Drop-Dead Date for City Pension Plans

Defined Benefit plans covering city employees in Detroit, Chicago,  and Philadelphia are on schedule to go broke within this decade.

Using hard numbers from available valuation reports on 25 plans in 17 of the largest US cities and consistent with the methodology used in our previous study of state plans we conservatively calculate a funded ratio for these plans of 64.46% with 9.63% of assets being paid out annually.

Among the highlights:

Philadelphia is paying out over 20% of it’s money annually forcing  contributions to rise near that level to put off projected bankruptcy until 2018.

New York City’s plans go bankrupt in 2023.

Plans in El Paso, San Antonio, Dallas Police & Fire and, surprisingly,  Washington, DC are adequately funded, for now.

Chicago plans, across the board, will run out of money by 2019.

List of plans by city-size and bankruptcy year.

Underlying data.

Links to the Valuation Reports.

17 responses to this post.

  1. Posted by Chris on November 18, 2010 at 6:41 pm

    Since your assumptions are weak and biased at best, your conclusions are invalid.


    • Agreed as to the determination of the funded ratio. I was looking to replicate
      New Jersey’s liability numbers from their official valuation as a benchmark to apply
      to all other plans for comparison purposes. I suspect the real funded ratio for these
      plans as a whole is 50%, if that.

      As to the assumptions for the drop-dead date, it can be open to debate but I find it
      reasonable that benefit outlays increase 10% taking COLAs and demographics into account,
      that contributions increase only 5% taking into account what’s possible politically,
      and 4% as a long-term projection for asset growth because of the liquidity pressures.


      • Posted by Muni-man on November 19, 2010 at 12:05 pm

        JB, below is a link for NYC’s CAFR for FY ending 6/30/09.
        The city contributions are much higher than what appears on your spreadsheet (just under $7.3B vs. 2.15B in your s.s.). I’m also certain that the total pension payouts are much, much higher than the $3.25B you listed. Just curious, did you take all 5 plans into account or just a couple? The actual city contribution data for all 5 plans appears on page 107 of the CAFR. The Mayor announced $1B in staff cutbacks yesterday with more cuts to come and cited escalating pension costs as a major contributing factor for the cuts. It’s likely the city coughed up ~$8.5B for pensions for FY 2010, over $1B more than FY2009. The 2010 budget was $63B so pensions are consuming 13.5% of the total budget and growing. Thanks.



  2. Posted by sad4thegovtworkers on November 18, 2010 at 7:29 pm

    one must wonder about the cluelessness of those working in the govt and the quality of services we get from them if this is how they are all reacting to the dire warnings. I for one say to drop this subject for the remainder of the decade. Just have the govt workers or their union agents agree in writing that as long as anything doenst change going forward, they won’t do any future work actions IF just by chance the pensions do become insolvent. They ignored the warning at their own risk; and we won’t say “we told you so” in 5-10 years. Agreed?


  3. […] John Bury has an analysis of when city pension plans are scheduled to run out of assets. Philadelphia, Chicago, and Detroit […]


  4. Posted by Muni-man on November 19, 2010 at 3:00 pm

    John, I see what happened. The $2.15B is only for one plan (NYCERS – Sanitation, Transit, etc.). If you add in TRS, BERS, POLICE and FIRE (page 107) the total city contribution equals $7.284B. You can see the ridiculous city-to-employee ratio though in your example is $2.15B (city) vs. $382M (employee) or a ratio of $5.62-to-$1. For teachers, cops, fire the ratio is much higher per the NY Post article. Please correct me if I’m wrong on any of this.


    You and I know both that’s the real problem that the pols won’t discuss – (1) the plans are prohibitively expensive (2) which is why most are way underfunded and (3) that’s why they’re all gonna go under unless the unions make massive concessions on reducing benefit payouts.


    • I see it now. From the introduction to the report: NYCERS membership is “available to all New York City employees who are not eligible to participate in the New York City Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, or the New York City Board of Education Retirement System.”

      I’ll look for those actuarial reports and next blog will be totaling all the NYC plans I can find.


      • Posted by Muni-man on November 19, 2010 at 5:37 pm

        JB, using the 2008 retiree numbers on page 97 of the CAFR which totals 275,139 and the average pensions in the NY Post article I came up with total NYC pension payments of $10.252B. I used an estimate of $35,000 for each of the 13,006 BERS (Bored of Ed.) types since it wasn’t in the article. Pretty toasty number. The article says the overall funding ratio is $8.60-to-$1, so my math says that if the city coughed up $7.284B, then the city workers kicked in just $846.4M or an average of just under $3,100 each. Pension payouts of $10.25B for current employee contributions of $846M (a totally lopsided ratio of more than 12-to-1). What would a sane ratio here be? Most cops/fire are under the old Tier 1 and contributed nothing during their careers to their pensions so it’s pure profit for them.

        Yeah, the city’s gonna continue this pension boogaloo alright – right off the cliff.


  5. Posted by Muni-man on November 19, 2010 at 6:39 pm

    I overstated the contribution per employee. I used the retiree number instead of the active employee number of 365,739. Dividing that into total employee contributions of $846.4M = $2,314/employee, not $3,076.


