Chicago’s pension liabilities have surged, not because of underfunding, but due to new costs and changes in future performance assumptions. About half of the 2023 increase stems from a recent pension adjustment for Chicago police officers, enacted into state law late last year. This adjustment removed a birth date restriction that limited annual cost-of-living adjustments for Tier 1 pensioners. Previously, these pensioners were promised a 1.5% annual boost, but now they will receive a 3% increase.
This change has added $1.06 billion to the police pension fund’s total liability, according to the city’s financial report.
Chicago’s Chief Financial Officer, Jill Jaworski, told the Tribune that the change improves transparency, as the city was already paying these additional benefits incrementally. Now, they are fully accounting for it.
Additionally, a decrease in investment return rate assumptions has increased the city’s overall liability by about $642 million. City officials describe this overall liability boost as a one-time hit.
Joe Ferguson, President of the Civic Federation, agreed with this assessment. “The fact that it’s going up shouldn’t be confused with the fact that we’re doing what we set out to do” to contribute more toward pensions, Ferguson said. “We are. That being said, the time is growing short for meeting what is going to be an ever-increasing requirement under the plan.”
Ferguson emphasized the urgency of addressing this issue, stating, “There’s no more kicking a can down the road; we’re actually at the cliff and so we have to talk about this in a grounded way.” He suggested that the city should seriously consider its entanglements with Chicago Public Schools, explore new revenue sources, and potentially adjust its expectations for tax revenue from the city’s casino.
For nearly a decade, Chicago has been climbing the pension ramp designed to secure enough funds so that each pension fund could meet 90% of its benefit obligations by the mid-2050s. These payments are expected to continue rising until then, likely exceeding inflation rates.
