By: Mark Glennon*

 

Last week we detailed a list of errors and omissions in a story about the Village of Forest Park’s police and fire pensions. Despite unfunded liabilities of 58% and 66%, their local paper somehow thought they were “in the healthy zone.”

 

Not to be outdone, The Telegraph, which serves several downstate counties, this week tackled pension issues for Alton, an Illinois city with about 28,000 people on the Mississippi. The article seems to tell us that it’s mostly just coming changes in accounting standards for pensions that could cause problems for the city, even though it’s firefighter’s pension is only 30% funded, having an unfunded liability over $43 million.

 

Make no mistake: Fixing a pension that far out of whack is extremely expensive. The vast majority of money needed to pay pension benefits comes out of earnings from contributions made in earlier years that constantly compound. If the pension is underfunded the assets aren’t there to generate those earnings, and taxpayers will have to fund the shortage.

 

Albert Einstein said that compound interest is “the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”  The magic of compounded earnings growing over time is lost when pensions are underfunded. The “he who doesn’t” is the taxpayer. Neither the article nor the city’s financials tell us how large the annual city contributions to that pension will have to be to properly fund it — an omission that is endemic with Illinois municipal pensions.

 

And, woops, the the article doesn’t mention the police pension. That’s another $50 million unfunded liability, according to the city’s 2013 financials. That pension is only about 28% funded.

 

The article quotes an official who says that “Since 2008, we have been paying the full amount on our unfunded liability.” He was apparently referring to the firefighters’ fund, which seems to have some special funding mechanism in place resulting from a lawsuit. But comparison of the city’s 2012 and 2013 financials indicates that the unfunded liability for the policy pension increased by over $5 million.

 

It’s hard to tell why, or to get to the bottom of what’s actually going on with Alton’s pensions, and I’m not claiming to have done so. One reason it’s is that the city has not published its annual actuarial report, which is typical but inexcusable. Another is that the funding schedule for the fireman’s fund appears to be a special situation, but specifics aren’t readily available.

 

There’s one thing in the article I don’t doubt for a minute. It quotes that pension official saying, “I’ve been working on the pension fund for 26 years. In that time, we have never had a member of the public or the press come to our meetings, besides the lawsuit in 2008. It’s the taxpayers’ money at stake here, and there is very little public interest in the topic.”

 

And then he adds, “Maybe now people will start asking more questions about things.”

 

They should, and so should everybody everywhere in Illinois.

 

*Mark Glennon is founder of WirePoints

 

 

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Mike
“According to Matt Williams, who does pensions for the Alton Fire Department, the unfunded liability works similarly to a mortgage.” The same tired point repeated endlessly by unions and public sector pension supporters without putting too much thought into what that means to the taxpayer. Whenever these newspaper articles come out, the taxpayer is rarely reminded of the following fact. The taxpayer has many so called “mortgages” at the city, county, state, and Federal level. Just one more reason the mortgage analogy doesn’t work. Sort of like talking about the bedroom dresser charge on your credit card, and not talking about the dining room table, snowblower, clothes,… Read more »
Jim Palermo

What exactly does it mean to ‘do pensions’? Several folks in my village have worked on the police and fire pensions for many years but have demonstrated little understanding of the details behind funding calculations and actuarial assumptions.

It is clear to me that there are too may plans in Illinois and too few pension trustees or municipal staffers with sufficient expertise to govern the plans adequately. Consolidation of the 600-some plans is a must.

RogerThat

The quote from the pension official comparing it to a mortgage is especially foolish. It should be compared to a negative amo mortgage.

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