The Emanuel Administration has reached a tentative agreement to put the city’s Laborers pension fund, the smallest of the city’s four vastly underfunded retirement funds, towards a path to solvency, while a solution for another retirement fund for public employees remains unsolved.
A previous pension overhaul of both the city’s Laborer and Municipal Funds, which represent about 79,000 public employees, including non-teacher staff at Chicago Public Schools, was found unconstitutional in March by the Illinois Supreme Court. Yesterday, the city said it reached an agreement with one of those funds: The Laborers’ Annuity and Benefit Fund of Chicago (LABF). That plan will need approval from Springfield.
During a late afternoon briefing with reporters yesterday, Budget Director Alex Holtannounced the city plans to dedicate all of the revenue from a 2014 increase in the 911 surcharge to make increased pension payments to the Laborers’ fund starting in 2018. That $3.90 surcharge the city approved in 2014, up from $2.50, was originally earmarked for increased pension payments due to both the city’s Laborers and Municipal funds as part of a funding ramp recently found unconstitutional. The surcharge brings in about $40 million in annual revenue. The remainder of the annual pension payment for Labor, about $15 million, would come out of property tax revenue.
Holt and city Chief Financial Officer Carole Brown said yesterday that “conversations are ongoing…and everything is on the table” as it relates to finding new revenue for the city’s contribution to the Municipal Fund, which represents a larger portion of city employees. Labor has roughly 8,000 members, while Municipal has about 70,000.
Both funds are expected to run out of money in about a decade. The net position for the Laborers’ plan as of Dec. 31, 2015 was $1.2 billion, a $149 million decrease from 2014. That decrease is largely attributable to a statutorily-defined multiplier the city uses to base its annual pension payments. The fund has had to annually liquidate about $130 million of its investment assets in the past two years to pay out benefits to retirees.
Under the agreement the city reached with the trustees of the Laborers’ fund, beneficiaries hired on or after January 1st, 2017 would be offered a choice: pay a larger share of benefits, about three percentage points more than current beneficiaries and retire two years earlier, or pay the existing 8.5% rate and retire with benefits at 67. Giving beneficiaries a “choice” will help the city get around a clause in the state constitution that prohibits pension funds from diminishing future benefits owed to current retirees.
Starting with the 2017 pension contribution, which will be made in 2018, the city would increase its payments to the Laborers’ fund by 30% per year over five years. By 2022, the city will achieve actuarially required contributions, with annual payments to the fund increasing by approximately $3 million to $5 million annually.
The agreement will need state approval, and Brown and Holt say a bill won’t be introduced until the late summer or fall. But Holt maintains that unlike the last pension overhaul plan, SB 1922, which the state’s highest court found unconstitutional and the pension funds opposed, labor will work with the city to get it passed.
Few details were provided on the call for how the city plan to address the soon to be insolvent Municipal Fund, which was included in the unconstitutional pension reform. CFO Brown said while they are not in a position to talk about what funding sources the city is currently looking at to make those payments, the agreement they made with Labor provides “a good framework.”