As Chicago’s city treasurer, Stephanie Neely was tasked with helping keep the municipal government on firm financial footing.
Before resigning from the elected position last month, Neely made sure her own financial footing was secure – courtesy of taxpayers.
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Just days before stepping down in November to return to the private sector, Neely opted into a little-known government retirement plan that caters to politicians and allows them to qualify for a public-sector pension with only eight years of government service – the same amount of years Neely had with the city.
The city’s rank-and-file pension plan – which Neely had been part of until switching – requires 10 years of government service before someone becomes pension eligible.
So if Neely hadn’t switched into the politician pension plan, she would not have qualified for a city pension at all, unless someday she returned to city employment.
Now, when she reaches age 60, the 51-year-old Neely will be able to collect a pension worth, initially, $34,716 a year. And taxpayers will carry most of the freight.
Neely was unapologetic about the move, which is totally legal but illustrates not only the often-generous retirement benefits afforded to Illinois’ political class, but how, at least in part, taxpayer-backed pension funds have fallen into such crushing debt.
“I wanted to make sure I had the option to do whatever is in my best interest since I didn’t contribute to Social Security,” Neely said, adding she hasn’t made up her mind whether she indeed will collect the benefit. “I didn’t create the law” allowing this, she said.
The state law allowing this perk apparently has been on the books since the early 1990s. Government workers who stand to draw public pensions typically don’t contribute to Social Security.
Neely was appointed city treasurer by then-Mayor Richard M. Daley in 2006 and, like regular city workers, began contributing 8.5 percent of her paycheck – a total of roughly $90,000 over her eight years in office – to the Municipal Employees’ Annuity and Benefit Fund, or MEABF. That retirement plan, covering everyone from city lawyers to clerical workers, requires 10 years of service to get a pension.
In October, the month Neely announced she was leaving her post, she inquired with MEABF about making a switch to the politician plan – which is a subset of MEABF and caters to elected officials such as aldermen, the treasurer and city clerk. Just eight years of service secures a pension there.
The MEABF responded to Neely in an Oct. 22 letter, stating, “Assuming you joined the Alternative Plan effective November 1, 2014, and you continued to participate in the Alternative Plan thru November 30, 2014, and then were to resign, and you paid the additional 3% to upgrade all of your prior service from December 1, 2006 thru October 31, 2014 to the Alternative Plan, you would be entitled at age 60 to an annuity of about $2,893.00 per month.”
Elected officials in the deluxe pension plan contribute 11.5 percent of their paychecks to participate. Because Neely was in the other plan contributing less, she had to fork over $35,784 to upgrade. So overall, she personally contributed $126,774 since taking office.
With an annual pension payout starting at nearly $35,000, Neely would recover her entire investment within four years of drawing benefits. Then, the pension fund – ultimately taxpayers – would be on the hook.
As city treasurer, Neely sat on the board governing the MEABF, so she knows that its finances already are shaky. The pension plan – funded by employee contributions, taxpayers and investments by pension administrators – currently has a funded ratio of roughly 37 percent and an unfunded liability of more than $8 billion. That means the pension fund is horribly positioned to meet payouts of future and current retirees and their dependents.
So if Neely accepts her pension, it could put added strain on MEABF. But how much is not totally clear.
Earlier this year Mayor Rahm Emanuel got the state to approve changes to the MEABF and the Laborers’ pension funds. Under the changes employee contributions would rise over the next several years and the 3 percent annual cost-of-living adjustment – which helped pension payouts soar, as well as city pension debt – would be slashed. Labor groups recently filed a lawsuit saying the MEABF changes are unconstitutional.
Because of the legal uncertainty, it’s difficult to determine what Neely’s pension might be in the future.
If the courts strike down pension reform and other changes aren’t made, Neely stands to collect more than $900,000 if she lives to age 80. Her annual take at age 80 would also be roughly $62,000.
The reforms, if upheld, are expected to make MEABF 90 percent funded by 2054, according to Elizabeth Langsdorf, a spokeswoman for the city.
If Neely hadn’t rolled into the plan for elected officials she could have taken a refund of her contributions or tried to get another city job down the road to boost her service time to 10 years, according to the pension fund’s law firm, Burke Burns & Pinelli.
Neely’s salary as treasurer was $133,545. Kurt Summers was appointed by Emanuel to fill the remainder of Neely’s term, and that appointment was confirmed by the City Council in November.
Summers said he plans on getting a regular city pension that requires 10 years to vest.
“I am a member of the Municipal Employees’ Annuity & Benefit Fund of Chicago,” Summers said in a written statement. “I intend to earn city pension benefits in the same manner as other municipal employees.”