CHICAGO – Chicago's public safety pension funds reported modest growth in their net liabilities in 2015 compared with the big jump at the city's two other funds.
The police and firefighters' funds added about $600 million to the city's total net pension liabilities, and added only modestly to the city's overall unfunded liabilities.
The actuarial valuations for both funds were performed by Gabriel, Roeder, Smith & Co.
While the police and fire funds are on path to stable funding, albeit a slow and flawed one according to rating agencies, spiraling liabilities at the municipal employees' and laborers' fund reports reflect the lack of a fix and their path to insolvency.
The city's total net pension liabilities in its police, firefighter, municipal and laborers' funds stand at $33.9 billion under new reporting requirements, up from $20.1 billion in 2014, and its total unfunded liabilities are at $22.6 billion, up from $19.5 billion in 2014. The big jump in the net liability came largely from the municipal and laborers' funds, which have already released their 2015 reports.
The police and firefighters' funds have not yet posted their 2015 reports on their websites, but they were supplied to The Bond Buyer by Mark Glennon, founder of Wirepoints, a news website that follows Chicago and Illinois news. The funds provided the reports to Glennon in response to Freedom of Information requests.
The statements' 2015 results don't take into account changes to the payment structure for the public safety plans won by Mayor Rahm Emanuel, which give the city more time to reach a 90% funded ratio.
The net pension liabilities reflect
The changes separate pension liability accounting and reporting from funding, which is reflected in the unfunded liability figures. The changes also require that the net pension liability figure be recognized on a fund's and on an employer's balance sheets.
The new statements also shed the use of an actuarially required contribution for plans like Chicago's which have statutory payment formulas. It shifts to what's being called an actuarially determined contribution that has a similar goal of setting payments at a level to keep funds healthy.
The
The actuarially unfunded liabilities of the police fund, which serves about 25,000 active and retired members, saw little change in 2015. They worsened slightly to a little more than $8.1 billion from almost $8.1 billion in 2014. The funded ratio improved slightly to 28.2% from 26.7%.
Those figures represent the actuarially accrued assessment that smooths results. Based on the market value, the unfunded liability was at $8.2 billion, up from $8 billion a year earlier, with the funded ratio falling to 27.1% from 27.7 %
The figures reflect the funding laws in place at the close of 2015 when the city was expected to abide by a 2011 state mandate to put its public safety funds on a course to reach a 90% funded ratio by 2040.
Emanuel won legislative relief to slowly phase in a shift to an actuarially based contribution, which won't be requires until 2020, and delaying the requirement to achieve a 90% funded ratio until 2055, scaling back a big near-term hike in payments required from the city.
The city was to pay $572 million to the fund in 2015, short of an actuarially determined contribution, or ADC, level of $785 million. Under the city legislation re-amortizing the payment structure, the city's payments are equal to $420 million in the first year.
The fund, which assumes an investment return rate of 7.5%, saw a negative 0.2% return in 2015 but the number, when smoothed to account for recent years' gains or losses, landed at 7.8%.
"During the year, the fund experienced a significant market value asset loss due to investment performance, and a small actuarial gain on an actuarial (smoothed) value basis," the report said.
"Given the Fund's low funded ratio of 25%, the deferment of city contributions, and increase in liquidity strain, a long-term investment return assumption of 7.50% used to project assets and discount benefits may be difficult support under the actuarial standards of practice," the report warned.
The
The unfunded liability rose on an actuarial basis slightly to $3.5 billion from $3.3 billion and funded ratios improved slightly to 23.4% from 23%. On a market basis, the unfunded liability rose to $3.6 billion from $3.3 billion and the funded ratio moved to 22.6% from 24%.
The city's statutory payment was set at $238 million, which fell short of an ADC of $336 million. Under the revised amortization of the payment schedule, the city's contributions are equal to $199 million in the first year.
During 2015, the firefighters fund earned 0.7% on its assets on a market basis and 9.2% when the 2015 results were smoothed to factor in recent years investment performance. The fund assumes an 8% rate of return.
"If contributions are not made on a timely basis, or if benefits are projected to be greater than the contributions in the near term, the fund may not have enough liquidity to continue making all the required benefit payments without changing its investment portfolio to one comprised of a larger percentage of short term (cash generating) investments," the report warned.
