CHICAGO — The funded ratios of 10 Chicago-area government pension plans further deteriorated in fiscal 2008, driving their unfunded liabilities up to $18.5 billion from $3.4 billion a decade earlier as steep investment losses exacerbated the already poor position of most of the funds, according to a new report from a local watchdog group.

The funded ratio of the 10 funds stood at 67.2% based on an actuarially smoothed basis in which market losses or gains are smoothed over several years, and 54.4% based on market value, according to the annual report from the Civic Federation of Chicago released yesterday.

The funds had combined ­liabilities of $56.4 million in fiscal 2008 and a value of just $37.9 million.

The average rate of return for funds that budget on a calendar year dropped by 25% after seeing an 8% gain in fiscal 2007, while the funds that run on fiscal years beginning July 1 saw a 4% drop, down from a 17% rate of return a year earlier.

The 2008 losses nearly erased gains in fiscal 2007 when strong investment returns helped lower the unfunded liability level to $17.1 billion from the 2006 level of $18.7 billion.

The report reviews the status of Chicago’s four pension funds as well as those for Cook ­County, the Cook County ­Forest ­Preserve ­District, ­Chicago ­Public Schools teachers, the ­Chicago Transit ­Authority, the Chicago Park District, and the Metropolitan Water ­Reclamation District.

“The Civic Federation is deeply concerned about the unsustainable rate of increase in unfunded liabilities for Chicago-area pension funds over the past 10 years,” said federation president Laurence Msall.

While negative investment returns contributed to the rise, they are not to blame for the growing trend, the federation said. The ratio of active employees to beneficiaries has declined to 1.28 from 1.66 a decade earlier.

Employers contributed their statutorily required payments totaling $964.8 million based on a formula set in Illinois law, but the payments fell short in most cases of the actuarially annual required contribution needed to move the accounts towards a fully funded status. Employees contributed $648.6 million.

The Chicago firefighters fund closed out fiscal 2008 with the lowest funded ratio of 39.8% followed by the police fund at 47.3%, and then the municipal employees fund at 62.9%. Cook County had a 72.6% funded ratio, while the best ratio was held by that of the Chicago laborers’ fund at 86.8%, according to the report.

The teachers fund is at 79.4%, the CTA is at 75.6%, the park district is at 73.8%, the water reclamation district is at 65.4%, and forest preserve at 82.5%.

The federation looked at fiscal 2008 because it’s the most recent audited data available, so some improvement is expected in the fiscal 2009 due to strong, double-digit investment gains being reported in unaudited information supplied by the funds.

The Civic Federation warned, however, that it’s the long-term trend that is more significant than the snapshots provided by one year’s results and they show the need for pension reforms to fend off ­insolvency.

“The status quo of benefit enhancements and insufficient pension contributions must not continue,” Msall said.

The federation is urging the General Assembly to adopt reforms that require all state and local pension funds to report projected funded ratios, unfunded liabilities, ARC payments levels, and projected date of insolvencies.

The report said employer and employee contributions for all funds should be tied to the funding status of each fund; employers and employees should contribute a set proportion of the ARC payment; the minimum retirement age for unreduced benefits should be increased to match Social Security; and the minimum years of service for unreduced benefits should rise. Any new benefits should be ­prohibited unless a fund is more than 90% funded.

Legislation paving the way for the CTA to issue nearly $2 billion in pension-­related bonds in 2008 included some of those reforms. Gov. Pat Quinn has floated shifting to a two-tier system with reduced benefits for new state employees, but ­lawmakers have not embraced that proposal.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.