Chicago Teachers' Pension Fund needs revenue reform before benefit reform

CHICAGO, April 7, 2014 /PRNewswire/ -- Last week, Chicago Mayor Rahm Emanuel proposed a plan that addresses the unfunded pension liability for laborers and municipal employees. In response, Chicago Teachers' Pension Fund (CTPF) Executive Director Kevin B. Huber said the following:

"While this plan doesn't address CTPF, we know that the mayor will soon consider ways to cut our unfunded liability.

A cornerstone of the mayor's current plan is an actuarially based funding schedule that would bring the funding levels of pensions for municipal employees and laborers up to 90 percent by 2055.

It's important to note that CTPF already has an actuarially based funding schedule in place. Our plan, which was passed by the Illinois legislature in 1995 and negatively modified in 2010, requires CTPF to be 90 percent funded by 2059.

We have a plan. What we lacked over the past two decades was the revenue to make the plan work.

There are, however, some basic revenue reforms that could help alleviate our funding crisis without hurting taxpayers, teachers or retirees. 

First, if the Chicago Board of Education made monthly – instead of annual – contributions, Chicago's taxpayers would save about $29 million per year. This is the equivalent of asking teachers to increase their pension contribution to 10 percent from the current 9 percent.

Second, the General Assembly must restore CTPF's dedicated tax levy. By allowing CTPF to resume collecting funds directly from Chicago taxpayers, it prevents the board (or anyone else) from ever again diverting pension monies to other uses.

Third, the board should refinance its unfunded liability. This debt currently accrues interest at 7.75 percent per year, compounded.  Refinancing the debt to 6 percent could save Chicagoans tens of millions of dollars in interest payments.

Finally, the state of Illinois needs to treat Chicago teachers and taxpayers fairly by sharing more equitably those teacher pension-related tax dollars it collects from all Illinois taxpayers. 

In fiscal year 2014, for example, the state of Illinois allocated $3.5 billion to fund the Teachers' Retirement System and $11.9 million for CTPF. The state pays the employer cost for pensions for all non-Chicago teachers and should consider doing the same for Chicago.  More equitable state funding should be part of any revenue reform solution.

Each of these revenue reforms, combined with long-promised equitable state funding, would help ensure that our fund reaches its goal to be 90 percent funded by 2059.

Our teachers, who do not contribute to Social Security, depend on their pensions for financial security in retirement. We have a funding plan in place – but without revenue to support the plan, it means little. Revenue reform must come before benefit reform for Chicago's teachers."

ABOUT CTPF
Established by the Illinois state legislature in 1895, the Chicago Teachers' Pension Fund manages members' assets and administers benefits. The $9.7 billion pension fund serves approximately 63,000 active and retired educators, and provides pension and health insurance benefits to more than 27,000 beneficiaries.

SOURCE Chicago Teachers' Pension Fund (CTPF)