Posted on 05/22/2017 8:40:22 PM PDT by Attention Surplus Disorder
The Chicago Teachers' Pension Fund (CTPF) paid out $1.5 billion last fiscal year, mostly on benefits to retirees.
But it only earned $7.8 million on its investments, according to a filing it made with the Illinois Department of Insurance.
The Chicago Teachers' Pension fund operates like a Ponzi Scheme, but it is allowed to do so because the fund is taxpayer-backed. Bernie Madoff's private Ponzi scheme cost investors $18 billion; he received 150 years in prison. The Chicago Teachers' Pension fund operates like a Ponzi Scheme, but it is allowed to do so because the fund is taxpayer-backed. Bernie Madoff's private Ponzi scheme cost investors $18 billion; he received 150 years in prison. | Wikipedia In addition, it cost CTPF $35.8 million in investment expenses to earn that $7.8 million, according to the filing, meaning it actually lost $28 million between July 1, 2015 and June 30, 2016.
Years like 2016 elucidate how the fund, which is supposed to pay for the current retirements of some 28,000 former CPS teachers and administrators as well as provide future benefits to another 29,000 active ones, is running out of money, and time.
At $10.1 billion, CTPF is less than half the size actuaries say it needs to be to earn enough investment returns to pay its obligations.
Because it isn't, Chicago taxpayers and current CPS employees have been propping up the fund. Their annual contributions aren't invested but, rather, used to pay expenses and current beneficiaries.
This fact isn't expressly admitted by CTPF. But so long as the fund remains undercapitalized, it remains a fundamental reality.
Such a scheme would be illegal in the private sector. But among public employee pensions, especially in Chicago, its commonplace and tolerated. For now.
$16 billion short
A Local Government Information Services (LGIS) analysis of CTPF's investment performance and spending found that over the past decade, it paid out $7 billion more than its investments earned.
Between 2007 and 2016, the fund earned $5.1 billion while it spent $12.1 billion.
The fund's official asset base decreased by only $1 billion-- from $11.1 billion to $10.1 billion-- thanks to contributions by active CPS employees and Chicago property taxpayers on the CPS employees' behalf.
They ponied up another $5.55 billion, money CPS employees were led to believe was being invested for their own retirements. In truth, its being used to pay benefits for teachers who retired 10 or 20 years ago.
Left to exist on its own investment returns, like a private fund would, the Chicago Teachers' Pension Fund would be less than half the size it claims to be today-- just $4.1 billion-- LGIS found. That's short $16 billion, compared with the state's actuarial analysis.
Three more years like 2016, and CTPF at its true size would be more than just insolvent. It would be completely out of cash.
Property taxes: the trump card
City of Chicago property taxpayers have proved CTPF's reliable backstop, paying $3.7 billion toward Chicago teacher pensions since 2007, or an average of $310 annually per Chicago household.
That number is trending upward, and quickly.
The last three years, CTPF has received nearly double-- $587 annually per Chicago household, just for teacher pensions. To be sure, over the past three years, taxpayers have made record contributions-- between $600 and $700 million per year.
But it hasn't made a dent.
CTPF's overall liability grew 38 percent from 2007 to 2016, as higher paid teachers retired and active ones earned higher and higher salaries. The fund owed $14.7 billion in 2007; it owes $20.3 billion today.
Annual payouts to beneficiaries have risen 61 percent since 2007, from $906 million to $1.46 billion. The average CPS teacher salary has risen, too, by 58 percent, from $59,458 to $94,064.
At today's rate of beneficiary growth, the CTPF stands to shell out $8.6 billion to retirees over the next five years, or 85 percent of its current asset base.
Investment returns won't be close to enough to pay the bill.
The past five years, CTPF has earned $3.2 billion. The five years before that, it earned $1.9 billion.
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Chicago Teachers Pension Fund liabilities are rising
Teacher compensation and retiree benefits are growing, as the number of active CPS teachers falls and the number of CPS retirees rises.
# Teachers Avg. CPS Teacher Comp* # Retirees Avg. Retiree Benefit 2016 29,243 $94,064 28,398 $51,546
2015 29,706 $96,420 28,114 $50,601
2014 30,654 $91,351 27,722 $50,130
2013 30,969 $76,026 27,440 $48,848
2012 30,366 $76,466 25,926 $47,544
2011 30,133 $76,286 25,199 $46,288
2010 33,983 $72,498 24,601 $44,766
2009 31,455 $71,825 24,218 $43,280
2008 32,089 $66,809 23,920 $41,838
2007 32,968 $61,634 23,623 $38,372
Source: Illinois Department of Insurance
*Teacher Comp includes taxpayer-funded pension contribution but not health care benefits. Numbers are not indexed for inflation.
Property taxpayers and teachers prop up the Chicago Teachers' Pension Fund.
The fund cannot pay for teacher retirements on its investment returns alone. So it funds them with property taxes and contributions from CPS teachers. How much have they contributed to the fund over the past decade?
