Facing a $20 billion unfunded pension liability, a property tax increase of 150 percent and class sizes of 55 children, the city of Chicago is proposing a number of reforms, such as:
- Raising retirement age to 67 and 60 for civilian and public safety workers respectively.
- Suspension of COLA increases for up to 10 years
- Raising contribution rates to 14 percent with one percent contribution increases each year for up to 5 years
- Offering a 401k option
While the reform measures were well received by Illinois state legislators, labor unions have blamed Wall Street and political decisions for not funding pensions properly. However, actuaries have shown that guaranteed COLA increases that are not indexed to inflation can represent one-third of the total unfunded liabilities.
One of the biggest concerns is for the pensioners at the bottom of the income scale, who don’t necessarily contribute to the growing unfunded liability.
A proposal I’ve made to my town for pension reform includes the following two measures:
- Freezing base compensation for all individuals earning above $75,000 in towns or cities where pension obligations are funded at less than 80 percent, and
- Giving municipalities the option to offer 401k-type defined compensation plans to new employees in lieu of a defined benefit plan. The goal for this reform is to create a coalition of municipalities who will seek relief from the Governor.
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