With city budget season around the corner, we're diving into one of Chicago's thorniest financial issues: how to fund pensions for city workers.
DePaul University’s Amanda Kass studies the city’s pensions and broke it down on the City Cast Chicago podcast.
This interview has been edited for length and clarity.
What are the four major pensions? How are they funded?
The city of Chicago is only responsible for four pension systems for police officers, firefighters, municipal employees, and laborers. There’s somewhere between 50,000 and 60,000 current employees. But then there's also retirees that are members of the pension system.
At a basic level, the way that you fund a pension system is through three sources of revenue. A portion of employees’ salaries and money from your employer gets pulled together and invested. A combination of employee and employer contributions and investment returns is supposed to create a pot of money.
What is the crisis?
Chicago's combined four systems are only about 24% funded. A true crisis happens if the pension system completely runs out of assets. We're not in that situation right now.
When pension systems are underfunded, it requires more money from the employer, which is the city of Chicago. That creates a budget crunch for the city's overall finances.
Why should everyday Chicagoans care about pensions?
The pension systems pay for the benefits for city employees. So we should view this as part of the overall cost of city services.
There’s a huge social cost to not funding retirement benefits. There’s a moral question to that: Have we just created an impoverished elderly population in our city?