COUNTY OF COOK

Pension Fund Discussion

May 2014
Current Pension Fund Status
*Actuarial assumptions include an assumed 7.5% investment rate of return
Funded ratio was 56.6% as of 12/31/2013, the most recent valuation
Fund projected to reach insolvency in 2038
Source: Cook County Pension Fund Actuarial Valuation Report as of 12/31/2013
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-60%
-40%
-20%
0%
20%
40%
60%
80%
Projected Funded Ratio*
Historical Review
2002 Buyout &
Benefit
Enhancement
2008
market crash
How did we get here?
Benefit enhancements and early retirement programs enacted repeatedly since the County
statutory maximum employer match of employee contributions of 154% was set in 1984
Two market crashes in the past decade also caused significant shortfall in funded levels
County has always budgeted for the statutory maximum contribution
Lack of Actuarially based funding further exacerbates the issue as no automatic adjustments
were in place when market crashes occurred or benefits were increased
Source: Cook County Pension Fund
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Dot com
market crash
Historical Funded Ratio
Historical Review
Action Year
Reduced retirement age by 5 years (to 65 from 60) for unreduced
benefits w/10 years of service
1985
Reduced minimum pension collection age by 5 years (from 55 to 50) 1986
Provided an early retirement incentive program 1992
COLA changed from simple to compounded 1997
Provided an early retirement incentive program 1997
Increase of accrual rate from 2.2% to 2.4% 2002
Last early retirement incentive program 2002
Under the Pension Code, in 1984 County maximum not to exceed contribution
was last changed to equal 154% of Employee Contributions
Repeated benefit enhancements have occurred since 1984
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What Will Happen If We Wait to Act
Every year we wait will cause the funding requirements to increase as the current statutory
payment is less than normal cost of benefits plus interest on the unfunded liability
Similar to paying the minimum balance on a credit card the liability will continue to grow
Insolvency may occur earlier based on employee withdrawal rate and whether investment returns
meet objectives
Source: Cook County Pension Fund Actuarial Valuation Report as of 12/31/2013
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0
200
400
600
800
1000
1200
1400
1600
1800
2000
Benefit Payout Employee & Employer Contributions
In 2038 plan projects negative
balance and employer/employee
contributions are only 29% of
projected employee benefit
payouts
What Will Happen If We Wait to Act
The negative outlook reflects the formidable hurdles facing
the county in its quest to pursue meaningful pension reform.
under less favorable rates of return than currently
assumed, plan assets would be depleted sooner,
underscoring the need for reforms to ensure a secure
pension plan for the county's retirees.
~ Moodys Investor Services
Managements inability to implement an affordable plan in
the near term to shore up long-term pension funding would
likely lead to a downgrade Compounding the issue is the
county's statutorily-based pension whereby the county pays
the statutory amount to the pension fund and the pension
fund can allocate a portion of the pension payment to OPEB.
~Fitch Ratings
Lack of action on pensions will result in additional rating downgrades making it more
costly to finance future County capital needs
*Source: Moodys Adjusted Pension Liability Measures for 50 Largest US Local Governments, Report issued September 2013
Chicago 19.0%
Cook County 12.2%
Denver County School District 1 (Denver County) 6.2%
Philadelphia City 5.4%
San Diego City Unified School District (San Diego County) 5.1%
Five Largest Contribution Shortfalls Relative to ARCs as a
Percentage of Revenues of Moodys Rated Local Governments*
Chicago 678%
Cook County 382%
Denver County School District 1 (Denver County) 342%
Jacksonville 327%
Los Angeles 324%
Five Largest Adjusted Net Pension Liability to Revenue
Ratios of Moodys Rated Local Governments*
The degree of pension burden varies widely across the 50 US local government debt issuers with the most debt outstanding (the top 50 ),
but there are several outliers with challenging pension liabilities. Notably, the City of Chicago has the largest pension burden among its
peers as measured by its adjusted net pension liability relative to revenues. By this measure, Cook County, IL ranks second.
~ Moodys Investor Services*
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Proposed Plan Funding Changes
Employer Contribution:
Maximum not to exceed level 154% of employee
contributions
Employer Contribution:
220% of employee contribution; including 190% for
pension and roughly 30% for a separate and distinct
health care trust referenced below.
