The number of retirees drawing six-figure pensions from the city of Chicago’s largest public retirement fund is rising fast, a Better Government Association analysis finds.
As of March, there are 222 retirees collecting pensions of at least $100,000 a year from the Chicago Municipal Employees Annuity and Benefit Fund (MEABF), a 61 percent increase from just a year earlier. The group of six-figure pensioners is three times as large as the number four years ago.
The increase is another sign of the mounting costs for a large government pension plan that is only about a third funded. Chicago water customers will face an increased tax to help fund the pensions under a plan pushed by Mayor Rahm Emanuel.
“If you want to get the pension back to decent funding, you need an infusion of money,” George Pennacchi, a professor of finance at the University of Illinois said.
To be sure, the number of pensioners earning annual six-figure payouts is a small percentage of the more than 24,800 retirees currently drawing from the fund. But the rapid increase in this group of high earners illustrates one of the many challenges of meeting the obligations to keep the fund solvent. (There are another 302 pensioners estimated to collect between $90,000 and $99,999 in 2016.)
The MEABF is 32.9 percent funded as of the end of 2015, according to the fund’s annual report. To be considered healthy, a pension fund is, at a minimum, 80 percent funded and ideally 90 percent funded. Pension fund managers for the municipal employees’ retirement system say they aim to reach 90 percent funding by 2057.
The total pension liability (the difference between assets and obligations) of the fund was about $18 billion at the end of 2015.
The total pension payout for 2016 is estimated at $803 million, a six percent increase from 2015.
There were 24,565 pensioners who received $758 million in 2015.
Mayor Emanuel’s proposed plan to bail out the fund will increase taxes on individuals and businesses in 2017. The increase will cost the average Chicago homeowner $50 a year in 2017 and about $225 a year by 2020. The City Council is expected to debate the tax as early as September.
Emanuel’s plan also requires new city hires to increase the amount of their pension contributions by 3 percent, and it raises the age for employees to collect full retirement benefits to 67 from 65. These moves, plus the proposed tax, are part of an effort to save MEABF, which will become insolvent by 2025 if no changes are made to its funding.
The former city employee with the highest annual MEABF pension is Dennis Gannon, an ex-Chicago Streets & Sanitation department employee who is expected to collect $188,969 from the fund in 2016.
Gannon, who is also the former president of the Chicago Federation of Labor, was the subject of a Chicago Tribune/WGN-TV story in 2011 that reported he was able to increase the size of his pension after initially leaving government. Gannon reportedly returned to a city job at a higher rate of pay for only one day before taking a leave of absence, according to the article.
Gannon declined to comment for this story.
The next four highest pensioners for 2016 are Stephen Murray ($142,617), a former city attorney, Kathryn Nelson ($138,187), a former lawyer for Chicago who worked multiple positions, Teresita Sagun ($137,118), a former official overseeing sewers and Edward Bedore ($135,089), former city chief financial officer.