CHICAGO — The funded ratios of 11 pension funds that cover Chicago, Cook County and statewide municipal workers in Illinois deteriorated in 2011 and collectively carry $37 billion of unfunded obligations, according to a new report.

The Commission on Government Forecasting and Accountability's "Report on the Financial Condition of the Chicago, Cook County, and Illinois Municipal Retirement Fund Systems" comes as state lawmakers are headed back to work this week to tackle pension reforms.

Their primary focus, however, is on the state's own pension funds which collectively carry $95 billion in unfunded liabilities, rather than on local government reforms.

Benefits and employee and employer contributions for many local funds are set in state statute, and local officials are pushing for state action to help stem the downward spiral of their funds.

"We are waiting on the state," said Cook County Chief Financial Officer Tariq Malhance in a recent Bond Buyer interview about challenges posed to the county's credit by its pension liability.

"A lot of us are concerned — in fact the majority of the country is concerned," he said.

"We'll wait to see how the situation is addressed in Springfield and put together a comprehensive solution among key stakeholders," added Owen Kilmer, a spokesman for county President Toni Preckwinkle. "But we are going to have to wait for Springfield."

The report from the non-partisan legislative commission, which provides independent analysis of state financial matters, offers an overview of the fiscal status for the funds serving Chicago and Cook County employees at the close of 2011 or fiscal 2012. It also included municipal employees covered under the state fund — the Illinois Municipal Retirement Fund.

The combination of dwindling investment returns for many of the funds and pension payments that fall short of the actuarially required contributions needed for many of the funds took their toll.

All but one of the funds experienced a hike in unfunded liabilities and all saw a decline in their funded ratios. Most experienced drops in their investment returns over 2010 earnings. The report noted that "almost all of the systems reviewed had seen headcount reductions during 2010 and 2011" and it underscored earlier warnings that the Chicago laborers' fund and Chicago municipal employees fund will run out of assets in 2031 and 2030 respectively.

The Funds
All four Chicago funds worsened with unfunded liabilities rising by about $2 billion to $16.7 billion.

The Firemen's Annuity and Benefit Fund closed out 2011 with $2.8 billion in unfunded liabilities for a 28.3% funded ratio compared to $2.5 billion and 32.4% in 2010. The figures include healthcare liabilities.

Employees receive a non-compounded COLA of 1.5% or 3% depending on their age. They contribute 9.125% of their salary. Under state legislation, the city's contributions will rise in 2015 to a level designed to reach a 90% funded ratio by 2040. The fund, which assumes an 8% return, saw a negative 2% return on investments in 2011 after a 17.7% gain in 2010.

The Policemen's Annuity and Benefit Fund of Chicago ended 2011 with $6.2 billion of unfunded liabilities and a funded ratio of 35.6%. Its condition deteriorated from $5.65 billion of unfunded obligations and a funded ratio of 39.7% a year earlier. The figures include healthcare liabilities.

The fund, which assumes an 8% return, saw a return of 1% in 2011 compared to 12.7% in 2010. Police receive a non-compounded 1.5% to 3% COLA depending on their age. Employees contribute 9% of their salary and the city must soon adhere under state legislation to a contribution level designed to reach a 90% funded ratio by 2040.

If the city fails to make a payment that meets the formula for the police and firefighters funds, the state can withhold grant funds.

The Laborers' Annuity and Benefit Fund closed out 2011 with $769 million of unfunded obligations for a funded ratio of 64.9%, compared to $542 million of unfunded obligations and a 73.8% funded ratio in 2010. The figures include healthcare liabilities. The fund assumes a rate of return on investments of 8% but saw a negative .3% return in 2011 compared to a 15.5% gain in 2010.

Employee contributions are 8.5% of salary and they receive a 3% compounded COLA in retirement. The city's contributions are based on a formula tied to employee contributions.

The Municipal Employees' Annuity and Benefit Fund of Chicago ended 2011 with $6.9 billion of unfunded obligations for a funded ratio of 44.6% compared to $6 billion and a funded ratio of 49.8% a year earlier.

Retirees see a 3% compounded COLA. Employees contribute 8.5% of their salaries and the city's contribution is based on a percentage of that contribution. The fund assumes an annualized rate of return of 8% but saw just a .6% return in 2011 after a 13.7 % return in 2010.

Chicago, on a web page Mayor Rahm Emanuel's administration set up to promote pension reform, warns that its unfunded liabilities at the end of 2012 will grow to $19 billion. Adding the burden of funding Chicago teachers and Chicago parks' funds to the mix and the figure jumps to $26.8 billion.

Chicago's contributions are set to jump by $550 million in 2015 from $477 million in 2012 because of past state legislation that establishes a funding schedule for the city's fire and police funds. The Chicago teachers' fund payments will rise by $338 million to $534 million in its next budget, due to the expiration of a state approved partial pension payment holiday.

