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.
report examined the financial status of various public employee retirement
systems in Chicago and Cook County, along with the Illinois Municipal
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.
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
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.
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.
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.
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.
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.
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.
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.