Chicago never fails to amaze. Money for nothing.

Law gives huge pension perks to union leaders

In all, 23 expected to collect combined $56 million in their lifetimes

By Jason Grotto, Tribune reporter

September 21, 2011

All it took to give nearly two dozen labor leaders from Chicago a windfall worth millions was a few tweaks to a handful of sentences in the state's lengthy pension code.

The changes became law with no public debate among state legislators and, more importantly, no cost analysis.

Twenty years later, 23 retired union officials from Chicago stand to collect about $56 million from two ailing city pension funds thanks to the changes, a Tribune/WGN-TV investigation found.

Because the law bases the city pensions on the labor leaders' union salaries, they are reaping retirement benefits that far outstrip the modest salaries they made as city employees. On average, their pensions are nearly three times higher than what the typical retired city worker receives.

No one from either the state Legislature or city government will take credit for the law, which passed in 1991, and the process of drafting pension legislation in Springfield is so shrouded in secrecy that there's no way of knowing exactly whom to hold responsible.

The Tribune and WGN-TV found that Senate President John Cullerton was one of only 10 lawmakers on the committee that inserted the changes into a much larger bill. He's also the only one who is still in office.

Cullerton, who declined to be interviewed for this story, denied being involved in the changes and issued a statement that acknowledged the law now looks like a bad idea.

"Municipal pensions should be for the hard-working municipal employees, who typically toil in obscurity, loyally contribute to the pension funds and aren't about to get rich off of their retirements," he said in a prepared statement. "Outliers such as those highlighted by the WGN and Tribune reports should be corrected in order to help restore the system's fiscal and public integrity."

Making changes won't be easy, however. That's because the state constitution says pension benefits cannot be diminished once they are earned.

Pension experts from around the country say they've never heard of such a perk for union leaders. They warn that it not only creates opportunities to scam the system but also robs the city of its ability to control pension costs. The city doesn't set union salaries, the most important ingredient in determining the size of the leaders' pensions.

What's more, none of the labor officials retired in the traditional sense. Even as they collected their inflated city pensions, they held on to their high-paying union jobs. A decade ago, those public pension funds were flush, but they're now in such deep financial trouble that they threaten to burden taxpayers and dues-paying union workers alike.

"At a time when the public is going to be asked to pay higher taxes for fewer services, the revelation that there are benefits being paid for work that doesn't directly relate to official city business is outrageous," said Laurence Msall, president of the Civic Federation, a nonpartisan policy research group.

"It also undermines the hardworking government employees when state statutes are manipulated to benefit a handful of people," he said.

Since the 1950s, city workers who take leaves of absence to work full time for unions have been able to remain in city pension funds if they choose. The time they spend at their union jobs counts toward their city pensions.

But few labor leaders took the deal until the law was changed in 1991 to base those workers' city pensions on their union salaries instead of their old city paychecks, dramatically boosting the amount they could receive.

And every year, those city pensions grow by 3 percent. Records show the top earners are:

•Liberato "Al" Naimoli, president of the Cement Workers Union Local 76. He retired last year from a $15,000-a-year city job that he last held a quarter-century ago. Today, Naimoli receives more than $13,000 a month from the city laborers' pension fund even as he continues to earn nearly $300,000 annually as president of Local 76. His city laborers' pension will pay him about $4 million during his lifetime, according to a Tribune/WGN-TV analysis based on the funds' actuarial assumptions.

•James McNally, vice president of the International Union of Operating Engineers Local 150. He receives nearly $115,000 a year even though at the time he retired, in 2008, he had not worked for the city in more than 13 years. He was only 51 when he started collecting a city pension. By the time he turns 78, he will have received roughly $4 million from the city laborers' fund.

•Dennis Gannon, former president of the Chicago Federation of Labor. In 2004, he began receiving more than $150,000 a year after retiring at age 50 from a $56,000-a-year city job that he had left nearly 13 years earlier. He received his city pension while collecting a salary of about $200,000 from the federation. During his lifetime, the city municipal pension fund will pay him approximately $5 million. Gannon told the Tribune that he was only following the law in filing for a city pension.

Earlier this month, the Tribune and WGN-TV reported that Thomas Villanova, a top labor leader, was receiving a city pension of $108,000 a year even as he earned credits in a second pension through his union for the same time period, in violation of state law. He had given up the credits and faced no penalty.

And last year, a Tribune investigation showed how city and union officials have exploited Chicago's financially damaged pension funds for political reasons and personal gain through a series of legislative maneuvers. The pension gift from government officials to union leaders is a previously hidden example of this pattern.

Blame game

The process of changing pension laws often lacks transparency, and there is virtually no accountability. When problems arise, city pension fund officials blame the Legislature. Legislators blame city officials and labor leaders while they, in turn, blame city pension fund officials.

Not one current or former legislator contacted by the Tribune and WGN-TV will take responsibility for the 1991 perk for labor leaders, and state records don't reveal exactly who made it happen.

Here's what is clear: In April 1990, then-Sen. Emil Jones presented a bill aimed at increasing pension benefits for city employees in the municipal pension fund. Other members of the Senate and the House also added provisions before the bill passed both chambers by the summer.

The bill didn't include the perk for labor leaders at that point, records show. But because the versions passed by the two chambers differed slightly, each chamber appointed five members to a conference committee to iron out the differences.

