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More awful pension news

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Illinois

* Moody’s just downgraded Springfield’s credit rating over some huge pension liability growth…

In Moody’s calculation, the net pension liability grew from $503 million in 2015 to $707 million in 2016. The agency knocked down the city’s general fund two notches from A1 to A3 and its water fund from Aa2 to A1.

“We’ve been aware of and discussing this liability for years, which is why we’ve worked diligently to eliminate pension spiking, tie wage growth to the (consumer pricing index), and change our city’s health insurance benefit matrix in order to mitigate growth and future liability,” said budget director Bill McCarty in a release Friday.

The city noted the agency recognized Springfield’s “satisfactory financial operations,” which it says is because of the city’s efforts to control costs.

posted by Rich Miller
Friday, Oct 28, 16 @ 12:42 pm

Comments

The Cogfa reports on downstate police and fire pension funds should make this no surprise to anyone. There are an awful lot of cities that are going to be downgraded the next time they need to be rated. Most of them won’t be large enough communities to catch the eye of the press though.

Comment by Shemp Friday, Oct 28, 16 @ 1:07 pm
Having wage growth tied to CPI isn’t going to do much since revenue’s are essentially growing at the same rate. That is a strategy for not digging into a hole, not digging out of a financial hole, unless the strategy was tied to something else such as reducing overall payroll/spending.

Another issue the City is facing is the fact that the police and fire pension boards have majority representation by pensioners and future pensioners, with taxpayers having a minority representation.

Comment by Ahoy! Friday, Oct 28, 16 @ 1:07 pm
Pension boards are usually made up of 2 current employees, 1 retiree and 2 people appointed by the Mayor/Village President.

Their fiduciary responsibility is to the pension fund itself.

Comment by HRC2016 Friday, Oct 28, 16 @ 1:20 pm
-Ahoy!,

“Another issue the City is facing is the fact that the police and fire pension boards have majority representation by pensioners and future pensioners, with taxpayers having a minority representation.”

The role of a pension board is to act as a fiduciary for the pension fund, meaning they are legally required to act in the best interests of their members, not the tax payer.

Comment by TrumpsSmallHands Friday, Oct 28, 16 @ 1:24 pm
The pension board and the city both have had the numbers on the annual growth of unfunded liability certainly since Davlin was the Pres of the Il. Municipal League. Continued choices to not fully fund the pensions caused this $200Mil jump. I’m sure the Mayor can tell you what next years will be too.

Comment by ShakeandBake Friday, Oct 28, 16 @ 1:31 pm
Artificially low interest rates do hurt pension funds: they raise the present value calculation of those pensions. It appears the Illinois State Constitution will have to be changed….

Comment by Steve Friday, Oct 28, 16 @ 1:32 pm
One short hop away from junk bond status for all that pension borrowing. Ouch.

Comment by Tequila Mockingbird Friday, Oct 28, 16 @ 1:33 pm
the length and breadth of this kind of financial malpractice is absolutely stunning.

Comment by jim Friday, Oct 28, 16 @ 1:35 pm
==It appears the Illinois State Constitution will have to be changed….==

Which does nothing for the benefits that are currently owed. They can (and have) changed the pension system for new employees. If we want further changes to the system for new employees then there is nothing that prevents that from being done. But, people are obsessed with figuring out a way to cut benefits of those currently in the system which isn’t going to happen. There is nothing wrong with the Constitution. It’s not holding up any changes now and changing won’t get you off the hook for what is currently owed.

Comment by Demoralized Friday, Oct 28, 16 @ 1:38 pm
==The role of a pension board is to act as a fiduciary for the pension fund, meaning they are legally required to act in the best interests of their members, not the tax payer.==

They often fail in both regards, as when Forest Park’s police and fire pension funds were caught using 1971 mortality tables…in 2014.

Comment by City Zen Friday, Oct 28, 16 @ 1:38 pm
The state not paying Springfield water/power/sewer bills does not help anything.

Comment by DuPage Friday, Oct 28, 16 @ 1:53 pm
===It appears the Illinois State Constitution will have to be changed…===

Cutting benefits to those in the pension system following a change to the constitution is one way to solve the problem. However, there are a number of other solutions to the problem that avoids the issues around a change to the constitution. For example one can cut services, lay off employees, and use the money saved to increase funding of the pension plan. Another option is to increase the property taxes. Both work mathematically and can be done today.

