Question

Assume you are Lori Lightfoot, Mayor-Elect of Chicago. One of the city's major problems is the extreme under-funding of its pension plans. Based on information from your book and from any on-line source, how would you approach the problem if you were Mayor Lightfoot?

Answer 1

There can be various steps I as a Mayor Elect will/can take, Under funding can be reduced either by decreasing pension plan liablities or by increasing their assets.

1. Offering less generous pay packages to new upcoming employees asking them to contribute more in return as them to accept less favourable benefit formula, shift partly yo defined contribution plans or ask more years before benefits get vested. This will affect both past and current under funding.

2. Will approach government to increase pumping of its funds to fund the corpus. Whether it by rasing taxes or local fees.

3. Will plan to invest pension fund corpus in riskier assets like equity in order to fetch riskier but higher than debt. Portfolio mgmt can be resorted in order to find such asset mix to kill the fear of downward spiral of returns.

Thanks let me know in case of doubts.