28 million in payments for the fire pension so they wouldn’t have to sell off assets.
All of that adds up to a city that must grapple with the realities of pension system insolvency.
A pension system becomes insolvent when it no longer has the money needed to pay out benefits. Right now, Chicago pension funds only have between 22 cents and 52 cents on hand for every dollar they must eventually pay their members.
Those benefits aren’t all due at once, but if funding levels are low enough it can make a system “technically insolvent.” That is how Chicago’s Chief Financial Officer Jill Jaworski described Chicago’s police and fire pensions to a top administrator in Gov. J.B. Pritzker’s office before the pension sweetener was signed into law.
Read more here.