Local pension funds tread water around Chicago and Illinois

The group health of 11 retirement systems that cover Chicago and Cook County and local government employees across the state remained mostly stable in 2020, supported by healthy investment returns and contribution levels in increase for some of the funds that still do not meet actuarial standards.

Overall, the results for 2020 presented in the annual compilation of the Commission on Forecasting and Accountability of State Legislature Government were mixed, and several recent pieces of legislation are expected to influence the results for the coming year, both negatively and positively.

Although a modest change, the collective results of the funds reverse an upward trend in unfunded liabilities.

Overall, the 11 funds closed 2020 with $58.2 billion in unfunded liabilities, just slightly better than the collective tab of $58.4 billion for 2019 in last year’s report. Most exceeded their assumed rates of return in the 6% to 7% range, but did not achieve the robust returns above 15% that most saw in 2019, so the pain of a potential downside this year’s market returns could hurt the future.

Local pension pressures are weighing heavily on local government ratings and decision-making, pushing some governments to issue risky pension bonds, raise taxes, cut services and privatize assets. On the benefit side, state and local governments have few options given the state’s constitutional protections against the diminishing or reduction of promised benefits.

“Pension plans have made little progress in funding in recent years and their costs have risen, putting pressure on municipal budgets,” S&P Global Ratings wrote in a special feature on 2021 pensions, “Plans single-employer pension schemes are straining the credit quality of Illinois municipalities”.

Statutory multiplier formulas based on employee payments — not based on actuarial requirements — are responsible for underfunded city and state pensions, although some funds have phased in actuarial contributions.

Improved Cook County System Health and the Illinois Municipal Retirement Fund that covers non-public safety employees who work in local government across the state offset the growth of the non-tab funded for eight funds that rely primarily on Chicago’s property tax base.

The four Chicago funds, along with the Chicago Transit Authority, Chicago Teachers’ Fund, Chicago Park District and Water Reclamation District of Greater Chicago saw their unfunded tab reach $48.6 billion for a collective funded ratio 33.9%, compared to $46.9 billion in 2019. the capitalization ratio was 34% in 2019.

The overall statewide expense total is much higher after adding the system’s $139.9 billion to five state funds based on fiscal year 2021 results and the $13 billion dollars from the Suburban and Lower State Police and Fire Department funds based on 2019 results. Adding these to the unfunded tab for the 11 funds brings the bill to $211 billion dollars, based on the collective burden of COGFA’s most recent reports.

The Chicago Municipal Employees Pension and Benefit Fund carried $13.87 billion in unfunded liabilities in 2020, compared to $13.28 billion and a funded ratio of 22.3% which showed slight erosion compared to 23.2% in 2019. The fund assumes a rate of return of 7% and reached 10%. in 2020 compared to 16.8% a year earlier.

“The unfunded liability increases due to the fact that contributions are lower than normal cost plus interest charges,” the report said. Actuarial contributions began this year as part of the city’s pension funding overhaul which gradually increased contributions to city and labor funds over five years until reaching an actuarial formula with a target of 90% set for 2058 Despite the change, the fund is not expected to reach even a 50% funding level until 2051.

Chicago’s Labourers’ Annuity and Benefit Fund was flat in 2020, ending the year with $1.56 billion in unfunded liabilities and a capitalization ratio of 43% versus $1.55 billion and a capitalization ratio of 42.6% in 2019. The fund recorded a rate of return of 15.5%. against 18% the previous year. He assumes 7.25%.

While actuarial contributions began this year, which put the fund on track for 90% funded status in 2058, it will not reach 50% until 2051.

Chicago’s Policemen’s Annuity and Benefit Fund was generally stable and saw a slight improvement in the capitalization ratio. It had $11.3 billion in unfunded liabilities and a capitalization ratio of 23.1%, compared to $11.1 billion and a capitalization ratio of 22.3% in 2019.

The fund exceeded its assumed rate of 6.75%, posting a return of 12.3%, compared to 16.3% in 2019.

The fund as well as the firefighters have received actuarial contributions since 2020 after a five-year ramp in payments and are expected to reach a 90% funded ratio required by state law in 2055, but it will take until 2043 to achieve even 50% capitalization ratio.

Chicago’s Firemen’s Annuity & Benefit Fund ended 2020 with $5.29 billion in unfunded liabilities, up slightly from $5.12 billion a year earlier, but the funded ratio improved at 19.4% against 18.2%. The fund assumes an investment return of 6.75% and captured 11.4%, down from 19.6% in 2019.

