Unfunded liabilities on the rise for Chicago area pension funds

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CHICAGO — Stronger investment returns in 2016 couldn’t stave off growth in the unfunded liabilities for most of the 11 local government pension funds tracked annually by a non-partisan Illinois legislative commission.

The returns did, however, limit the growth to mostly modest levels and helped fend off a weakening of the funded ratios for about half the funds and limited the erosion for others.

Investment returns and a historical look at funded ratios and unfunded liabilities are included in the Illinois General Assembly’s Commission on Government Forecasting and Accountability’s annual report, released in January. The report says it "examines the financial status of various public employee retirement systems in Chicago and Cook County, along with the Illinois Municipal Retirement Fund, as of fiscal year 2016.”

The report covers Chicago’s four pension funds along with Cook County, its forest preserve district, the Chicago teachers’ fund, the Chicago Park District, Chicago Transit Authority, the Metropolitan Water Reclamation District of Greater Chicago, and the Illinois Municipal Retirement Fund.

The latter serves non-public safety local government employees outside of Chicago and Cook County. Teachers outside of Chicago fall into the state’s pension system.

The unfunded tab for Chicago and its sister agencies combined with the water district rose to $38.4 billion from $35.4 billion in fiscal 2016 for a collective funded ratio of 38.6%, while the funded ratio deteriorated from 40%.

Adding in the Cook County and the suburban and downstate fund brings the total unfunded figure to about $50 billion, up from $47 billion in 2015.

The $50 billion is part of a collective $185.2 billion of collective public pension fund unfunded liabilities across 671 funds reported in fiscal 2016. That compares with $168.2 billion in fiscal 2015. The collective funded ratio deteriorated to 47.9% from 49.4%, according to the biennial report last fall by the Illinois Department of Insurance.

The new COGFA report showed growth in unfunded pension liabilities in Chicago area funds and IMRF statewide fund was mostly limited and improved a bit for some. All of Chicago’s funds deteriorated. The city’s funding overhaul is just beginning to take effect and improvements are years off.

The report –- along with others that track the state’s five-fund system and downstate public safety funds -- underscores the ongoing strains posed by pension burdens on local governments with limited options given strong state constitutional protections afforded to benefits.

Chicago, its sister agencies, and Cook County have all been hit with downgrades driven by pension pressures the overlapping burden on the local tax base adding to the strains.

A return to stronger investment returns stands out in the fiscal 2016 overview. Most recorded gains, though many fell short of their assumed rates of return. That comes after a year during which many recorded losses and others saw just modest gains. The impact of returns on liabilities are smoothed over five years.

The funds assume a rate of return between 7.25% and 8.25%. Rating agencies pay close attention, especially in Chicago’s case, as its overhaul of pension funding could be knocked off course if returns falter over a prolonged period.


The Illinois Municipal Retirement Fund remained in the strongest shape of the group and its health mostly held steady with its funded ratio at 88.9%, compared with 88.4% in 2015 and 87.3% in 2015. Its unfunded liabilities rose to $4.59 billion from $4.57 billion in 2015 and $4.76 billion in 2014. The fund also posted returns of 7.8%, up from positive growth of 0.2%, while assuming a 7.5% rate.

Chicago’s four funds all saw some deterioration, though all are now on track to reach a 90% funded ratio in 2055 under legislation that phases in a shift to an actuarially determined contribution level in the coming years.

The Chicago firefighters fund's funded ratio declined to 21.3% in fiscal 2016 from 23.2% in 2015 and 22.7% in 2014. Its unfunded liabilities grew to $3.97 billion from $3.59 billion in 2015 and $3.36 billion in 2014. The fund achieved a 6.1% rate of return after posting just a 0.7% rate of return in 2015.

The Chicago police fund's funded ratio slid to 23.7% in 2016 from 28.2% in 2015 and 26.7% in 2014, while unfunded liabilities grew to $9.8 billion from $8.1 billion in 2014. The fund returned 4.9% after losing 0.2% in 2015 on an assumed rate of return of 7.25%, lowered from 7.5% in 2016.

The Chicago laborers’ fund's funded ratio dropped to 50.4% from 53% in 2015 and 64.3% in 2014, while its unfunded liabilities rose to $1.25 billion from $1.16 billion in 2015 and $754 million in 2014. The fund’s investments gained 4.9% in 2016, compared with a 1.5% loss in 2015, while assuming a 7.5% rate of return. Before the city’s overhaul, the fund was on a course to exhaust assets in 2027.

