Tuesday, January 10, 2017

Coming attractions

Chicago has problems galore, but the largest one might be its parlous financial condition:
The Windy City has become a poster child for financial mismanagement, having suffered a series of ratings downgrades in recent years. Aside from having thin reserves and large volumes of outstanding debt, Chicago is notorious for its underfunded pension plans.

For example, the city’s Municipal Employees' Annuity and Benefit Fund (MEABF) reported $4.7 billion in assets and $14.7 billion of actuarially accrued liabilities at the end of 2015, representing a funded ratio of just 33 percent. The actuarial calculations rely on a controversial practice of discounting future benefits at a rate of 7.5 percent, which is the assumed return on the fund’s portfolio return. If a more conservative assumption was employed, MEABF’s liabilities would be higher and its funded ratio lower.
The State of Illinois is not going to be able to bail Chicago out. Somebody is going to get stuck. Will it be the pensioners of Chicago, or will it be you and I? It's a story that will play out across the country. Be ready.

1 comment:

Bike Bubba said...

Really, the end game is clear. Pensioners are going to get screwed at some point because there simply isn't enough money to pay the bills. The city (cities, states) and the union bosses either ignored or didn't hire the actuaries, and it's the rank and file that will suffer.

The question is not whether it will happen, but rather when. Even if the taxpayers are compelled to "fork over the dough", the end result will be that government pensioners are going to suffer in the same way that pensioners suffered in Weimar Germany, and for more or less the same reasons.