A report from the legislature’s bipartisan Commission on Government Forecasting and Accountability (COGFA) is a mix of good and bad news on municipal pensions in Illinois.
The report examined the financial status of various public employee retirement systems in Chicago and Cook County, along with the Illinois Municipal Retirement Fund.
The bad news? The eight Chicago municipal pension funds examined had a combined average funding ratio of just under 42% – meaning that they only had sufficient assets to cover 42% of their obligations.
The study also found that two Cook County pension funds are careening toward bankruptcy. Both the Cook County Employees’ Pension Fund and the Cook County Forest Preserve Pension Fund are expected to have negative funding ratios by 2038, meaning they are projected to run out of assets needed to pay pension benefits.
But, there was also good news in the report. The Illinois Municipal Retirement Fund, which covers most municipal and county employees outside of Cook County, remains the strongest public pension fund in the state, with a funding ratio of 87.6%. That is down from a pre-recession ratio of 96%, but represents a gradual climb after hitting a low of 83% in 2011.
The Illinois Municipal Retirement Fund has traditionally been the best-funded public pension system in the state, largely because local governments are required to meet annual contributions to the fund.
More good news – while many of the pension systems examined currently have poor funding ratios, these funds are projected to recover and achieve a targeted 90% funding sometime around mid-century. That’s generally due to recent reforms that established benefit changes for newly hired employees – including higher retirement ages, more modest cost-of-living increases and caps on the salary used when calculating a pension.
As employees hired under a more generous system gradually retire or leave public employment, the long-term obligations of the systems will drop for newly-hired employees, saving the systems money in the coming years.
For example, the Fireman’s Annuity and Benefit Fund of Chicago currently has a dismal 24% funding ratio, meaning it only has enough assets on hand to cover 24% of its obligations. But, thanks to reforms adopted in 2011, the funding ratio is expected to climb each year over the next 25 years, until it reaches 90% funding in 2040.
Because the reforms, most of which were adopted in 2011, impact only new hires, they have not been subject to the same court challenge as changes that were adopted in 2013. The 2013 pension changes are being challenged as an unconstitutional reduction in promised benefits. Opponents have argued that because the 2013 changes were aimed at current employees, those changes violate the constitution’s protection against reducing pension benefits once an employee has been hired.
Although the long-term projections for many of these pension systems is a reason for optimism, critics point out that those projections are contingent upon governments meeting their funding obligations and on the legislature resisting pressure to either roll-back reforms or offer more generous benefits to new hires. Reversing the 2011 reforms could quickly send these retirement systems back on the path to bankruptcy.