Chicago’s public employee pension plans are broke and getting broker as payouts, which in some cases are scandalously generous, continue to far exceed contributions and the Illinois Supreme Court has ruled that benefits cannot be cut. Eventually Chicago will declare bankruptcy. From Tyler Durden at zerohedge.com:
As we’ve known for quite some time now, Illinois is completely insolvent, and in large part due to enormous pension liabilities which as of December were underfunded to the tune of $111 billion. Not only is the state insolvent, its millionaires can’t get out fast enough to avoid the massive tax hikes that will be coming in what is sure to be a failed effort to plug budget holes, as well as the soaring criminality in cities such as Chicago which recently just passed the historic milestone of 1,000 gunshot victims in the fastest time in decades.
Citing unfunded pension plans, Moody’s downgraded Illinois to Baa1, and gave it a negative outlook back in October. The issue with the pension funds (aside for the massive shortfall in funding) is that per the Illinois Supreme Court, benefits cannot be altered. In a ruling last year, the state’s Supreme Court overturned a 2013 law that tried to ease the burden of what was then a $105 billion funding gap.
“Crisis is not an excuse to abandon the rule of law. It is a summons to defend it.” the supreme court said in its ruling.
In other words, regardless of the fact that the pension funds are insolvent, the state cannot cut benefits to any of its participants. This is in stark contrast to the multi employer private pension funds, which as we pointed out, are able to cut benefits in order to keep the funds solvent.
At this point, it’s clear that without the ability to cut pension benefits, most plans will end up insolvent, at which point nobody will be receiving benefits. Until that point comes, however, there are a few who are living quite well off of the system.
As Forbes’ Adam Andrzejewski reports, there are currently 7,499 teacher retirees that earn at least six figure pensions, and he estimates that in just six years, the number will be three times what it is today because, as we noted previously, the Illinois Supreme Court recently confirmed that pension benefits are constitutionally guaranteed and “the public employee gravy train is running faster than ever.”
Now, there would be nothing wrong with these retirees collecting the “annuity” benefits after paying to the retirement plan for years as most other honest, hard-working employee do. There is just one problem: this was a human system, and like every human system (especially in Illinois) it was impeccably gamed from the beginning. Especially when Chicago is involved as it is here.
Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them.
And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!
To continue reading: The Chicago Pension Scandal: $100,000+ Teacher Pensions Costing Taxpayers $1 Billion