Comment by Anonymous Friday, Oct 28, 16 @ 1:55 pm
For example one can cut services, lay off employees, and use the money saved to increase funding of the pension plan.
Sure… or you can hire more tier 2 employees, if you can find them. It’s been posted here that their deal actually improves the pension fund over time.

Comment by LeadingInDecatur Friday, Oct 28, 16 @ 2:37 pm
Sometimes people can use “fiduciary responsibility” to act in their own self interest. These pension boards are a corrupt system that does not offer protection for tax payers.

http://www.sj-r.com/news/20160721/firefighter-pension-board-declines-to-vote-on-holiday-pay-issue

Comment by Ahoy! Friday, Oct 28, 16 @ 2:42 pm
==lay off employees==

How is getting rid of the people who are currently paying into the pension system going to help reduce the pension debt? Especially since they have probably been around long enough to be guaranteed that pension even if they leave now. And I think most of the people who haven’t earned the pension yet are the Tier II people who are paying more and getting less, which was supposed to help balance the contributions out.

Your better bet is to encourage smoking and fatty foods to retirees so they aren’t on the system as long. Geez…/s

Comment by HangingOn Friday, Oct 28, 16 @ 2:50 pm
As usual, so easy to forget that those folks in the pension system like say, firefighters are tax payers, too.

Comment by Mad Brown Friday, Oct 28, 16 @ 2:52 pm
== Cutting benefits to those in the pension system following a change to the constitution is one way to solve the problem. ==

There were IL SC rulings preventing pension changes BEFORE the 1970 pension claise was adopted. In fact, the IL SC made reference to such cases in their landmark 1975 IFT ruling. They may not have been quite as airtight as the pension clause, but they were pretty restrictive.

Plus the status of the pensions all these years as a contract means basic contract law would apply.

Bottom line: even if you change the Constitution, you ain’t going to change the Tier 1 pensions, period.

Comment by RNUG Friday, Oct 28, 16 @ 3:10 pm
+++ - Anonymous - Friday, Oct 28, 16 @ 1:55 pm:

===It appears the Illinois State Constitution will have to be changed…===
Cutting benefits to those in the pension system following a change to the constitution is one way to solve the problem. +++

Not really, such a change would be prospective (”going forward”) only. It wouldn’t change the funding hole already dug. It would only allow changes to new people (not really needed, because Tier II did that already).

Comment by titan Friday, Oct 28, 16 @ 3:14 pm
Underfunded pensions are a problem in cities all across the country. Maybe we’ll end up with a Federal solution? Put a payroll tax on all underfunded government pensions over a certain amount and return that revenue to the pension system it was taxed from. Problem solved.

Comment by Robert the 1st Friday, Oct 28, 16 @ 3:35 pm
Gee, wonder if we should continue offering pensions to public employees?

Comment by Ron Friday, Oct 28, 16 @ 3:40 pm
Robert
Your solution is not legal

Comment by very old soil Friday, Oct 28, 16 @ 3:42 pm
You’re right I’m sure, at least the way I stated it. But congress can change some laws. There would also have to be a bunch of provisions about the city or state matching funds and what-not. Just a thought that popped in my head.

Comment by Robert the 1st Friday, Oct 28, 16 @ 3:50 pm
Read the debate from the transcripts of the 1970 constitutional convention and you will know EXACTLY why there is a pension clause in the first place. Municipalities had been backing out of the pension liabilities for decades and the delegates decided once and for all that the retirees’ benefits would be locked away, safe and secure from the whims of the politicians.
Municipalities have dodged their responsibilities to the public safety employees ever since by utilizing a loophole that allows locally-designated actuaries to inflate investment projections.
Sorry folks. Pay me now or pay me later.

Comment by Wallinger Dickus Friday, Oct 28, 16 @ 3:51 pm
==It appears the Illinois State Constitution will have to be changed….==

While you’re at it, you better chop up Article 1, Section 10 of the U.S. Constitution to get rid of those pesky contract and ex post facto clauses.

After all this time, some folks still on that pipe dream….

Comment by wordslinger Friday, Oct 28, 16 @ 4:08 pm
Wallinger Dickus, smart lawmakers would have realized pensions don’t work and just put the workers on SSI like the rest of us. Constitutional protections did not seem to help either.

Comment by Ron Friday, Oct 28, 16 @ 4:08 pm