CHICAGO – Contribution levels that fall short of actuarially required needs drove growth in the unfunded liabilities of a majority of 11 pension funds that cover Chicago area governments and local government employees throughout the state.
The health of the Illinois Municipal Retirement Fund, which covers non-public safety local government employees outside of Chicago and Cook County, slipped a bit but it retained its position as the healthiest of 11 funds in the General Assembly Commission on Government Forecasting and Accountability's new review of 2014 results.
Most of the funds covered in the report saw sharp declines over their stronger 2013 investment returns, but results are based on actuarially smoothed results, not market value, softening the impact.
Contribution levels based on formulas that fall short of an Actuarially Required Contribution level remained a key driver of increased liabilities. Three of the funds trimmed their unfunded figures slightly and several improved their funded ratios, but the majority posted small increases in their unfunded liabilities.
The unfunded liabilities of the eight funds for employees of Chicago and its related school, park and transit agencies, as well as the independent water district that shares their tax base, totaled a collective $32.1 billion for an overall funded ratio of 42.7%, based on actuarial figures for 2014.
The figures don't include the state's retirement fund for local governments or Cook County funds, which are included in the larger report. The figures were little changed from $32.5 billion at the close of fiscal 2013 for a collective funded ratio of 41.9%.
The Chicago laborers' fund, the smallest of the city's funds, improved in 2014, with its unfunded liabilities falling to $754 million from $1 billion and its funded ratio rising to 64.3% from 56.7%. The firefighters' fund saw a 3.8% rate of return, down from 15.8% a year earlier and well below its assumed rate of 7.5%.
A decade ago the laborers' account was near full funding status.
Now its fate as well as that of the city's municipal employees' fund is tied to the outcome of the Illinois Supreme Court's pending decision on the constitutionality of 2014 reforms.
The city's plan puts the funds on a path to a 90% funded ratio in 2055.
The city's municipal employees' fund strengthened in 2014 with its unfunded liabilities falling to $7.3 billion for a funded ratio of 40.9%, from $8.7 billion and a funded ratio of 36.9% a year earlier. The fund returned 5% in 2014, down from 16.1% a year earlier and below its 7.5% assumed rate.
The 2014 funded ratio, however, incorporates the impact of the city's pension overhaul. If withdrawn, the funded ratio weakens to 35.2% from 36.9% a year earlier.
If the justices void the reforms, the laborers' and municipal funds would again be on course to exhaust assets in the next decade.
The Chicago firefighters fund is the city's weakest fund based on funded ratio and both the ratio and the size of its unfunded liabilities further deteriorated in 2014.
Unfunded obligations grew to $3.4 billion from $3.1 billion while the funded ratio dropped to 23% from 24.2%. The fund saw a 2.9% return, far below its assumed 8% rate and down sharply from a stellar 22% rate a year earlier.
The city's police pension fund's condition worsened with its unfunded liabilities rising to $8.4 billion from a 26.1% funded ratio, from $7.2 billion and a funded ratio of 29.7% in 2013.
The fund registered a 5.9% rate of return, down from 14.5% a year earlier and below an assumed rate of 7.5% which was lowered that year from a previous rate of 7.75%.
The police and firefighter funds are supposed to reach a 90% funded ratio in 2040 under a state mandate approved in 2010 that takes effect next year when higher payments are due.
Chicago Mayor Rahm Emanuel wants to re-amortize the schedule, slowly phasing in a shift to actuarially required contributions and lengthening the timeline to reach a 90% funded ratio.
Emanuel pushed through a phased in, $543 million annual property tax hike to cover higher payments, assuming he would get a new state law to authorize the re-amortization.
The bill has passed the General Assembly but not been sent to Gov. Bruce Rauner's desk.
Rauner, a Republican, has indicated he would support the changes that would trim $220 million off the $550 million bill Chicago would get next year for the public safety funds, but only if state lawmakers come to agreement on a state budget package that includes some of his governance and policy agenda items opposed by the legislature's majority Democrats.
The Chicago Teachers' Fund experienced some modest overall improvements with its unfunded liabilities dropping to $9.5 billion from $9.6 billion and its funded ratio improving to 51.5% from 49.5%. Existing funding statutes put it on course to reach a 90% funded ratio in 2059.
The fund recorded a strong 18.4% rate of return up from 13.3% a year earlier. It assumes a 7.75% rate.
The Chicago Park District fund's condition weakened overall with unfunded liabilities rising to $507 million from $484 million and its funded ratio falling to 43.7% from 45.5%. The park district registered a 6.9% rate of return, down from 16.9% a year earlier and shy of its 7.5% assumed rate of return.
The fund is projected to hit a 90% funded ratio in 2048 under a reform package that calls for benefit cuts and higher contributions, but a legal challenge was recently mounted by unions, employees and retirees.
The Chicago Transit Authority saw its unfunded obligations rise to $1.3 billion in 2014 from $1.2 billion in 2013 and its funded ratio deteriorated to 58.2% from 60.9% a year earlier. The authority saw a 4.8% return on its investments, down from a strong 19.5% return rate a year earlier. It assumes an 8.5% rate.
Cook County's unfunded liabilities rose slightly to $5.3 billion from $5.25 billion while its funded ratio improved slightly to 62.3% from 61.5%. Under current statutes that guide contribution levels, the fund is projected to exhaust assets in 2039. The county assumes a 7.5% rate of return, with its 2014 returns falling short at 5.9%, down from 15.1% a year earlier.
The county's forest preserve district saw a slight increase in its unfunded obligations to $125.3 million from $124.4 million while its funded ratio rose slightly to 60.2% from 59.5%. The fund is on track to exhaust assets in 2037. The district recorded a 7.1 % rate of return, down from 17.5% a year earlier, and under its assumed 7.5% rate of return.
The Water Reclamation District of Greater Chicago's fund held fairly steady between 2013 and 2014 with its unfunded liabilities growing slightly to $1.03 billion from $1.01 billion and its funded ratio improving slightly to 55% from 54.1%. The district recorded a 6.7% rate of return, down from 21.7 % a year earlier but close to its 7.5% assumed mark.
The Illinois Municipal Retirement Fund weakened modestly in 2014 but enjoys the strongest funded ratio in 2014. The fund carried nearly $4.8 billion of unfunded obligations in 2014 for a funded ratio of 87.3%, compared to $4.3 billion of unfunded liabilities and a funded ratio of 87.6% a year earlier. The fund saw a 5.8% rate of return, down from a 20% return the previous year and below the 7.5% assumed rate.
The fund covers most general employees of local government outside of Cook County, excluding teachers, who are covered by a state fund, and public safety employees.
The report follows results that were released by the state funds.
The state's retirement system – which includes five funds -- worsened slightly based on fiscal 2015 results, growing to $112.9 billion from $111.2 billion, according to data compiled and analyzed by the Civic Federation of Chicago in a recent report. The funded ratio of 40.9% in fiscal 2015 marked a modest improvement from 39.3% a year earlier.
