Pension News - FABF

DAN FABRIZIO
receive payments for the full amount of the actuarial required contributions. Unfortunately, since the Fund’s beginning in
1931, according to Mayor Daley’s Commission to Strengthen Chicago Pension Funds, the city of Chicago has failed to pay
the actuarial required contribution. It was found that inadequate contributions by the employer accounted for the entire
defi cit. The shame of it is, the taxpayers are being charged 8% interest on the unfunded defi cit, causing the defi cit to grow
and grow. It is this unfunded defi cit that is the primary cause for the pension crisis.
According to the National Institute on Retirement Security (“NIRS”), pension plans are effi cient in their use of capital.
Historically, earnings on investments have made up the bulk of public pension receipts. Nationally, over the past fi fteen
years, about 68% of pension revenues came from investment earnings, 21% from the employer payments and 11% came
from employee contributions. Another way to explain this is the employer contributes approximately 21 cents for every
dollar of total pension fund receipts. NIRS also found that prefunded plans have the advantage that investment earnings
pay for the bulk of all earned benefi ts paid. This means that taxpayers get a better bang for its tax dollar contribution to
a public pension plan if that fund is well funded. Unfortunately, the Firemen’s Plan was never adequately funded on an
actuarial basis, which will cost taxpayers millions.
What if the Firemen’s pension plan had been properly funded? The Firemen’s pension plan’s long-term investment
performance has consistently ranked as one of the nation’s top tier plans, earning an average compounded return of 9.2%
over the last twenty seven years. These investment earnings are what have kept this pension plan still going all these years.
Think of the savings that could have been earned by the Fund had we been provided with better funding. There would be
no pension crisis.
During our February meeting, a proposal to require the Fund to divest (sell) portfolio holdings was made. Given the Fund’s
successful long term track record as a strong, profi table investor, the idea of selling holdings for a reason other than an
investment reason did not seem to be a prudent policy for the Board to adopt, nor did it seem to be in the best fi nancial
interest of the Fund or the City’s taxpayers to establish such a precedent.
Recently, the state of Illinois has been engaged in ongoing discussions to correct its pension underfunding problem.
Unfortunately, it appears that the city does not want to engage in similar, meaningful discussions. It seems as though the
city would rather have fi refi ghters reduce their benefi ts and pay more. You could never increase your contributions and
reduce benefi ts enough to cover the city obligations to pay off the debt racked up on the “pension credit card.”
The Chicago fi refi ghters are always open to fair negotiations and discussing pension funding solutions. We are not opposed
to shared pain; we have no problem with contributing our fair share, in a constitutional manner, to correct the problem
of underfunding that Mayor Emanuel has inherited. But let us also explore new pension revenue sources such as casino
revenues, a fi nancial transaction surcharge or accessing historically low interest rates from the capital markets before
asking fi refi ghters to pay more or proposing unconstitutional cuts to earned benefi ts.
We as fi refi ghters believe everyone, private and public, should have a right to a fair, secure retirement. We do not believe
the individuals or messengers who are trying to blame the entire problem of underfunding on fi refi ghters as the right way
to resolve this issue.
Fraternally,
Dan Fabrizio
REQUIRED DISCLAIMER
The information set forth herein is believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed
as a representation of the Firemen’s Annuity & Benefi t Fund of Chicago, the Retirement Board (the “Board”) or any member of the Board. The
information and expressions of opinion contained herein are subject to change without notice. All expressions of opinion, whether or not expressly
so stated, are intended merely as such and not as representations of fact. Financial information contained in this newsletter is as of a certain date,
is unaudited and should not be relied on.
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