Two years into his reign as Chicago’s longest-serving mayor, Richard M. Daley took advantage of the state’s convoluted pension system to significantly increase his potential payout while saving $400,000 in contributions, a Tribune/WGN-TV investigation has found.
Daley, a former state senator, made it happen by briefly rejoining the legislative pension plan in 1991. He stayed there just one month before returning to Chicago’s municipal pension fund, but the switches made him eligible for benefits worth 85 percent of his mayoral salary — a better rate than all other city employees receive.
He was just 49 years old at the time. Even if Daley had never won another election, he could have started collecting a public pension at age 55 of $97,750 a year. Without the steps he took, his public pension benefits at that age would have been worth just $20,686.
Of course, Daley went on to win five more elections, remaining ensconced on the fifth floor of City Hall for the next two decades. When he retired last May, his pension benefits had grown to $183,778 a year — about $50,000 more than he would have otherwise received.
Daley declined to be interviewed for this story. His spokeswoman, Jacquelyn Heard, wrote in an email: “I can only assume that his pension was handled in the same manner that anyone’s would be, given the length of service — nearly 40 years — in government.”
The Tribune and WGN-TV already have detailed how Daley used the city’s pension funds for political purposes. In 1991, the same year he secured his much larger pension, Daley’s administration helped aldermen land a dramatic pension increase, providing them with benefits far exceeding those of the average city worker.
The same legislation, rushed through the General Assembly on the last day of the session, also gave private labor leaders public pensions based on their much higher union salaries. Under Daley’s watch, former Chicago Federation of Labor President Dennis Gannon was given a one-day city job that allowed him to collect a public pension based on his $200,000 private union salary.
In 1995, when Daley wanted to fund his school reform package, his administration pushed legislation that allowed it to divert $1.5 billion from the Chicago Teachers’ Pension Fund over a 15-year period.
All the while, Daley blessed benefit increases for city workers without ensuring that payments into the funds would cover the costs, a problem worsened by the economic downturn. Today, the combined unfunded liabilities of Chicago’s four pension funds have grown to nearly $20 billion, which doesn’t include the $6.8 billion shortfall at the teachers fund.
The city’s pension debt is not only damaging Chicago’s financial stability, but also breeding cynicism about government’s ability to provide modest pensions to the people who teach the city’s children, collect the garbage, run into burning buildings and keep the peace.
“When these plans are misused, there is a price that will be paid by taxpayers and other pension plan participants,” wrote Keith Brainard, research director at the National Association of State Retirement Administrators, in an email after hearing of Daley’s deal. “But there’s another cost, possibly far greater than the financial cost. That cost is the erosion of public support for decent retirement benefits for employees of the state and local government.”
Last week Mayor Rahm Emanuel wrote to legislative leaders in Springfield urging them to move forward on meaningful pension reform and outlined four principles the mayor would support, including increasing the retirement age and suspending automatic increases for pension benefits.
“If our pension system is not reformed, Chicago has two roads to take: We can watch each of our funds go bankrupt … and be unable to pay the hardworking people who have paid into their retirement funds, or we will be forced to raise property taxes by $1.4 billion per year — triple what we now pay toward pension costs,” Emanuel wrote to House Speaker Michael Madigan, Senate President John Cullerton and minority leaders Rep. Tom Cross and Sen. Christine Radogno.
In response to questions about a Tribune/WGN-TV story about aldermanic pension perks, Emanuel said Tuesday that broad reforms are needed. “What I don’t want to see is that we … take our eyes off the big change that is required.”
Daley left an indelible mark on the city. But Chicago’s pension crisis threatens to become part of that legacy, shaping the city’s future as much as Millennium Park, the expansions of O’Hare International Airport and McCormick Place, or any of his other achievements as mayor.
His own public pension, meanwhile, will end up costing taxpayers all over the state. Records show that his contributions to the statewide General Assembly pension fund weren’t nearly enough to cover the benefits he receives.
Generous laws
The roundabout way that Daley lined up his pension was made possible by a law sponsored in 1981 by then-state Sen. John D’Arco, D-Chicago, who was convicted on federal bribery charges in 1991 and 1995.
Under the law, members who had left the General Assembly but were participating in other Illinois public pension funds could rejoin the state legislative fund for up to four years as long as they did so by Jan. 1, 1992. At the time, the former members had to have at least eight years of service in the General Assembly Retirement System, known as GARS, to qualify.
