Pension Buyouts?
This came up late last week and we sat on it for the weekend - partly so we could read up on it, and partly because Monday is our "big eyeball day" and we'd get the most reader feedback. We had also touched on it a little while ago, opining that anything supported by that Martwick tool needed extra scrutiny and more than a little doubt:
Cash-strapped Chicago is crafting a plan to chip away at its $35.8 billion pension crisis that is likely to offer city employees the option of buying out a portion of their future pension benefits in exchange for a lump-sum payment upfront.
Acting Chief Financial Officer Steve Mahr said Thursday he expects the so-called “D.R.O.P or deferred retirement option” to be one of “roughly a dozen or more ideas” that will “set the city’s agenda” for the next decade.
The pension commission that Mayor Brandon Johnson created shortly after taking office disbanded without releasing a single report after Gov. JB Pritzker signed a police pension sweetener that, over time, will make Chicago’s pension crisis $11 billion worse.
Now, the Johnson administration has asked EY, the consulting firm that recommended $1.4 billion in savings and revenue-generation options for the city to consider, to start climbing the mountain of unfunded pension debt.
Deferred retirement options already are offered at the state level and in municipal pension funds across the country.
It could be made available to Chicago’s 33,432 employees, but only if state lawmakers agree to authorize it. A bill sponsored by state Sen. Robert Martwick (D-Chicago) would do just that and earlier this month advanced out of a Senate committee. Those types of payouts are now allowed for state retirees, and Martwick said it has reduced Illinois’ pension obligations by approximately $2 billion.
On the surface, it sounds somewhat desirable - a buyout up front to (maybe) reduce the hit a pensioner might take if (when) everything goes bust. It might also be desirable for someone with less anticipated time on earth to get a larger lump sum up front for their surviving spouse than a 50% cut at death might leave them with.
On the other hand, if you're a crappy investor, degenerate gambler, irresponsible with money or just very unlucky in terms of timing, you could be out of the pension....and broke as you enter your final years.
there are also way too many variables that aren't being explained yet - like the insurance portion of your retirement. Is everyone who signs up getting forced into SparklefartCare? Everyone goes to County for doctor appointments? Maybe introduce some of those Canadian-style death panels?
There's push-back already from some watchdog bean counters:
The City of Chicago is crafting a buyout program to help address its monstrous pension crisis– a $36 billion combined, unfunded liability owed by its four pensions. The idea is to cancel pension obligations in exchange for a single, lump sum cash payment to pensioners who opt in. It would require state legislation. The concept is inspired by the State of Illinois’ buyout program for its own pensions, as reported Thursday by the Chicago Sun-Times.
Buyouts might be a good idea, if done correctly and transparently. But, so far, there’s one thing we know for sure that the Chicago discussion has in common with the Illinois program: flimflam. We’ve begun hearing some of the same claptrap in Chicago that we’ve long heard about the Illinois program.
The main question is how much, if anything, the government saves through buyouts. Answers have been wrong or dishonest, and those who are supposed to know provide no evidence behind their claims. We do know, however, that savings from the state program – if any – have been tiny.
WirePoints is directly critical of....Martwick. Which makes our hesitation for anything he supports feel pretty justified at this moment in time. Porkulous gets dragged into a bunch of the article, too.
Read both articles. Sound off in the comments. This reminds us of the many times that Bill Nolan would drum up support for his Contract negotiations with the "Enjoy your retro check!" closing line to cover up how he sold out the membership time and time again.
Labels: money questions, pension









