Presented by:Dan Hankiewicz, Pension Manager

Commission on Government Forecasting and Accountability703 Stratton Office Building; Springfield, Illinois 62706

January 27th, 2012

Financial Condition of the State Retirement SystemsFY 2011

Budgeting for Results Commission

Presented to:

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CGFA Background & Responsibilities

• Bi-Partisan, joint legislative commission, provides the General Assembly with information relevant to the Illinois economy, taxes and other sources of revenue and debt obligations of the State.

• Preparation of annual revenue estimates with periodic updates;

• Analysis of the fiscal impact of revenue bills;

• Preparation of State Debt Impact Notes;

• Periodic assessment of capital facility plans;

• Annual estimates of the liabilities of the State’s group health insurance program and approval of contract renewals promulgated by the Department of Central Management Services;

• Implement the provisions of the State Facility Closure Act;

• Annual estimates of public pension funding requirements and preparation of pension impact notes.

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CGFA Commission Members

Senate

Senator Jeffrey M. SchoenbergCo-Chair

Senator Michael FrerichsSenator Matt MurphySenator Suzi Schmidt

Senator Dave SyversonSenator Donne Trotter

Dan R. LongExecutive Director

Jim MuschinskeRevenue Manager

Dan HankiewiczPension Manager

House of Representatives

Representative Patricia R. Bellock

Co-Chair

Representative Kevin McCarthy

Representative Elaine NekritzRepresentative Raymond Poe

Representative Al RileyRepresentative Mike Tryon

Trevor J. ClatfelterDeputy Director

Edward H. Boss, Jr.Chief Economist

http://www.ilga.gov/commission/cgfa2006/home.aspx

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Current Financial Condition of the State-funded Retirement Systems

Summary of Financial Condition

State Retirement Systems Combined

Assets at Market Value / Without Asset Smoothing

FY 2011

($ in Millions)

    Accrued   Net   Unfunded   Funded

System Liability Assets Liability Ratio

   

TRS $81,299.7 $37,471.3 $43,828.4 46.1%

   

SERS $31,395.0 $10,970.8 $20,424.2 34.9%

   

SURS $31,514.3 $14,274.0 $17,240.3 45.3%

   

JRS $1,952.5 $606.0 $1,346.5 31.0%

   

GARS $298.4 $60.4 $238.0 20.2%

   

TOTAL   $146,459.9  $63,382.5  $83,077.4  43.3%

                 

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Historical Unfunded Liability

FY 2011 Investment Returns

TRS 23.4%

SURS 23.8%

ISBI* 21.7%

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* The IL State Board of Investments has investment authority for SERS, GARS, and JRS

Factors Causing the Growth in Unfunded Liability

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State-by-State Comparison of Funding Ratios

Source: Standard & Poor’s Global Credit Portal, U.S. States’ Pension Funded Ratios Drift Downward. (March 31, 2011)

State-by-State Comparison of Unfunded Liability

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Source: Standard & Poor’s Global Credit Portal, U.S. States’ Pension Funded Ratios Drift Downward. (March 31, 2011)

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SB 1946 – Cullerton (Madigan)Passed House: 92-17-7Passed Senate: 48-6-3

Systems Impacted• IMRF, Chicago Municipal, Cook County, Cook County Forest Preserve, Chicago Laborers, Chicago

Park District, Metropolitan Water, SERS, SURS, TRS, Chicago Teachers (Judges and GA separate; CTA, Police and Fire excluded)

Retirement Eligibility – Except State Policemen, Firefighters, and Correctional Guards• Normal Retirement – 67 years old with 10 years of service

• Early Retirement – 62 years old with 10 years of service with a 6.0% per year reduction in benefit for each year age is under 67

• Annuity based on highest 8 years out of last 10 years of service

• Annual final average salary may not exceed $106,800, as automatically increased by lesser of 3% or one-half of the annual increase in the CPI-U during the preceding 12-month calendar year

Retirement Eligibility – State Policemen, Firefighters, and Correctional Guards

• Normal Retirement – 60 years old with 20 years of service

• State Policemen, Firefighters, DOC guards still eligible for Alternative Formula

Annual Increases in Annuity• Increases begin at the later of the first anniversary of retirement or age 67

• Increases equal to the lesser of 3% or one-half the annual increase in the CPI-U during the preceding 12-month calendar year; if increase in CPI is zero or if there is a decrease in CPI, then no COLA payable

• Increase not compounded

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STATE FUNDED RETIREMENT SYSTEMS

Public Act 96-0889 (SB 1946) significantly lowers the required employer contribution for each of the five State retirement systems. The Commission’s actuary performed a cost analysis based on this reduction in contributions for members of each State retirement system in Illinois who start participation on or after January 1, 2011. The results of this cost analysis and the impact the reduction in contributions will have on the State can be seen in the following table.

Projections of Reduction in State Contributions Based on P.A. 96-0889 (SB 1946)

Projected State Pension Contributions

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Final Thoughts

Artemus WARD 1834-1867

“Let us all be happy, and live within our means, even if we have to borrow the money to do it with.”