Daley spent less than eight years in the state Legislature, having left office with more than two years remaining on his term to run for Cook County state’s attorney in 1980. But that same year, he asked to purchase pension credits covering his unfinished term for about $6,000 in extra contributions, as allowed under Illinois’ generous pension laws. The move gave him a total of 10 years of service.
“I am hereby notifying you that it is my intention to elect to make payment for the remaining 25 months in the term to which I was elected as Illinois State Senator for the 23rd Legislative District,” Daley wrote to the General Assembly Retirement System in November 1980.
He didn’t actually pay for those credits until September 1981, a month after D’Arco’s provision was signed into law, according to state pension records.
Daley spent the next seven years as state’s attorney before winning election in 1989 to complete the term of Mayor Harold Washington, who had died while in office.
In May 1991, a month after Daley was elected to his first full term as mayor, an official from the state retirement system contacted the county and municipal pension plans on his behalf, records show.
“We received an inquiry from Mayor Daley … requesting information as to the cost of transferring service from the County Employees’ Annuity and Benefit Fund of Cook County” to the state legislative pension fund, said one of the letters from Rudy Kink, manager of the General Assembly pension fund at the time.
A month later, Kink wrote Daley to lay out his options. Daley could use D’Arco’s law to rejoin GARS for one month. That, in turn, would allow him to transfer pension credits from the county and city to the legislative pension fund. After that, he could quit GARS and rejoin the municipal plan, which would allow him to base his GARS pension on his city salary.
“After you have contributed one year, or more, in the (municipal pension plan), and reach age 55, you could, thereafter, retire using the final salary as Mayor of Chicago and receive 85 percent, for the rest of your life,” Kink wrote.
Within a month, Daley set the plan in motion. “I am enclosing my election to participate in GARS under Section 2-117.1,” Daley wrote to Kink. “I will also write to you in July revoking my participation under section 2-117.1 effective, August 1, 1991.”
$400,000 saved
The maneuvers not only boosted Daley’s benefits but also saved him hundreds of thousands of dollars in pension contributions, records show.
Normally, when people transfer pension credit into a more lucrative plan, they have to pay in extra money to compensate for the increased benefits, according to pension fund experts interviewed by the Tribune. The terms of the transfer should also be based on their current salary.
Yet under another obscure state law, Daley was able to transfer his years of service with Cook County and the city of Chicago to the state legislative pension fund without making additional contributions.
That’s because the transfer was based on his decade-old legislative salary of $17,500 — even though his pension would be calculated using his mayoral salary, then $115,000.
Had the costs of the transfer been based on Daley’s actual pay, he would have been required to pay in about $540,000, according to a Tribune/WGN-TV analysis based on the state’s formula for pension credit transfers.
Instead, he simply transferred the $128,000 he had accumulated in the city and county funds, saving more than $400,000 in contributions.
Daley eventually retired with a state pension based on his final mayoral salary of $216,210 — 12 times his old legislative pay.
The $183,778 in public pension benefits that Daley now receives is divided up between GARS and the municipal pension fund. Under the state’s convoluted reciprocal system, the GARS plan pays the former mayor $117,629 a year, while the municipal pension plan pays him $66,149.
Yet Daley paid far more in pension contributions to the municipal pension plan than he did to the GARS plan.
After jumping back into the municipal plan from GARS in 1991, Daley contributed 8.5 percent of his pay, the base rate for city workers, for the remainder of his career. That worked out to about $307,000, including interest from investments. The city kicked in another $283,000 with investment returns.
Those amounts were enough to cover the benefits the plan is paying to Daley now. But the former mayor never contributed another penny to GARS, even though that fund pays him more than $117,000 a year.
Today, the GARS pension plan, which taxpayers all over the state pay into, has a funding level of just 21.2 percent and unfunded liabilities of $235 million. Because Daley’s shortfall makes up part of that deficit, state taxpayers will end up footing the bill for the pension of Chicago’s longest-serving mayor.
“There is no public policy justification or taxpayer interest in allowing people once they left the General Assembly to come back and re-enter the General Assembly pension,” said Laurence Msall, president of the nonpartisan Civic Federation. “This is an example of why the state Legislature needs to wake up and stop treating the pension system as if it’s their personal piggy bank.”
WGN-TV producer Marsha Bartel, WGN-TV reporter Mark Suppelsa and Tribune reporters Hal Dardick and Ray Long contributed to this report.
jgrotto@tribune.com
Twitter @JasonGrotto
