Cook County Pension Reform Proposal May 25 Updated

7/22/2019 Cook County Pension Reform Proposal May 25 Updated

1/13

COUNTY OF COOK

Pension Fund DiscussionMay 2014


2/13

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 1

-60%

-40%

-20%

0%

20%

40%

60%

80%

Projected Funded Ratio*


3/13

Historical Review

2002 Buyout &Benefit

Enhancement

2008market 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 adjustmentswere in place when market crashes occurred or benefits were increased

Source: Cook County Pension Fund 2

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 commarket crash

Historical Funded Ratio


4/13

Historical Review

Action Year

Reduced retirement age by 5 years (to 65 from 60) for unreducedbenefits 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 contributionwas last changed to equal 154% of Employee Contributions

Repeated benefit enhancements have occurred since 1984

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5/13

What Will Happen If We Wait to Act

Every year we wait will cause the funding requirements to increase as the current statutorypayment 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 returnsmeet objectives

Source: Cook County Pension Fund Actuarial Valuation Report as of 12/31/2013 4

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Benefit Payout Employee & Employer Contributions

In 2038 plan projects negativebalance and employer/employee

contributions are only 29% ofprojected employee benefit

payouts


6/13

What Will Happen If We Wait to Act

The negat ive out look ref lects the formidable hurdles facing

the county in i ts qu est to pursue meaningful pension reform.

under less favorable rates of return than currently

assumed, plan assets would be depleted sooner ,

underscor ing the n eed for reforms to ensu re a secure

pension plan for the coun ty 's retirees.

~ Moodys Investor Services

Managements inabi l i ty to implement an affordable plan in

the near term to shore up long- term pension funding w ould

l ikely lead to a downgrade Compounding the issue is the

county 's statutor i ly-based pension wh ereby the coun ty pays

the statutory amoun t to the pension fund and the pension

fund can al locate a por t ion of the pension payment to OPEB.

~ Fitch Ratings

Lack of action on pensions will result in additional rating downgrades making it morecostly 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 aPercentage 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 RevenueRatios 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 th ere are several out l iers with ch al lenging pen sion l iabi l i t ies. Notably, the City of Chicago has th e lar

gest pension burden among i ts

peers as measured

by its adjusted net pens ion l iabi l i ty relat ive to revenues. By this m easure, Cook Cou nty, IL ranks second.

~ Moodys Investor Services*

5


7/13

Proposed Plan Funding Changes

Employer Contribution:Maximum not to exceed level 154% of employee

contributions

Employer Contribution:220% of employee contribution; inc luding190% forpension 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 anlayered closed-loop basis

Health Care Funding:Pension Fund may contribute a portion of retireehealthcare 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 allowsfor 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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8/13

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% capTier 1 Funded ratio over 100% - Higher of 3% or

CPI compounded, with 4% capTier 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 2016Delays 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


9/13

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 10Tier 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 high8 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 seeaccrual rate of 2.2% in the ensuing years

8


10/13


11/13

Addressing Long-Term Fiscal Challenges

10

($487.0)

($315.2)($267.5)

($152.1)

($600)

($500)

($400)

($300)

($200)

($100)

$02011 2012 2013 2014

Millions

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

Millions

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 workforceand the County is working towards achieving the same for the FY2015 budget

County introduced a ten year Capital Improvement Plan and a long termTransportation Plan that will strategically prioritize its long-term investment needs


12/13

Actuarial Projections

Under the proposed plan the Fund is projected to attain 100% funding status by2043 based on independent actuarial projections

This compares with a fund that is currently projected to stand at -100% in 2052

11

-110%

-90%

-70%

-50%

-30%

-10%

10%

30%

50%

70%

90%

110%

Project Funded Ratios Under Reform Project Funded Ratios Status Quo


13/13

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 beforeclose of the spring session

12

Documents

Cook County Pension Reform Proposal May 25 Updated