Most city workers spend decades in public service to build up modest pensions. But for former labor leader Dennis Gannon, the keys to securing a public pension were one day on the city payroll and some help from the Daley administration.

And his city pension is more than modest. It's the highest of any retired union leader: $158,000. That's roughly five times greater than what the typical retired city worker receives.

In fact, his pension is so high that it exceeds federal limits and required the city pension fund to file special paperwork with the Internal Revenue Service to give it to him.

Gannon's inflated pension is a prime example of how government officials and labor leaders have manipulated city pension funds at the expense of union workers and taxpayers. Like other labor leaders, he was able to take a long leave from a city job to work for a union and then receive a city pension based on a high union salary.

But in a new twist, a Tribune/WGN-TV investigation has found that Gannon is eligible for the lucrative pension deal only because City Hall rehired the former Streets and Sanitation Department worker for a single day in 1994, then granted him an indefinite leave of absence.

Gannon quickly rose to become one of the most powerful labor leaders in the city, speaking on behalf of more than 300 Chicago-area unions as president of the Chicago Federation of Labor.

State law allowed Gannon to retire from the city in 2004, the year he turned 50; since then, he has received about $1 million from his city pension. He stands to collect approximately $5 million during his lifetime, according to an analysis based on the fund's actuarial assumptions.

Until last year, that pension came on top of Gannon's union salary, which had grown to more than $240,000. He now draws the pension while working for a hedge fund, Grosvenor Capital Management, that does work with public pensions, including the Teachers Retirement System of Illinois. The firm also was one of Mayor Rahm Emanuel's largest campaign contributors.

Gannon declined to be interviewed for this story but issued a statement through a spokesman for the Illinois Sports Facilities Authority, where he is a board member.

"I am extremely proud of my many years of service to the city of Chicago and the working men and women of organized labor," Gannon wrote. "I have always followed the pension laws governed by the state of Illinois statute as well as the city of Chicago municipal pension plan."

Terrance Stefanski, who oversees the city's municipal pension fund, confirmed that the city helped Gannon qualify for an inflated pension by hiring him for a day. But he said he has no control over city hiring and must follow the pension laws.

"Once the city rehired him and he went on a leave of absence to work for the union, he was eligible under the law," Stefanski said.

Streets and San officials provided a statement about Gannon's one-day hiring: "This was a personnel matter that happened more than 16 years ago, and at this time we don't have all of the details needed to determine exactly why these decisions were made."

Gannon's inflated city pension is one of at least 23 handed out to union leaders who have retired from the city, records uncovered by the Tribune and WGN-TV show. The joint investigation revealed Wednesday how the legislation that created the pension perk for union leaders found its way in to the state statutes with no transparency or accountability.

Gannon started his climb to the top of organized labor in 1973. He was 19 years old and made $6.95 an hour working for Streets and San as a steamroller engineer, compressing asphalt on city streets.

During the next 17 years, he worked his way into the role of hoisting engineer foreman, overseeing the use of heavy cranes at road construction sites at a salary of about $56,000. He also gravitated toward union politics. By 1990, Gannon had been tapped to become a business agent with Local 150 of the International Union of Operating Engineers.

"It is with mixed emotions that I am requesting a leave of absence from my position as general foreman of hoisting engineers," he wrote to his bosses at Streets and San in December 1990.

Although he was leaving city service, Gannon moved to take advantage of the law that allowed him to stay in the municipal pension fund. In April 1991, records show, Gannon had Local 150's business manager write a letter on his behalf making that request.

Only a few months earlier, on his last day in office, Gov. Jim Thompson had signed into law the pension code changes that would allow Gannon's city pension to be based on his salary as a union official.

Gannon could have stayed on a leave of absence indefinitely because no one from Streets and San filled in an expiration date on the form. Then, on Oct. 12, 1993, he resigned from his city post and received a refund of the contributions he had made to the municipal pension fund, records show.

With that action, Gannon lost his eligibility to land an inflated city pension.

But on June 20, 1994, Streets and San rehired Gannon to his old job. It didn't last long. The very next day, he was granted a leave of absence to work for Local 150, even though records show that Gannon never left his union job in the first place.

That shuffling of a few pages of bureaucratic forms by city officials made Gannon eligible to re-enter the city pension fund, according to records and interviews. And eventually he would.

Six months later, Gannon became the assistant to Chicago Federation of Labor President Don Turner. A year after that, he was elected secretary-treasurer, the No. 2 spot, and his salary grew nearly 60 percent to $126,000.

With his pay increasing at a steady clip, Gannon sought to get back into the municipal pension fund in 1998. To do so, he would need to restore the money he had previously taken out and start making regular contributions again as if he were a city employee. He would also have to cover the contributions that normally come from the city.

Gannon applied to receive union service credits in January 1999. But in the months leading up to his application, questions arose over whether he could repurchase the pension credits he had given up earlier. Once again, he appears to have received help from city government.

On March 6, 1998, Gannon wrote a letter to Mayor Richard Daley's chief financial officer, Walter Knorr, who is now vice president of the University of Illinois System.

Knorr wasn't a trustee of the municipal pension fund. In fact, he played no official role in the fund's operations. Yet Gannon outlined his work history during the previous seven years so that Knorr could assist him in figuring how to get back into the fund.

"Hopefully, these numbers will assist you in calculating the portion of the monies I owe to the pension fund," Gannon's letter says.

Knorr said in an interview that he doesn't recall the episode and that he thinks he simply passed Gannon's request on to officials at the municipal pension fund.

"I have no specific recollection of that particular event," he said. "This was 13 years ago. I probably received a number of requests from all different directions."

The municipal fund's executive director at the time, Thomas Stack, wrote to Knorr in November 1998 to explain that Gannon could rejoin the pension fund "without returning to active city service." That's because Gannon had already been rehired for that one day in 1994.

But even if he hadn't been rehired, there's evidence that lawmakers and City Hall would have helped Gannon anyway. Stack ended his letter to Knorr by writing: "Therefore, it is our opinion that the proposed new legislation is not necessary."

The letter did not describe what that proposed legislation was about or who was backing it. Stack died in 2004. Knorr said he can't recall any such bill.

Under a state law passed in 1997, Gannon was able to retire from the city at age 50 because he had accumulated 30 years of service. The city credited him with 33 years of service even though he spent more than a third of that time working for private labor unions.

His pension was so big that the municipal fund had to ask permission from the IRS to pay it to him, according to Stefanski.

The roughly $130,000 pension Gannon received that first year came on top of his union salary because he went right on working for the federation. Under state law, his pension will grow by 3 percent a year for as long as he lives.

WGN producer Marsha Bartel and reporter Mark Suppelsa contributed.

jgrotto@tribune.com

By Jason Grotto, Tribune reporter
9:00 p.m. CDT, September 21, 2011