Actuarially Required Contribution Funding:
None
Actuarially Required Contribution Funding:
County contribution no less than 90% of ARC
starting in 2020 calculated at 30 years on an
layered closed-loop basis
Health Care Funding:
Pension Fund may contribute a portion of retiree
healthcare costs from 0-100% but can eliminate
this significant expenditure in the future
Health Care Funding :
The Pension Fund would be prohibited from future
funding of OPEB; distinct County contribution allows
for creation of dedicated OPEB trust and $50M cost
in 2016 with CPI growth thereafter
Source of Employer Contributions:
Real Estate Levy only, no other sources
permitted under relevant statute
Source of Employer Contributions:
County may make pension payments from other
sources and any available funds
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Proposed Plan Benefit Reform (1 of 2)
COLA rate:
Tier 1: 3% compounded
Tier 2: Lesser of CPI or 3% simple
COLA rate:
Tier 1 Higher of 2% or CPI compounded, 4% cap
Tier 1 Funded ratio over 100% - Higher of 3% or
CPI compounded, with 4% cap
Tier 2 Unchanged unless funded ratio over 100% -
Higher of 2% or CPI simple, with 4% cap
COLA Pause & Freeze:
None
COLA Pause & Freeze:
Current Retiree COLAs remain at 3% compound
with a freeze for all retirees for 1 year in 2016
Delays by one year first COLA for future retirees,
with initial COLA pro-rated by retirement month
Retirement Age:
Tier 1 30-year service: 50
Police: 50 (with 20 years service)
Tier 1 Other employees: 60 (with 10 years)
Tier 2: 67
Retirement Age:
Tier 1 30-yr Police/Public Safety: unchanged*
Tier 1 30-yr Other: 55 (changes over 10 years)
Tier 1 <30-yr Police/Public Safety: 62 (over 4 years)*
Tier 1 <30-yr Other 65 (over 10 years)
Tier 2: 65 (Police/Public Safety 62)
Employee contribution:
9% for Sheriffs police
8.5% for other employees
Employee contribution:
2015: 9.5%
2016+: 10.5%
*(Police can elect to continue the additional 0.5% or
request a refund of excess 0.5% contributions)
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Proposed Plan Benefit Reform (2 of 2)
Service Accrual Rate (Multiplier):
Tier 1 & 2: 2.4%
Service Accrual Rate (multiplier):
Tier 1 & 2 service multiplier reduced to 2.3% for
service from 1/1/2015 forward
Final Average Salary Calculation:
Tier 1: High 4 years of 10
Tier 2: High 8 years of 10
Final Average Salary Calculation:
Tier 1 and Tier 2: High 8 years of 10
Phased in starting 1/1/2016 at high 5, Rising to high
8 by 1/1/2019
Pension Salary Cap:
Tier 1: none
Tier 2: 106,800 in 2011 and growing by of CPI
annually thereafter
Pension Salary Cap:
Tier 1: Cap is based on the greater of the
(i) Social Security Cap (new cap for Tier 2), (ii)
current salary on 1/1/2015 adjusted at the lesser of
CPI or 3% in future years
Downside Adjustments:
None
Downside Adjustments:
Starting in 2020, if solvency deteriorates to 59%--
COLAs are suspended, future years of service see
accrual rate of 2.2% in the ensuing years
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Future County Contribution
County contribution increases by $146.9M in FY 2016 to begin targeting a 2.2x
multiplier of employee contributions
Beginning 2020 County contributions no less than 90% of a layered closed-loop
actuarially required contribution to target a 90% funded ratio in 30 years
Actuarial forecasts indicate that the 2.2x multiplier would equate to 100% of
actuarial requirements over 30 years
County is bearing 60% of the proposed solution, commensurate with current
funding relationship
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$-
$100
$200
$300
$400
$500
$600
$700
Proposed Reform Funding Projected Status Quo Statutory Maximum Funding
Addressing Long-Term Fiscal Challenges
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($487.0)
($315.2)
($267.5)
($152.1)
($600)
($500)
($400)
($300)
($200)
($100)
$0
2011 2012 2013 2014
M
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l
i
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s
Preliminary Forecasted Budget Gaps
$389
$276
$254 $252
$175
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
2010 2011 2012 2013 2014
CCHHS Subsidy
M
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l
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s
The current administration has a demonstrated record of fiscal responsibility:
Over $1.2B in combined budget gaps have been closed while $1.1B in net tax
revenue has been returned to taxpayers via commitment to reduce sale tax rate
Tax payer support for the Countys Health system reduced by 55%
FY2014 budget was balanced without any increases in taxes or reduction in workforce
and the County is working towards achieving the same for the FY2015 budget
County introduced a ten year Capital Improvement Plan and a long term
Transportation Plan that will strategically prioritize its long-term investment needs
Actuarial Projections
Under the proposed plan the Fund is projected to attain 100% funding status by
2043 based on independent actuarial projections
This compares with a fund that is currently projected to stand at -100% in 2052
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-110%
-90%
-70%
-50%
-30%
-10%
10%
30%
50%
70%
90%
110%
Project Funded Ratios Under Reform Project Funded Ratios Status Quo
Next Steps
Continued Meetings with stakeholders
Anticipate filing of a final bill imminently
We hope to work with labor and the legislature to enact these changes before
close of the spring session
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