As the Chicago teacher strike ended with a whimper, a new (or rather, very old) issue comes back to the fore: their pensions… and will they get paid?
Like many other workers relying on pensions for their retirement, Chicago’s teachers have backed themselves into a corner. Unless the fund’s investments see a miraculous turnaround, retired teachers will be relying on payments from the city to make up the massive gap in pension funding. Unfortunately, city finances are in dire straits as well, and the more money that goes into the pension fund, the less will be available to pay current teachers the higher salaries secured by their brand new contract.
Now that the strike is over, the unions should focus on the real problem.
Ah, but surely the Federal government will come to the rescue!
Uh, about that….
But the new laws have trimmed just $100 billion out of the $900 billion gap between what the states and their workers put into their retirement plans and what the states owe in retirement benefits, according to estimates prepared for The Wall Street Journal by researchers at Boston College.
Unfunded liabilities in many states grew to troubling levels after investment losses in the 2008 financial crisis depleted pension assets. While most states have approved some form of pension cuts, many have opted to apply those changes only to workers who have yet to be hired.
That means most of the savings won't be realized for decades, when the most expensive retirement benefits come off the books. Changes made to the retirement plans of newly hired workers are expected to reduce pension costs by 25% over the next 35 years, according to Boston College estimates.
And that's just a point-in-time estimate for the accrued unfunded liability… that sucker can continue to grow. Remember this graph?
Those are the projected pension costs for the Chicago teachers plan – the amount they're supposed to contribute each year. The big jump is because they passed a "funding relief" bill that let them pay less than they really should have been these past several years. Because somehow, miraculously, money will appear in 2014. Along with the mythical savings of Obamacare. (Prediction: another "funding relief" bill is passed in 2013)
A bailout will not be forthcoming. Part of the issue is that unions, especially public employee unions, don't have the political clout that once they had. Who are they going to vote for – Republicans? It is to laugh.
More to the point, the gap is way too big. Sure, one can throw a few million towards corrupt "green" enterprises, but a trillion to various profligate states? Ha ha ha. You got your trillion-dollar dip with that old "stimulus" plan. How did that work out?
The situation is bad enough with Medicare, Obamacare, and Social Security – you think there will be political capital to give money to relatively generous pensions that few in the private sector get? For jobs with fewer hours and days than most people have to work (I'm talking about the teachers — they outnumber and outcost police and firefighters)? Yeah, that's a tough sell. Even if Obama were president for the next four years and Pelosi magically managed to recapture the House, it would be a no-go.
So public employees — keep an eagle eye on your pension funds. Every contribution holiday, every pension obligation bond issued instead of a real contribution – these are not things that make your pensions more palatable to the public. These are things that make it less and less likely that you will actually get your promised payments. Do not assume you will be made whole when the money runs out.
I am not a pension actuary, so I have no direct vested interest in telling these unions that they really need to hire their own actuaries to make projections to walk through various scenarios. Do not assume that politicians have your interests in mind at all, forget about best interests. Figure out what sorts of contributions you need to fully fund the plan, and if that's not politically feasible, start thinking about exit plans.
Do not depend on courts to have the magical ability to make money appear out of nothing, and do not think there will be bailouts forthcoming. GM got in line before you did.