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In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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City of Chicago has $32.92 Billion in Unfunded Pension Obligations

The City of Chicago has accumulated $32.92 billion in unfunded pension obligations. That’s the assessment from an organization called Local Government Information Services.

The unfunded pension obligations are so great that the Windy City would have to double its property tax rates to cover them, Chicago City Wire reported. The situation in the nation’s third largest metropolis shows how serious America’s pension crisis is.

Chicago Taxpayers Spend $1.7 billion a Year on Pensions

Here’s a disturbing synopsis of some of the broken promises made to Chicago’s public servants by politicians:

  • The Policemen’s Annuity and Benefit Fund of Chicago is underfunded by $8.1 billion.

  • The Firemen’s Annuity and Benefit Fund of Chicago is underfunded by $3.53 billion.


  • The Chicago Park and Retirement Board Employees Fund is underfunded by $514 million.


  • The Chicago Teacher’s Fund is underfunded by $9.63 billion.

  • The Municipal Employees Annuity and Benefit Fund of Chicago is underfunded by $9.913 billion.


  • The Laborers & Retirement Board Employers Benefit Fund of Chicago (LRBEF) is underfunded by $1.23 billion.


  • All six of these funds paid out $999 million in pensions in 2015, but only generated $90 million in investment income. The difference was made up by raiding the city treasury and swiping the contributions made by current Chicago employees.


  • Chicago property owners are now paying $1.7 billion a year to cover pension payments.

  • Active employees in Chicago pay $1.5 billion to support pensioners.


  • One fund the LBEF paid $10 million in fees to investment managers in 2015 even though it lost $34.6 million on its investments.


Naturally taxpayers will be wondering where the money to fix this mess will come from. Nobody knows, but fortunately Illinois Governor Bruce Rauner vetoed Chicago Mayor Rahm Emanuel’s suggested “fix.”

Emanuel wanted to raise city employees’ contributions to two of the funds to get more money. That’s right his honor wanted to cut the pay of city employees in order to cover payments to retirees.

Disturbingly Emanuel’s scam would have only raised a few million dollars and staved off insolvency until after his term was over. That of course is the pension crisis in a nut shell, politicians making short-term fixes to protect their jobs and screwing public servants in the process.

No Light at the End of the Tunnel

There is no obvious solution to Chicago’s pension crisis because of a 2015 ruling by Illinois’s Supreme Court. The court unanimously declared a 2013 law that allowed the State Legislature to cut pension benefits to prevent insolvency, The Chicago Tribune reported.

That effectively killed a similar law in Chicago; and obligated governments to pay pensions – even if they do not have the money to cover them. This means, Chicago’s best hope is that the US Supreme Court will overturn that decision.

If that does not occur, it’s not clear what Chicago or other cities can do; because there is no mechanism in place for covering unfunded public pension mandates in the United States. Private pensions can be covered by the Pension Benefit Guarantee Corporation (PBGC) which ensures that retirees will at least get some money.

A possible solution would be for the federal government to take over the pension obligations of cities like Chicago. The problem with that is where would Uncle Sam get the money to cover those pensions?

The Pension Crisis is Getting Worse

Moody’s estimated that the amount of unfunded state pensions in the United States was $1.75 trillion in October 2017, CNBC reported. A June 2016 study by the consulting firm Millman found that the 100 largest public pension funds in the United States can cover only 70% of their obligations.

There are between $111 billion and $193 billion in unfunded pension obligations in Illinois alone. Much of the problem is with the Teacher’s Retirement System of Illinois, where investments were only returning 7% or seven cents on the dollar, the System’s executive director Richard Ingram told CNBC. That means schools have to cover the other 93¢ by slashing things like teachers’ salaries, roof repairs and the textbook budget.

All this should worry average Americans because it lead to drastic cuts in government services, particularly in depressed communities already plagued by income inequality such as Detroit. That means less money for libraries, schools, teachers, police, firefighters and street repairs.

If all that was not horrendous enough, there’s another worry for average Americans here: Congress might try to raid Social Security, and use its’ funds to cover pension obligations. This might happen because many Senators and Representatives are beholden to big, politically influential public employees’ unions such as the National Education Association (NEA) and the Fraternal Order of Police (FOP).

America needs to deal with the pension crisis now unless we want to see millions of retirees and tens of millions of taxpayers screwed. If not Chicago’s problems will become the entire nation’s troubles.

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