  6. Posted by Algernon Moncrief on November 19, 2010 at 8:53 pm


    What do the Colorado Legislature and Bernie Madoff have in common? Both stole retirement benefits that were earned over many decades.

    We have 80-year old widows in Colorado, who worked hard for the State for thirty years, who trusted the State and made their pension contributions like clockwork for decades, only to see their contracted retirement incomes stolen by the State. This money was taken out of their pockets because the State failed to make pension contributions as recommended by their own actuaries, to the tune of $2.7 billion in the last seven years. If the state had responsibly followed the recommendations of its actuaries, the PERA trust funds would now be more than 90 percent funded. The Colorado pension shortfall is primarily a result of legislative action over the last decade, Bill Owens, et al, in 2000 cut contributions and allowed the purchase of cheap service credit, and now the Legislature wants retirees to bear the cost of legislative ineptitude. In testimony to the Legislature even the proponents of the reform bill acknowledged this historic under-funding of the pension. PERA claims that the pension fund was unsustainable without their actions, because the funded ratio of the pension stands at 68 percent. However, the funded ratio of the pension was in the low 50 percent range in the 1970s, and the pension still exists. If a funded ratio of 68 percent this year is unsustainable, how has the pension been sustained since the 1970s when the funded ratio was in the 50s? Not much of a rationale for breaking retiree contracts.

    If you find yourself short on funds, you rearrange your spending priorities, or raise additional revenue, YOU DON’T BREAK CONTRACTS! Why would the Colorado Legislature choose to break pension contracts before breaking other contracts, such as construction contracts? How can a state that is in default, that breaks contracts, maintain its credit rating?

    The fact that what Colorado did to public sector employees in this year’s pension reform bill (SB1) cannot be done to private sector employee pensions under I.R.C. Section 411(d)(6), says quite a lot about the moral underpinnings of SB1. This federal “anti-cutback rule” for private sector DB plans permits changes to the plans only if the changes operate on a prospective basis.

    Colorado PERA’s actions make it clear that the time has come for the inclusion of public defined benefit plans under all Internal Revenue Code Qualified Plan requirements. It is now obvious that allowing the states to regulate public defined benefit plans does not afford equal protection to state and local government employees.

    PERA has put it in writing in pension plan materials over the years, that the COLA “is guaranteed”. Members purchasing service credit gave PERA thousands of dollars based on these materials. Money that they could have left in their 401Ks. PERA officials now claim that the members cannot rely on their pension plan documents regarding their defined benefits. However, Goldman Sachs recently paid a half billion dollar settlement to the SEC based on promises made in plan documents. Apparently, some judges believe that plan documents can set forth contractual terms. In any event, the contractual pension language is set forth clearly in Colorado law.

    Colorado’s retiree COLA (and those of 36 other states) are “automatic COLAs” as opposed to “ad hoc COLAs” (which exist in about a dozen states and can be periodically altered.) Colorado’s COLA of 3.5 percent is guaranteed in Colorado law in an identical fashion to the base retirement benefit itself. So, the PERA retiree’s claims are based on both statutory language and plan documents. This 3.5 percent COLA won’t look so hot in the coming years if inflation spikes.

    The Colorado pension reform bill’s (SB1) proponents should accept that states cannot legislate away a debt for work that was completed in the past. What the state is attempting is a claw back of deferred pay. The bill’s sponsors should accept that states cannot avoid their contractual obligations simply because they prefer to spend resources on alternative public services or obligations.

    Some pension reform advocates argue that public sector pensions should be held to the same standards as private sector pensions. My response to that is “I agree wholeheartedly!” Under the federal Internal Revenue Code reducing accrued pension benefits for private pensions is illegal. If the public sector PERA pension were covered under this I.R.C. law and held to the same standards as private pensions, then last February’s theft of accrued benefits by the Colorado Legislature would not have been attempted. Essentially, federal law provides higher protection to private pensions than it does to public sector pensions. Public pension members are forced to appeal to the courts to prevent the theft of their benefits. (Happening.)

    Members of the Legislature pointed out many times, to no avail, that the so called “pension reform bill” was a violation of contracts to which the State was a party. Here are some examples (on tape from the floor debate):

    Rep. Lambert: “I have heard from my constituents, as many of you have, that this proposal will breach retiree’s contracts.”
    Rep. Swalm: “We’re breaking new territory in this state by trying to reduce the COLA. We’re probably going to get a lawsuit out of that. If we cut the 3.5 percent COLA there will be a lawsuit.
    Rep. Gerou said that it is a disservice to the state to rush a bill through when her committee knew that it will go to litigation, and said what we are doing to the retirees is wrong.
    Rep. Delgroso said that it is tough for him to tell people that he is going to break their contract.
    Senator Harvey said “We have made a commitment. We have a contract with current retirees. That is already in place. Reforms should be made for new hires. We do not have that commitment to new hires.
    Senator Spence said “The bill places an unfair burden on retirees.”
    Senator Scheffel said “We are breaching our promises to existing retirees.”
    Senator Lundberg said “This bill is a deal that was cut before this body met.”