Chicago’s municipal fund's funded ratio declined to 30.5% from 32.9% in 2016 and 35.2% in 2014. Unfunded liabilities rose to $10.47 billion from $9.84 billion in 2015 and $7.29 billion in 2014. The fund earned a rate of 6.3%, compared with 1.8% in 2015, while assuming 7.5%. Before the city’s legislative overhaul, the fund was on course to run out of assets to cover benefits in 2025.

The Chicago teachers’ pension fund recorded improvement in its funded ratio to 51.8% from 51.5%, while its unfunded liabilities worsened to $9.6 billion from nearly $9.5 billion. It returned a 0.5% on investments, compared with a 3.5% return rate in 2015, on an assumed rate of 7.75%. It has lowered the rate to 7.25% for fiscal 2017 reporting based on the state actuary’s recommendation.

Chicago Public Schools is required to set its contributions at a rate that will reach a 90% funded ratio by 2059.

The Chicago Park District’s funded ratio soured, falling to 39.1% from 43.5% in 2015 and 43.7 % in 2014. Its unfunded liabilities rose to $611.9 million from $514.6 million in 2015 and $507 million in 2014. Its investments earned a 8.4%, up from 1.9% a year earlier, on an assumed rate of 7.5%

The Chicago Transit Authority’s funded ratio continued on a path of erosion begun 2013, falling to 52.5% in fiscal 2016 from 53.4% a year earlier and down from 58.2% in 2014 with its unfunded liabilities rising to $1.59 billion from $1.52 billion in 2015 and $1.33 billion in 2014.

The CTA fund fell short of its assumed 8.25% rate of return with investments of 6.8%, a turnaround from a loss of 0.2% in 2016. It sets contributions at a rate to reach a 90% funded ratio by 2059 under previously approved state legislation.

Beyond Chicago’s borders, the Cook County employee’s funded ratio rose to a 56.7% from to 55.4% in 2015, though it fell short of its 2014 level of 57.5%. Its unfunded liabilities nearly held steady at $7.23 billion compared to $7.24 billion, after rising from $6.51 billion in 2014. The county’s fund saw a return of 7.7%, compared with a 0.1%, on an assumed rate of return of 7.5%.

“Under the current funding policy the Cook County Employees’ Pension Fund is projected to run out of assets by 2038 if all future assumptions are met, and no additional contributions are made,” the report said. Last year it put the timing at 2041.

The county is hoping lawmakers approve a revised funding schedule that would stave off insolvency and has already put a funding streaming in place to raise contributions. The county is making supplemental contributions –- including $270 million that was included in fiscal 2016 calculations -- to the fund higher than required under its statutory formula under an intergovernmental agreement with the fund.

The Cook County Forest Preserve District fund's funded ratio held steady at 60%. That’s the same level in 2015 and near the 2014 level of 60.2%. Its unfunded liabilities rose to $132 million from $129 million in 2015 and $125.3 million in 2014. Investments recorded a 5.75 % rate of return compared to 1.5% in 2015 while the fund assumes a 7.5% rate. It is projected to run out of assets by 2043.

The Metropolitan Water Reclamation District’s funded ratio improved to 56.2% from 55.2% in 2015 and 55% in 2014, while its unfunded liabilities ended the year at $1.07 billion, compared with $1.06 billion in 2015 and $1.03 billion in 2014. The fund returned 9.5%, compared with a 0.2% in 2015, on an assumed rate of 7.5%.

Beginning on Jan. 1, 2015, the employee contribution rate increased to 12% of salary, where it will remain until the MWRD pension fund reaches a 90% funded ratio.


The latest results mirror state fund report where stronger investment returns helped to stave off more severe erosion in the most recent results, which included fiscal 2017. At the state level, Illinois added $2 billion, bringing its unfunded tab to $128.9 billion from $126.5. That was up from $112.9 billion in 2015. The funded ratio improved to 39.9% from 39.2%.

Of the $185.2 billion unfunded tab for all public pension funds based on fiscal 2016 figures, large funds that include the state funds and Chicago area funds make up $175 billion, with downstate public safety funds accounting for the remainder.

Legislative changes that would aid local governments face a difficult path especially given the partisan bickering that drove the state’s record two-year budget impasse and the added factor of the upcoming November election.

Gov. Bruce Rauner proposed in his fiscal 2019 budget adopting pension changes that would ask employees to take cost of living adjustment cuts to allow pay raises to count toward their pensionable salary. That would affect only state pension and would face a legal challenge.

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Public pensions Pension funds Government finance State of Illinois Cook County City of Chicago, IL Board of Education of the City of Chicago Metropolitan Water Reclamation District of Greater Chicago Illinois