"Our system is broken, and if nothing changes, both taxpayers and the retiring city employees will suffer. We must take action now, to prevent skyrocketing taxes, drastic reductions in city services, or even the bankrupting of our pension system," the city website says. Emanuel has proposed a series of reforms that cut some benefits and raise payments to rein in costs, but state legislative action is needed.

The Public School Teachers' Pension and Retirement Fund of Chicago closed out fiscal 2011 with $6.8 billion of unfunded obligations for a funded ratio of 59.7% compared to $5.4 billion of unfunded obligations in 2010 and a funded ratio of 66.9%.

Retirees receive a 3% compounded COLA. They contribute 9% of their salary. The district beginning in its next fiscal year must contribute an amount based on payroll sufficient to put the plan on course to reach a 90% funded status by the end of fiscal 2059.

The district assumes a return rate of 8% and saw a 24.8 % gain in 2011 and 13.6% gain in 2010.

The Park Employees' Annuity and Benefit Fund of Chicago ended 2011 with $314.4 million of unfunded liabilities, the same amount it had a year earlier, but its funded ratio dropped to 58% from 62.3%.

Retirees receive a 3% non-compounded COLA. Employees contribute 9% of their salaries and the district contributes an amount based on a percentage of the employee contribution. The district assumes a rate of return of 8% and saw a 21% gain in 2011 compared to an 11.3% gain in 2010.

The Chicago Transit Authority Retirement Fund closed out 2011 with $1.14 billion in unfunded liabilities for a funded ratio of 59.2%. Unfunded liabilities rose from $814 million the previous year and the funded ratio fell from 70.1%.

After seeing a 12.6% return on investments in 2010, the fund saw a negative 1% return in 2011. It assumes an annual return of 8.5%. The CTA's healthcare liabilities are not included in the data.

CTA employees contribute 6% of their salary and the CTA contributes 12%. If the funded ratio for the retirement plan is projected to drop below 60% in any year before 2040, employee and employer contributions must be raised by the amount necessary to prevent the drop below 60% by 2040. The rules took effect in 2008 as part of state legislation.

The Cook County Employees' Retirement Fund closed out fiscal 2011 with $5.8 billion of unfunded liabilities for a 57.5% funded ratio. That compares to $5.16 billion and 60.7% in 2010. The data includes healthcare liabilities.

Employees contribute 8.5% and the county's contribution follows a formula tied to employee contributions. Cost of living increases are set at a 3% compounded rate. After a 12.4% investment return in 2010, the fund saw just a 1.2% gain in 2011. It assumes a 7.5% return rate.

The Cook County Forest Preserve Employees' Retirement Fund closed out 2011 with $111 million of unfunded liabilities for a funded ratio of 61.6% compared to $98 million and a funded ratio of 65.2% in 2010. The figures include healthcare liabilities.

Employees contribute 8.5% of their salaries and the employer contribution follows a formula based on the employees' contribution. COLAs are set at a 3% compounded rate. Investments earned a return of 1.1 %, down from a 13.1% return 2010. The fund assumes an annual rate of 7.5%.

The Illinois Municipal Retirement Fund closed out 2011 with $5.25 billion of unfunded liabilities for a funded ratio of 83% compared to $4.87 billion and an 83.3% funded ratio a year earlier.

It saw a 0.5% decline on investments compared to a 13.6% gain in 2010. It assumes a return rate of 7.5%. Employee contributions and COLA benefits vary depending on the subgroup of the fund.

The Metropolitan Water Reclamation District of Greater Chicago Retirement Fund ended 2011 with $1 billion of unfunded liabilities for a funded ratio of 52.2% compared to $885 million of unfunded obligations in 2010 and funded ratio of 56.5%.

Retirees receive a 3% compounded average COLA. Employees currently contribute 9% of their salary but that will rise in increments to 12 % in the coming years until a 90% funded ratio is reached when it will drop to 9%. The district's contribution is set at a percentage of payroll needed to reach the 90% funded ratio by fiscal 2050.

The district's pension fund was the subject of reform legislation adopted by state lawmakers this year. The fund assumes an annual rate of return of 7.75%. It saw a negative .3% return in 2011 after a 15.9% gain in 2010.

The benefits outlined for some of the funds covered by the report represent those for employees hired before 2011. The General Assembly in 2010 adopted reforms that established a two-tier system with reduced benefits for new employees.

Gov. Pat Quinn is pushing lawmakers to deal with reforms that would impact the state government's mammoth unfunded liabilities of $96 billion during a brief lame-duck session of the General Assembly that begins this week. In recent days, legislative leaders have cut the number of special session days and some have speculated that any deal might be put off until the regular legislative session begins later this winter.

Work on local government pension reforms are expected to come only after the state shores up its own system. The strain of the rising pension payments and unfunded obligations have contributed to a rating downgrades dealt to the state, Chicago, and Chicago Public Schools, and interest rate penalties imposed by investors that have ranged from 25 basis points to 200 basis points depending on the credit.

—Caitlin Devitt contributed to this story.

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