Although the 10 lawmakers were supposed to reach a compromise on what had passed already, during their meetings more than 100 provisions were added to the bill. The new, much larger bill included the pension deal for labor leaders.

"These provisions incorporated within this bill have been agreed to by the (city) administration and the pension system and the laborers," Jones told his Senate colleagues the day the bill passed in January 1991. "The people in the city of Chicago came together and agreed."

Jones, currently chairman of the Illinois Sports Facilities Authority, declined to be interviewed for this story.

At the time of the change, Cullerton was the House Democratic floor leader, which meant he served as field general for Speaker Michael Madigan, ensuring bills moved efficiently and jibed with the speaker's priorities.

Through a spokesman, Cullerton said he doesn't recall the bill and played no role in drafting the pension giveaway to union leaders. He also said the Legislature's process for passing pension laws is more transparent today than it was in 1991 and that he has directed staff to research the legislation identified by the Tribune and WGN-TV.

"In retrospect, one can see how, year after year, pension funds were used as credit cards by governors and lawmakers to prop up state spending rather than face tough action on either raising revenues, cutting services or both," he wrote.

Changes to Illinois law often begin with something known as a shell bill, which usually alters one word or date in a specific article and section of the code. Shell bills are a type of placeholder that allows lawmakers to make more substantive changes later in the session, often without scrutiny.

Many of the pension provisions inserted in 1991 had corresponding shell bills that previously altered one word or date of the same article, section and paragraph. Among them was a bill that made a minor change to the exact section and paragraph where the union perk would be codified.

That bill was filed by two men who were state senators at the time: Jeremiah Joyce, a close political ally of former Mayor Richard M. Daley's, and John Daley, a brother of the former mayor's and now a Cook County commissioner.

Joyce did not respond to interview requests, and John Daley said he doesn't remember the bill. "I don't recall it at all," Daley said.

Two days after the pension changes passed the Legislature, the city's unions lined up to endorse Mayor Daley in his first re-election campaign. He would go on to serve as mayor for the next 20 years with firm support from organized labor.

Contributions not on pace

To report this story, the Tribune and WGN-TV requested records on every union leader who has applied for the pension perk through the city's municipal pension fund and its laborers' pension fund. The inquiry focused on labor leaders who worked for city government and have retired.

Each year, the 23 labor leaders receive about $1.8 million from the funds. That works out to an average of about $80,000.

Another 13 union officials are accruing benefits in the city funds but have yet to retire, and six more received the deal after taking a union leave from the Chicago Public Schools.

Using assumptions made by the funds' actuaries, the Tribune and WGN-TV calculated the total lifetime benefit of each retiree and total amount their contributions would be worth, assuming an 8 percent return on investment each year.

Of the approximately $56 million the retired labor leaders stand to collect during their lifetimes, roughly half won't be covered by their pension contributions, the analysis found.

With billions of dollars in unfunded pension liabilities, that's a drop in the bucket. But it provides a window into why the funds have deteriorated: Contributions have not kept pace with increasing benefits.

McNally, for example, stands to receive approximately $4 million from his city pension. He received credit for 34 years of city service even though he spent more than a third of that time working for Operating Engineers Local 150. And he was able to retire from the city at 51 through an early retirement incentive aimed at trimming the city's workforce.

In order to receive pension credit for his union work, McNally, who earns about $200,000 a year from his job with the union, had to make contributions as if he'd been working for the city all along.

What's more, he or his union would have to cover the city's portion of his pension contributions in addition to the employee share. In all, McNally contributed less than $200,000 to cover the credit he earned as a labor official, records show.

McNally declined to be interviewed for this story but provided a written statement.

"I had the option to continue making contributions to my (city) pension, which required me to personally pay both my share and the city's share," he wrote. "Making these payments required a very significant financial commitment from me and my family."

However, for six of the 13 years of union service applied to his city pension, McNally didn't have to make contributions for the city's share. Chicago got a pass on making contributions toward the laborers' pension fund between 2000 and 2006, and the same arrangement applied to McNally.

That's one reason the pension fund is in such bad financial shape — and why city taxpayers and current city workers will end up covering a large chunk of McNally's pension.

None of these pension deals could happen without the blessing of city government, which has granted lengthy leaves of absence to union officials. The average leave of absence for city employees who are on a leave to work for a union is nearly eight years. Roughly a third have been on leave for more than 12 years.

No city worker has received a longer leave of absence than Naimoli, who retired last year at age 58 from a $15,000-a-year city job as a cement mixer even though he hadn't held that job in more than 25 years.

Normally, city leaves of absence expire after a set period of time, and employees are required to renew the leaves or lose their jobs. Yet when the commissioner of the city's Department of Streets and Sanitation approved Naimoli's request for a leave in 1986, no expiration date was filled in.

That indefinite leave allowed Naimoli to receive a city pension that is paying him about $157,000 a year even as he collects a $292,000 salary from Local 76.

"Any leave of absence that is granted for more than a year raises questions about whether that position is even necessary for ongoing operations of city government," Msall said. "Current city workers are being asked to take furlough days and receive reductions in compensation. To be granting these extended leaves of absences is a very cruel irony."

Naimoli, who did not return phone messages requesting an interview, is now the highest-paid annuitant in the city laborers' pension fund. The average retired city worker receives about $29,000 a year.