Pension Mistakes

From the editorial page of the Chicago Tribune –

Pension mistakes

Illinois Senate President John Cullerton’s “How to save Chicago teachers’ pensions” (Commentary, Feb. 10) noted with alarm the $613 million pension obligation Chicago Public Schools owes to the 63,000 members of the Chicago Teachers’ Pension Fund. Cullerton correctly noted that this obligation — due in June — is $417 million more than last year’s payment. What the senator failed to note, however, is that this balloon payment is a direct consequence of legislation he sponsored that allowed CPS to take a $1.2 billion “pension holiday” and skip payments for three years.

At the time Senate Bill 1946 was passed four years ago, the stock market was in full recovery. Despite contributors’ pleas that CPS pay its bills, the Illinois legislature overwhelmingly agreed to the “holiday.” This $1.2 billion “relief” to CPS has proved, not surprisingly, disastrous to the fiscal health of the CTPF.

Our pension fund collects revenue, invests funds and pays benefits. We operate an efficient system that can deliver retirement income to a group of employees at nearly half the cost of a defined contribution plan. A critical element of our operation is that we receive revenue to invest.

The 2010 legislation that denied CTPF $400 million annually in fiscal years 2011, 2012 and 2013 was particularly devastating because we missed out on the opportunity to invest $1.2 billion during a period when the fund achieved a compound annual growth rate of 12.45 percent. Had we received our full payment during that period, our fund would have generated an additional $277 million — resources that would have lessened CPS pension costs for this year and each of the next 40 years.

Pension funds cannot predict when markets will rise or fall, and we must make steady and reliable investments, through good times and bad, to generate solid returns and stable retirements for members. Our strategy works, and we can demonstrate this with an average rate of return of 8.86 percent on our investments over the past 35 years.

Historically, however, when it has come to pension funding, our legislature and the School Board of Chicago have inexplicably acted on the apparent assumption that good times would never end. From 1996-2005, CPS chose not to invest a single dollar into the pension fund, and the Illinois legislature stood by and allowed it to happen. This period cost our fund and our members an additional $2 billion.

We cannot undo the inexcusable mistakes of the past, but we can and must see that they don’t recur. Fixing our fund begins with a guaranteed source of revenue.

— Jay C. Rehak, president, Chicago Teachers’ Pension Fund Board of Trustees, English teacher, Whitney M. Young Magnet High School