Chicago's defined benefit plan executives should follow the lead of the Chicago Transit Authority's retirement plan in tying employee and employer contributions and bond issuance to actuarial liabilities and improving funded ratios, according to a report by the city's Civic Federation.
The aggregate funded ratio for the 10 Chicago and Cook County retirement systems studied was 67.2% in fiscal year 2008, with the two worst-funded plans — the $1 billion Chicago Firemen's Annuity and Benefit Fund and the $3 billion Chicago Policemen's Annuity and Benefit Fund of Chicago — at 39.8% and 47.3%, respectively.
The report recommends that the plans adopt reforms enacted by the $1.7 billion Chicago Transit Authority Employees Retirement Plan, which in 2009 doubled employee contributions to 6% and employer contributions to 12%, and established funded ratio benchmarks that trigger increased employer and employee contributions if not reached. That provision required the fund to maintain a 60% funded ratio through fiscal year 2039 with a goal of 90% by 2059.
“If the fund falls below this requirement, then the combined contribution is increased with the employer paying two-thirds of the increased contribution and employees covering the remaining one-third of the increased contribution,” according to the Civic Federation report.
The Civic Federation is a tax policy and government research organization.
Ken Kaczmarz, executive director of the firemen's plan, said in a telephone interview that Chicago Mayor Richard M. Daley established a pension commission that has been working on a report that aims to bolster the funded status of Chicago's public pension plans.
“Everyone agrees that investments are not going to solve the problem,” Mr. Kaczmarz said. “It's a long-standing issue, and I'm glad that the city and unions and civic representatives are all committed to putting forth an effort to solve (the funded status problems).”
John Gallagher, executive director of the Chicago Policemen's plan, declined to comment. Laurence Msall, president of the Civic Federation, could not be reached for comment.