It will take until 2043 to reach at least a 50% capitalization ratio on the road to 90% capitalization in 2050.

A state-approved pension enhancement for some Chicago firefighters, opposed by Mayor Lori Lightfoot, will add $180 million to the fund’s existing unfunded liabilities. The legislative change approved last year and signed by Governor JB Pritzker made permanent a cost-of-living adjustment that lawmakers had previously approved every few years, meaning the full cost was never taken into account. account in actuarial valuations.

Similar legislative action on the police fund could take place next year. Chicago Chief Financial Officer Jennie Huang Bennett warned the change could result in a total price tag of up to $3 billion.

Only one of the four funds has published results for 2021 on its website. Chicago will include the actuarial reports in its 2021 annual financial report released later this month or in July.

Chicago Park Employees’ Annuity and Benefit Fund unfunded liabilities increased from $821 million to $848 million, while the funded ratio fell to 28.7% from 29.9% in 2019. Parks assume a rate of return of 7.25% and exceeded it at 9.3% compared to 17% in 2019. “The unfunded liability has increased due to the fact that total contributions are lower than the normal cost, plus interest charges,” the report said.

A pension funding overhaul approved by lawmakers last year moves the fund off the path of insolvency to a fully funded goal in 35 years, with bonding authority. It puts district dues on a ramp toward an actuarial-based payment, moving from a formula based on an employee dues multiplier.

The public school teachers’ pension fund had a tab of $12.83 billion and a funded ratio of 46.7%, slightly worse than the tab of $12.23 billion and a funded ratio of 47 .4% in 2019. The fund did not have the strong double digit returns seen by other systems over 2019 and 2020 returning 4.5% in 2020 and 5.5% in 2019 while assuming a yield of 6.75%.

State legislation has the fund on track for a 90% funded ratio in 2059, but it will take until 2038 to reach 50% based on projections.

The Chicago Transit Authority ended fiscal 2020 with $1.72 billion in unfunded liabilities and a capitalization ratio of 53.3%, remaining virtually flat from $1.7 billion in 2019 with some improvement the past capitalization ratio of 52.6%. The fund assumes an 8.5% return and its earnings for 2020 were lower at 7.6% after posting a 15.7% return in 2019.

The Metropolitan Water Reclamation Fund saw improvement on both fronts with its unfunded liabilities down slightly to $1.16 billion in 2020 from $1.18 billion and its capitalization ratio down to 57.3% from 55.9. % in 2019. The fund assumes a rate of return of 7.25% which it met at 9.2% from 18.3% a year earlier.

The system’s funded status has improved further for 2021 to 58.7%, according to the district, and it aims to reach 65% by 2026. Illinois Governor JB Pritzker signed legislation that gives the district $600 million in pension bond bonding authority and officially puts into statute a path to achieve a 100% funded ratio by 2050 — up from 90% previously.

Cook County had $6.66 billion in unfunded liabilities in 2020 and a funded ratio of 63.9%, an improvement from $6.97 billion and a funded ratio of 61.2% in 2019. Cook assumes a rate of return of 7.25% and saw a return of 12.7% for 2020, compared to 19.1% in 2019.

Funding ratios have been slowly increasing since the county began making additional contributions in 2016 with proceeds from the sales tax hike, including more than about $300 million in 2020 and $340 million in 2021 and This year.

Still, projections call for imminent insolvency in 2048, as the additional payments have yet to be set in state law, with negotiations still ongoing between the pension fund, the union and the county over the legislation. .

The Cook County Forest Preservation District saw its unfunded liabilities increase from $139.9 million to $145.4 million and the funded ratio slip slightly to 59.1% from 59.3%. The fund assumes a rate of return of 7.25% and topped it at 11.4% for 2020, from 18.6% in 2019.

Under current funding policy, the Cook County Forest Reserve Pension Fund is projected to run out of assets by 2042 if all future assumptions are met and no additional contributions are made,” the council warned. report.

The district is banking on voter approval of a referendum scheduled for the November ballot that would raise its property tax rate allowing it to both fund land acquisition and improvements, stabilize its finances and increase pension contributions.

“The county council should be prepared to act quickly if the upcoming Forest Preserves property tax referendum does not pass,” Chicago Civic Federation President Laurence Msall said during the review. organization of the county’s 2022 budget.

The Illinois Municipal Retirement Fund saw its unfunded liabilities drop from $4.4 billion to $2.9 billion and its funded ratio drop from 90.7% to 94.1%. The system assumes a rate of return of 7.25% and has capped it at 14.8% from 19.6% in 2019.