When a Promise is Not a Promise: Chicago-Style Pensions
57 Pages Posted: 10 May 2016
Date Written: May 9, 2016
Cities and states around the country have promised their workers – most often teachers, police officers, and firefighters – retirement benefits, but have in many cases failed to set aside adequate assets to fund those benefits. Several of these plans are predicted to become insolvent within the next decade and innumerable additional plans appear headed for insolvency in the decade that follows. Once insolvency occurs, pension benefits due to retirees will either have to be paid out of the government’s cash on hand, or else will simply not be paid at all. Based on their current financial positions, most jurisdictions appear unable to fund pension benefits while maintaining essential governmental services, unless taxes are raised significantly. This article is the first to examine whether and to what extent retirees will have effective legal recourse to secure the payment of their pensions in the event of retirement plan insolvency – a critical issue not only for pensioners, but also for taxpayers. It concludes that law is unlikely to provide effective recourse for retirees due to the inability of courts to force legislatures to appropriate funds, raise taxes, or incur debt. As a result, even in cities and states with apparently iron-clad legal protection for pension benefits, pension fund insolvency leaves payment of benefits in doubt, with any solution resting solely with the legislative branch. Understanding that solving the public pension problem is a political problem, rather than one that can be easily addressed through law, is critical to moving forward toward a solution that is fair to both employees and taxpayers.
Keywords: public pensions, state and local finance, pension reform
JEL Classification: H72, H75, K31
Suggested Citation: Suggested Citation