Swansea’s pension economics lesson

Swansea residents recently got an involuntary lesson in how the State of Illinois mismanaged its way into a $111 billion pension deficit, or more specifically, how the all-knowing financial wizards of Springfield have regulated local government pensions into a no-win situation.

The village’s newsletter noted that their firefighters’ pension fund cost went from $71,000 last year to $208,325 next year. They only have two full-time firefighters.

It gets worse: An actuary they hired found that state investment rules and the poor markets pushed the firefighter pension fund from being 90 percent funded to only 48 percent funded. In real dollars, they would need to dump just more than $1 million into the fund.

How did things get so out of whack?

First, Swansea is small enough that the state only allows them to invest 10 percent in the market with the remaining 90 in fixed-interest certificates of deposit earning 1 percent of less.

Second, the state projection that investments would return 5 percent was off. The actuary said that guess should be cut in half, but village leaders said investments have been returning even less. Refer to the first point as to why they can’t do anything about that lousy return on investment.

Those same factors are at play with the Swansea Police pension, which is a much larger financial obligation that took $758,913 in property taxes this year. The village contributed significantly more than the state said they needed to during the past few years, yet the state laws governing the funds has them in a $5 million hole that if filled would yawn before them again in two years.

“Perhaps the greatest challenge is that the Village has no say in the allowed age of retirement, the employee contribution amount, the amount of pensions, or other related pension benefits. The State sets the rules and municipalities simply write the checks,” the village newsletter reads.

You know Swansea is not the only municipality facing this scramble to keep pension funds solvent. They consistently contributed more than the state recommended, which is certainly more than many communities can say and definitely more than our state leaders have done for decades with their own pension obligations.

They wrap up with a call for local pensions to be reformed at the same time that state employee pension rules are reformed.

Yes, please.

This story was originally published August 3, 2016 at 7:00 PM with the headline "Swansea’s pension economics lesson."