Here is what you need to know about pensions. Pensions are deferred salaries promised to workers in return for less pay now. It’s a promise that if you work for us, at less than the work is worth; we will reward you when you retire/leave our employ with that deferred pay. So the worker passes on salary and that salary is pooled and invested to be managed and given back to the worker as a reward for taking less money than they were worth. It is one of the incentives to go into public service instead of seeking to make a fortune. Stability and security in return for faithful service… you know the social contract.

• Chicago’s infrastructure and services depend on a stable, well-trained and fairly compensated public work force.

• Public sector workers receive lower salaries, no bonuses, no stock options and no similar perks common in the private sector in return for a secure retirement after a lifetime of service.

• Without this social contract Chicago is going to eventually end up paying more for adequate services, getting less services for more money or having only the services the wealthy can afford.

Basically there are two types of pension. Defined Benefit plans and Defined Contribution plans and our public employees have Defined Benefit plans. Here are the benefits of these kinds of plans that your 401(K) will NEVER match. 

• Pooled investment resources to create more resources for everyone in the pool.

• Pooled mortality risk - No risk of outliving retirement income

• Mandatory participation by both employee and employer.

• Government-run pension plans that are not-for-profits, are accountable to the public and protected by the State Constitution.

• They provide death & disability benefits without requiring the purchase of additional insurance which is costly to the worker. to both employee

Wall Street’s recklessness and greed triggered the current pension problem. You know, Mayor Emanuel and his friends at Citigroup, Goldman Sachs, AIG and the like basically took our money and tanked our economy and are doing the exact same thing right now. Until the recent market crash, public pensions were well funded– they had on average 86 percent of the assets they needed to pay for accrued benefits. Pension funds are not in crisis because they have years to recover from Wall Street’s cupidity and avarice. Over the long haul public pension fund managers have not created long-term problems for government.

In Chicago we have a double whammy. Not only did Wall Street steal our money in a massive fraud, but Chicago also failed to consistently fund pension plans; which magnified the recent investment losses/Wall Street theft that took place. When you think of the Hired Truck Scandal or selling off city assets think what would have happened if that money would have found itself into our pension funds and try not to drive by Mayor Daley’s house and throw eggs at it. Finally, when Mayor Emanuel and his cabal of Wall Street bankers start talking about cutting pensions down to size and defaulting on the promise of the pension; even if pension benefits are cut or the pension fund is closed, the pension liability debt remains.

So if you are going to fix a pension fund you have to start by understanding how the hell it got in such bad shape. So Mayor Emanuel, who I understand is a financial guy, should read this and when I hear Mayor Emanuel and his people talk they appear to have the pension problem exactly backwards.

Basic Principles for Pension Reform

Because I do not know the specifics of how bad things are in our pension funds and neither do you…particulars are going to be impossible for me to give the Mayor a ten step plan to address the pension situation. What I can give the Mayor are some principles that should be utmost in his James Bond villain mind.

• Any plan should be based on sound actuarial projections not some nutty corporate ideology about crisis and cutting. At bottom this means that fixing a pension is a long-term endeavor. In fact: “There is very little risk that the funds will run out of money since benefit outlays are a small fraction of assets (this is true of any advance-funded pension system as long as employers keep up with contributions and the size of the workforce is not shrinking rapidly” according to the Economic Policy Institute.

• The take away here is that if you CUT jobs via privatization and continue to not live up to your pension contributions you will get into SERIOUS trouble. Which is where we are now and so one solution is to pick up your share of the payments and don’t cut a bunch of jobs that will further defund the pension…. Unless you plan to simply make the pension weaker and sawing away at part of the three-legged stool of retirement. (I guess if you’re working for a dollar a year you don’t really worry about piddling things like a pension.) So any Reform must provide real cost savings based on sound actuarial principles.

• Defined benefit pensions are the cornerstone of retirement security and achieve better returns on investment than defined contribution plans. They are simply better public policy and demonstrably more secure retirement vehicles.

• A two-tiered retirement system will impact morale and recruitment and is inherently unfair and guarantees that future public servants will have significantly less secure retirement. Sacrificing future generations for the politics of the present is an unacceptable attack on the social contract..

• The city of Chicago an obligation to meet its contributions. Solutions like pension “holidays” are a violation of the social contract and cannot be countenanced. Employees must make their contributions and there should be complete reciprocity for the City.

• Local collective bargaining, rather than having a one-size-fits-all “solution” imposed by the Mayor, should continue to determine benefits.