Chicago Newsroom brings more light on issues facing teachers, police, and firefighters pension funds

After months during which much of the public discussion of the so-called "pension crisis" was in the hands of pundits who had at best a shallow understanding of the issues and politicians whose talking points were dedicated to deliberately distorting the questions around public service and public employee pension funds, on May 22, 2014 Chicago Newsroom, a Cable TV talk show, featured three panelists (one of whom was this reporter) who are among the best informed people in the city about the pension funds.

Jay Rehak, George Schmidt, Dan Fabrizio, and Ken Davis discussed the pension situations on Chicago Newsroom on May 22, 2014.Jay Rehak, President of the Chicago Teachers Pension Fund, and Dan Fabrizio, of the Firefighters Fund, were both on the show with journalist Ken Davis. Rehak is still an active duty teacher, teaching at Whitney Young High School, and Fabrizio is a firefighter with more than 30 years, currently working as a batalion chief.

The URL for the video (which is almost a half hour long) is:

As Chicago Newsroom put it: Chicagos pension systems for public-service employees are a mess. Right now, the Chicago Fire Pension fund is only 24% funded. The Police Pension Fund is at 31%. There are major funding issues with the teachers pension fund and the fund for municipal workers. But there are a couple of things the unions have in common. The most significant is that the employees have consistently paid in their required shares. The City hasnt always done so, or has failed to provide necessary increases through the years.

And heres something else the major pension funds have in common at some time in the past, they were 100% funded, and quite stable. So what happened?

Lets start with the teachers.

Jay Rehak is President of the Chicago teachers Pension Fund.

In 1995, he tells us, the State of Illinois and the City of Chicago made a deal that the City would take over the pension payments. So you have the employee constantly making his or her 9% payments, but for ten years, from 1996 to 2005, the City of Chicago paid absolutely no money into the pension fund.

1995 was a watershed year in the history of teacher pension funding, according to George Schmidt, Editor of Substance News and a union activist for decades. Thats when the real coup deta happened, he says.The General Assembly passed legislation that put the Chicago Public Schools in the hands of the Mayor, and it passed legislation that ended the separate property tax line on the tax bills to cover the pensions.

And thats a key event. A separate, dedicated property tax line was fed directly into the pension fund, keeping things stable. But when Springfield removed it, the City was allowed to use that money not only to pay pensions, but for other fiscal needs. And, not surprisingly, it stopped paying pension contributions.

So, Schmidt continues, you had the teachers paying in, the property tax paid in, and for a hundred years, including the Great Depression, the teachers pension fund remained solvent, and then suddenly, after 1995 it became a financial football which was at the mercy of City Hall and other political leaders.

The situation is different with Police and Fire, but its no less dire.

In Fire and police, we didnt have any so-called holidays, explains Dan Fabrizio, political action director at the Chicago Firefighters Union. We have a flawed funding mechanism. We have what they call a multiplier. So for every dollar we put in the City was supposed to put in $2.26. They have done that, but weve asked them to increase. Back in 82 we asked them to increase and they gave us a nickel. Back in 95, they gave us $50 million, and then subsequently took it away later on because they said they needed it. But every actuary thats looked at our funding mechanism has said that its a flawed mechanism and its accounted for 60% of our debt today. Last year we were $169 million short on the actual required contribution.

The normal cost in the fire fund is $80 million, Fabrizio tells us. Were paying half of that in our contributions. So in essence were paying half of our (pension) contribution.

Rehak explains that teachers are not eligible for Social Security. Social Security, people pay 6.2% of their salary and the employer pays 6.2%, he says. In our pension fund we pay 9%, which is almost 50% more, but in the private sector if an employer doesnt pay their 6.2% they put those people in jail. In our situation we put our 9% in, the other guys dont put anything in, and all we do is have legislation that says, yknow what? Weve got to cut benefits.

Because the City side has lagged for so long, the debt balloons each year, not unlike an unpaid credit-card bill. So he unfunded liabilities keep climbing, and the numbers have become so large that theres probably no solution that can please anybody. But these key union leaders make it clear that they dont think theyre to blame. And if the solution is going to involve a combination of new funding and benefit cuts, theyre not willing to trust government to make the cuts and deliver the revenue sometime later.

so now, says Rehak, were in a situation where the employer and the politicians are saying, we didnt do our job, but theyre going to ask our members to have their benefits reduced The problem is, even the solution that was just offered for the Municipal funds, you notice that the benefits were reduced, but the actual funding has not been resolved. Because the Mayor still hasnt done the property tax increase. Its like Lucy and the football here, where theyre constantly saying were gonna do both, but one of them happens. The benefits are attacked, but the funding isnt there. We believe the funding mechanisms must be secure before we deal with anything else.

Pensions are often thought of as just cash payments to individuals, and when tax money helps fund them, taxpayers can be resentful. But you have to take a larger view, Rehak insists.

People in a global economy, and the people of Illinois, have to understand that the money that is distributed by our pension fund essentially all of that money is going locally. So at the Chicago Teachers Pension Fund we distribute 1.2 billion dollars a year to the local economy. 90% of that stays in Chicago and the Chicagoland area. The global economy impacts when you have people who are taking money out of the local economy. Thats a problem. But pensions keep that money inside the community. So the restaurants and the local businesses of this town and this area benefit a great deal from pensions.

About Ken

Ken's the host of Chicago Newsroom. A former news director, reporter and radio program host, he's also a past Vice President of the Chicago Headline Club.


May 28, 2014 at 10:32 PM

By: Jim Vail


The funny thing is - they got away with it. There was no penalty for Daley to not fund our pensions. Strike that - he got rewarded. He's got his comfortable pension, and lucrative contracts with outfits he enriched while serving as da mayor. So why do the unions continue to play ball with these politicians that get rewarded for screwing our pensions?

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