Chicagoans, Pensioners: Beware A Stock Market Shock

Saturday, March 2, 2019
By Paul Martin

by Ted Dabrowski and John Klingner
Sat, 03/02/2019

Illinois state pensions are getting all the attention as a result of Gov. J.B. Pritzker’s budget speech, but don’t forget Chicago pensions. Believe it or not, they’re in even worse shape than the state pension plans.

Moody’s has just released a warning of sorts to governments with the worst-funded public pension plans, especially those relying on riskier-than-usual strategies to meet their investment targets. In “Market volatility underscores risk of high pension investment return targets,” Moody’s worries that major stock market drops, like the kind seen late last year, will damage what little liquidity those funds have, and eventually, the credit rating of their sponsor governments.

Chicagoans will want to heed Moody’s pension warning. The city is already junk-rated by Moody’s and the situation in the Chicago Public Schools is far more dire: the district is five notches deep into junk territory (see chart in the appendix). Any major stock market drop that creates a cash crunch for the city will send politicians scrambling to plug the pension plans with billions in additional taxpayer dollars.

The city’s pension funding levels have collapsed since 2000 and are now among the nation’s worst. The Chicago fire pension plan has just 20 percent of the funds it needs today to meet its future obligations. The Chicago police fund is not far behind. It is just 24 percent funded. And the city’s municipal pension plan is just 28 percent funded. All of those funds in any private sector setting would be deemed insolvent and bankrupted immediately. The graphic below captures the dramatic collapse of Chicago pensions since 2000.

The Rest…HERE

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