Property taxpayers CPS Teachers Total 2016 $700,700,000 $191,882,430 $892,582,430
2015 $708,667,000 $191,233,298 $899,900,298
2014 $650,416,141 $187,846,065 $838,262,206
2013 $207,654,000 $188,356,294 $396,010,294
2012 $203,729,011 $187,141,384 $390,870,395
2011 $208,589,994 $185,882,636 $394,472,630
2010 $355,759,950 $194,621,551 $550,381,501
2009 $263,069,327 $176,176,975 $439,246,302
2008 $229,270,412 $172,504,804 $401,775,216
2007 $168,761,750 $179,017,663 $347,779,413
TOTALS $3,696,617,585 $1,854,663,100 $5,551,280,685
Source: Illinois Department of Insurance
How much would the Chicago Teachers' Pension Fund have left if operated as an actual pension fund?
Since 2007, Chicago's Teacher's Pension Fund has earned $5.1 billion over the past ten years, while paying out $12.1 billion. How much would the fund have left if it weren't subsidized by active CPS employees and property taxpayers?
Begin Assets Invest Return Expenses Ending Assets
2007 $11,090,370,261 $1,909,439,876 $906,472,176 $12,093,337,961
2008 $12,093,337,961 -$737,538,769 $1,000,770,310 $10,355,028,882
2009 $10,355,028,882 -$2,463,906,744 $1,048,155,262 $6,842,966,876
2010 $6,842,966,876 $1,107,573,754 $1,101,288,633 $6,849,251,997
2011 $6,849,251,997 $2,123,292,641 $1,166,400,567 $7,806,144,071
2012 $7,806,144,071 -$38,083,067 $1,232,635,521 $6,535,425,483
2013 $6,535,425,483 $1,174,582,824 $1,340,401,283 $6,369,607,024
2014 $6,369,607,024 $1,685,134,974 $1,389,710,588 $6,665,031,410
2015 $6,665,031,410 $381,740,298 $1,422,589,121 $5,624,182,587
2016 $5,624,182,587 -$27,987,163 $1,463,798,486 $4,132,396,938
TOTALS $5,114,248,624 $12,072,221,947
Source: Illinois Department of Insurance
Paid out $1.5 billion? I don’t buy it.
It sounded high to me as well, I am just copying & pasting the article as found. Nevertheless, 50,000 retired teachers @ $30K a year is $1.5 billion.
Funny how the government can change the “rules” on private investment into 401k plans.
Defund these ponzi pension funds that promise 90% of annual income for life.
Abolish public schools and this will be solved; no more property tax, no more property confiscation by the state. You get what you pay for—except from the state.
Bankruptcy!
Its good - and its necessary. Pray it comes soon.
I wonder how many high schoolers actually graduated?
my solution to pensions in this country....
stop offering defined pensions immediately...for all...military included...
offer 401's and then ONLY pay out what govt contributed when the recipient reaches age 60
if someone wants to retire on what they saved in their 401 k, let them..when they're 59 and 1/2 like everybody else.....
offering defined pensions was a mistake from the start...like Medicare and SS, nobody things about the long term consequences of such grandiose ideas....
the younger people are always the ones to suffer...
$1.5B divided by 28,000 is about $53,500 per retiree.
Not, as the libs like to say, sustainable.
military included...
####
That is fine as long as you outlaw any future military drafts and allow people to quit the military at anytime for any reason when something better cones along - like a company with a better 401k plan.
It ain’t a job like a toll taker or teacher.
How can any organization legitimately expend $35.8 million in “investment expenses” to make only $7.8 million on its money? Sounds to me like some investment companies have gotten into some real sweetheart deals with the fund’s managers.
A better, though less valuable question might be, how much do they pay the accounting guy/gal to check those investment results?
Sweetheart deals? Chicago? Surely you jest!
This is fraud. The teachers don’t put in much to their retirement. And the calculations for their benefit expand their benefit far above what they should get under a normal pension. The avg. benefit is $50,000. But that includes teachers who only worked 7 years. The avg. pension for those who retire with a full pension is well above $100,000. And it grows every year. They get a 3% raise every year of retirement. These greedy bastards will take down the state and the city as well as the schools. All three have the same issue, ridiculously over generous pension plans that pay out far more than the government employee actually made while they were working.
Just wait a few years. There is nothing to be done in Illinois. Math will collapse the state in a few years. It won’t matter what they try to do. Its like a fly stuck in a spider web. Any sign of struggle just makes it worse.
Exactly.
You would almost certainly have to resort to a draft if pensions were changed. I'm one of those who made that choice; I'm a Reserve "Lifer." Call me a mercenary, but I went active for Desert Storm without a complaint. One of the things I was tasked to do was go to the Navy sites where we sent Naval Air Reservists. Without exception, and at all levels (enlisted and officer & I've been both) they were judged as "outstanding." I was so proud of them.
Part of the recruiting effort for both active and reserve was the retirement benefits. Change that, and you may wind up with a draft; and I don't think the nation wants to go there!
So only 7.8 million with 10 billion capital! That is only ~0.078% yield - almost nothing so even the money they have is badly managed. For comparison the Dow Jones Industrial Average adjusted for dividend reinvestment returned 16.47% in 2016.
stop offering defined pensions immediately
You are speaking of Defined benefit vs defined contribution. There is a huge difference between the two. One is sustainable the other is, in continual good times, also potentially sustainable depending on the size of the benefit offered. I would say one answer would be no defined benefit plans ever for public service employees. That would be government workers. Military excluded. Private companies can offer the plans that work for them but pitting the taxpayers against their own government employees is guaranteed to cause problems as we saw in Wisconsin a few years back.
Pray it comes soon.
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