Chicago’s Union Pension Scandal — A $56 Million Scam on the Taxpayers

By Sean P. Redmond
 
As Chicago’s pension system spirals out of control after years of overpromising and underfunding by politicians, a scandal involving union leaders and their powerful political allies underscores the corruption that threatens many states and cities across the country. The Chicago Tribune recently exposed a scheme in which 23 former unionized city employees stand to earn upwards of $56 million in pension benefits because of a sweetheart deal enacted by the Illinois legislature.
 
Since the 1950s, city workers who took leaves of absence to represent their union were allowed to credit their time working for the union toward the calculation of a city pension, which was based on the salary they had earned from the city. Though no one seems to know how it happened, or is willing to take the credit, the state’s pension law was changed in 1991 to allow city employees on leave for the unions to earn a city pension based not on their modest government salary, but on the ones they drew from the unions they represented. As one would expect, the change was slipped into legislation without notice or debate, and now union officials are essentially looting taxpayers who are on the hook for millions of dollars of pension payments that are protected by the Illinois constitution.  
 
The scam is brilliant in its simplicity. By taking leave from their city jobs to work for their unions, union managers get paid a salary that is determined by the union (i.e., with no input from the city, or its elected officials, or taxpayers). When it comes time to retire from the city, the municipal pension plan has to pay benefits based on whatever the salary the union chose to pay the official, even if it far exceeds what he or she earned as an employee of the city. So, for example, a union official who held a $15,000/year job as a cement mixer with the city now collects a pension more than ten times that because his union salary was almost $300,000. As the Chicago Tribune uncovered, nearly two dozen highly-paid union managers, many of whom have not actually worked for the city for decades, stand to collect millions in pension benefits. 
 
The sometimes symbiotic relationship between public sector unions and their political allies can result in corrupt deals, as this Chicago example so amply demonstrates. Without appropriate checks and balances, such corruption is likely to continue. Unfortunately, when state and local governments confront large budget shortfalls and unfunded pension liabilities, taxpayers are the ones forced to pay for it all.
 
UPDATE: On the morning this post was being prepared for publication, the Chicago Tribune reported that one of the union managers implicated in the pension scandal, Thomas Foley of the International Brotherhood of Electrical Workers Local 134, had resigned as business manger of his union. Three years ago, Foley had retired at the age of 54 from a $47,000/year city job from which he had taken a leave of absence in 1995, and his pension of $105,000 was based on his union salary of $160,000, which he continued to draw in addition to the pension until his recent resignation. That arrangement garnered the condemnation of his fellow union members, but it was an alleged misstatement on his pension certification that may ultimately land Foley in hot water. 
 
According to the Tribune, Foley and three other union managers from Local 134 falsely claimed that they were not eligible for a union pension, as is required to qualify for the municipal pension plan. City pension officials discovered last year that these individuals were receiving pension plan contributions from their union for work being covered by the city pension already, but the city declined to pursue the matter after the four officials promised they would forswear their union pension. As if to prove they were intent on gaming the system, within a year the officials’ lawyer tried to move $300,000 of these contributions to a different pension plan so they could collect, but Foley withdrew this request once media reports uncovered it. The Tribune cited sources within the union who have said the U.S. Department of Labor is now investigating these pension payments and plans to conduct an audit. If it does, Foley and his colleagues may end up learning the hard way that there can be too much of a good thing.