Nice article. Thanks for discussing LDROM, and noting how incorrect it is to describe it as a hypothetical liability if assets were invested differently, rather than, to put this how I might have, the economically meaningful liability that should always be the focus of funded status and funding analyses. It burns me when it's described as they do.
You're right, of course, that essentially zero assets means a 0% funded status no matter what the liabilities are. But $10 billion of missing liabilities is nothing to sneeze at. This is a good example of why dollar deficits are important to focus on as much as funded percentages. I like dollar deficits (real ones, not based on AAL) divided by number of taxpayers or population.
The question is what happens next in this totally hopeless situation -- a Federal bailout? That would be some precedent. Looks like Chicago is going to be the Studebaker of public pensions -- we'll see what happens.
I do need to find something OTHER than a grossly underfunded system to get one of the new ASOP 4 disclosures from.
It's really pointless looking at the LDROM for any of the Chicago/Illinois plans (other than IMRF... and maybe I should go looking for the IMRF one. That would be instructive.)
Got me. Maybe others want to hazard a specific guess. It’s fair to say, though, that Chicago seems likely to get there first and pretty soon, and as economist Herbert Stein said, “if something cannot go on forever it will stop.”
This is why I did the spreadsheet tool -- I originally created it in ~2017 to project MEABF going bankrupt, specifically, but then allowed projecting any of the plans in the Public Plans database.
MEABF was projected, back then, to run completely out of assets by 2024. That was assuming they didn't increase contributions, and of course they had to increase the contributions by huge amounts since then.
But they can't keep up those contribution levels. Johnson is having a hell of a time with his budget wishes. And that's just MEABF being a problem -- the teachers plan is even bigger, and while it doesn't promise to run out of $$ any time soon, its contribution needs are bankrupting the city rapidly.
I left Illinois a number of years ago. When does this "game of musical chairs" actually come to a head? Will it be like the film, Margin Call ? Chicago can go bankrupt if the State of IL authorizes it. The State of IL can't go bankrupt so it will have to reduce benefits as the pension debts can't be covered by raising tax rates, the Laffer Curve goes into effect.
I see your point … when a plan is about to completely run out of money it’s not worth arguing about what the real funded status is. Though if they had been working with real numbers all along maybe it doesn’t get to this? I don’t know…
If you are familiar w/ the quote from Adam Savage (from Mythbusters): “I reject your reality and substitute my own”
It doesn't matter how many "real numbers" we sent them. Even now, with the abysmal funded ratios, they're trying to figure out tricks to avoid having to put in higher contributions. They will always fall back on the "magic" of "the money will appear".
That's Chicago, at least. Forget about the pensions, they have been involved in so many dodgy finance practices, the only thing that stops them is the credit cards being taken away. The bond buyers who are involved in the scoop & toss figure they won't be left with the hot potato. The teachers unions may have finally made an ask too big... but we'll see.
I saw a piece from Eric Allie thinking that New Jersey is worse off than Chicago, and maybe it is, but I don't think that's the case. Nobody is under the delusion that anybody likes NJ so much they'll get bailed out.
Nice article. Thanks for discussing LDROM, and noting how incorrect it is to describe it as a hypothetical liability if assets were invested differently, rather than, to put this how I might have, the economically meaningful liability that should always be the focus of funded status and funding analyses. It burns me when it's described as they do.
You're right, of course, that essentially zero assets means a 0% funded status no matter what the liabilities are. But $10 billion of missing liabilities is nothing to sneeze at. This is a good example of why dollar deficits are important to focus on as much as funded percentages. I like dollar deficits (real ones, not based on AAL) divided by number of taxpayers or population.
The question is what happens next in this totally hopeless situation -- a Federal bailout? That would be some precedent. Looks like Chicago is going to be the Studebaker of public pensions -- we'll see what happens.
Thanks again -- look forward to the next one.
I do need to find something OTHER than a grossly underfunded system to get one of the new ASOP 4 disclosures from.
It's really pointless looking at the LDROM for any of the Chicago/Illinois plans (other than IMRF... and maybe I should go looking for the IMRF one. That would be instructive.)
Got me. Maybe others want to hazard a specific guess. It’s fair to say, though, that Chicago seems likely to get there first and pretty soon, and as economist Herbert Stein said, “if something cannot go on forever it will stop.”
This is why I did the spreadsheet tool -- I originally created it in ~2017 to project MEABF going bankrupt, specifically, but then allowed projecting any of the plans in the Public Plans database.
MEABF was projected, back then, to run completely out of assets by 2024. That was assuming they didn't increase contributions, and of course they had to increase the contributions by huge amounts since then.
But they can't keep up those contribution levels. Johnson is having a hell of a time with his budget wishes. And that's just MEABF being a problem -- the teachers plan is even bigger, and while it doesn't promise to run out of $$ any time soon, its contribution needs are bankrupting the city rapidly.
I left Illinois a number of years ago. When does this "game of musical chairs" actually come to a head? Will it be like the film, Margin Call ? Chicago can go bankrupt if the State of IL authorizes it. The State of IL can't go bankrupt so it will have to reduce benefits as the pension debts can't be covered by raising tax rates, the Laffer Curve goes into effect.
I see your point … when a plan is about to completely run out of money it’s not worth arguing about what the real funded status is. Though if they had been working with real numbers all along maybe it doesn’t get to this? I don’t know…
If you are familiar w/ the quote from Adam Savage (from Mythbusters): “I reject your reality and substitute my own”
It doesn't matter how many "real numbers" we sent them. Even now, with the abysmal funded ratios, they're trying to figure out tricks to avoid having to put in higher contributions. They will always fall back on the "magic" of "the money will appear".
That's Chicago, at least. Forget about the pensions, they have been involved in so many dodgy finance practices, the only thing that stops them is the credit cards being taken away. The bond buyers who are involved in the scoop & toss figure they won't be left with the hot potato. The teachers unions may have finally made an ask too big... but we'll see.
I saw a piece from Eric Allie thinking that New Jersey is worse off than Chicago, and maybe it is, but I don't think that's the case. Nobody is under the delusion that anybody likes NJ so much they'll get bailed out.