    The cavalier abandonment of contractual obligations brings shame to the state of Colorado, aligns Colorado with Third World countries like Bolivia. No person, Republican or Democrat should countenance the breach of contracts. Conservatives support contract law as the foundation of capitalism.

    So, why is the SB1 theft more egregious than the Madoff theft? The Colorado Legislature stole money from retirees who are less well off than Madoff’s pre-qualified hedge fund clients.

    The Madoff victims were taking risks to seek a higher return on their investments, the Colorado PERA victims simply trusted that their contracts would be honored.

    Colorado PERA and the Legislature justified their theft on false premises, citing 2008 market numbers when they knew the markets had recovered approximately 20 percent in 2009. PERA’s General Counsel stated on tape before the 2010 legislative session began that he expected a pension return “north of 15 percent”) for 2009.

    It appears that Colorado PERA used the very resources of PERA members to hire a team of lobbyists (up to a dozen) to take earned benefits from those same members. That’s just insane.

    Many members of the Legislature acted in ignorance. Spoonfed by the lobbyists, they ignored the legal rights of PERA retirees, and swallowed whole without question the assertions of PERA’s CEO and its chief legal counsel. If the members had read any case law, (for example, the state defined benefit pension case law summary by Prof. Amy Monahan at the University of Minnesota School of Law, Google it!), or even the 2004 Colorado AG opinion on pension benefits (retiree benefits are inviolate) they would not have supported the bill.

    PERA’s own General Counsel was quoted in a 2008 Denver Post article as follows: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments, Smith said.”

    Although members of the Colorado PERA Board of Trustees are fiduciaries, charged to act only in the interests of the members and the retirees, they recommended SB1, acting primarily in the interests of PERA employers who were concerned with keeping their contribution rates low.

    Adding insult to injury the Legislature stole more money than it needed. The pension theft bill sought to increase PERA’s funded level to 100 percent, although an 80 percent funded level is considered well-funded among pension experts. You don’t have to pay off your mortgage tomorrow, and PERA doesn’t have to pay off all of its pension obligations tomorrow.

    There were many other options available to address the pension shortfall, options that have been adopted, or are under consideration in dozens of states. See the legal, prospective pension reform that was accomplished in Utah this year.

    Members of the Legislature have taken an oath to uphold the constitution and yet voted to violate the Contract Clause and the Takings Clause. Proponents of the bill refused to see that the retiree COLA (annual benefit increase) is set forth in Colorado law with the same force, status and weight as is the base retirement benefit. Only tortured legal reasoning, and wishful thinking, lead them to believe otherwise.

    The Legislature had the ability to investigate the legality of its actions up front, but chose to act with no legal advice. Throughout the floor and committee debates on SB1 the members displayed an ignorance of, or an intentional disregard for the relevant case law. They failed to conduct the due diligence expected of an elected body. State legislatures across the nation are examining the legal limitations on their actions regarding pension reform, exploring all legal options prior to acting. (PERA claimed to have a legal opinion to justify their actions, but never released it.)

    PERA has been disingenuous by claiming that the reform bill represents “shared sacrifice” among employees, employers, and retirees, by not making it clear that retirees bear most of the burden of their proposed reforms, for many retirees the confiscation of benefits will reach one-quarter of their total retirement benefits received over the rest of their lives. In debate, the bill’s sponsors said that retirees would bear 90 percent of the cost of the reform. In any event, I am not relieved of my contractual obligations just because someone else has better terms in their contract. The entire premise is ludicrous.

    While ignoring its own contractual pension obligations (underfunding of $2.7 billion in the last seven years according to PERA’s own actuaries) the State of Colorado has pumped half a billion dollars into pension obligations that are not its responsibility, those of local governments (Old Fire Police Pension obligations).

    The Legislature made a pact with unions to support the “pension reform bill” (SB1) to protect union jobs. Incredibly, these union members tossed their former members, their retired “brothers” under the bus. From the beginning the plan was “let’s steal the money we need from retirees.”

    Finally, Madoff eventually admitted to his crime, but the Colorado General Assembly is still pretending that their theft of pension benefits is something to be celebrated. They tout it as a “bi-partisan accomplishment. This will be a long-standing embarrassment to and black mark on our state.


    • Posted by Anonymous on November 20, 2010 at 11:32 am

      Still copy/pasting this sad Colorado tale all over the web? Unscrupulous self-dealing between unions and pols to garner asinine, unsustainable benefits in exchange for votes is why your plan and hundreds of others are sucking wind and will go under eventually. Taxpayers aren’t gonna fork over $6, $7, $8+ to the guvmint for every $1 you kicked in, so you can get some ridiculous pension that you paid virtually peanuts for. Public pensioners are gonna find out soon that MARKET FORCES DO ACTUALLY APPLY TO THEM TOO!! That little ‘cocoon-world’ public employees live in is starting to rip apart now. Contractual guarantees notwithstanding, taxpayers aren’t gonna keep funding these plans anymore to the confiscatory tax level needed to keep them afloat. Karma’s catching up with you – get used to it.


  7. […] sixth ever blog post here was on the crisis in defined benefit plan funding for our major cities (updated soon after) with a […]


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