A pension reform plan for Chicago's municipal and laborer pension plans will move forward following the measure's inclusion in the state's budget package approved Thursday. State-level pension changes, including a hybrid plan for certain new state employees, were also a part of the approved budget.
The Chicago municipal and laborer pension reform plan approved Thursday is the same plan that passed the Legislature in April but had not been sent to Gov. Bruce Rauner for his signature. An identical plan was passed by a lame-duck Legislature in January and vetoed by Mr. Rauner in March.
The measure, which is intended to improve the funding ratios of the $4.3 billion Chicago Municipal Employees' Annuity & Benefit Fund and $1.2 billion Chicago Laborers' Annuity & Benefit Fund to 90% each by 2058 through higher contributions for certain employees and increased city contributions, was a component of the state's budget package that passed the full Legislature on Tuesday and was vetoed by Mr. Rauner the same day. Mr. Rauner's veto was overridden by the Senate on Tuesday and the House on Thursday.
The measure requires that Chicago begin making contributions on an actuarial basis to both the municipal and laborers' funds in 2023. It also raises payroll contributions for participants of both pension funds hired after Jan. 1, 2017, to 11.5% from 8.5%, and reduces their age of eligibility for full benefits to 65 from 67. Employees hired on or after Jan. 1, 2011, will have the option of increasing their payroll contributions to 11.5% from 8.5% in return for their retirement age being reduced to 65 from 67. Employees hired prior to 2011 are not affected.
The Chicago municipal fund had a funding ratio of 24.7% as of Dec. 31, 2015, and the laborers' fund, 45%.
The state-level pension changes approved in the budget include a hybrid retirement plan for new hires at the $47.3 billion Illinois Teachers' Retirement System, Springfield, $15 billion Illinois State Employees' Retirement System and $19 billion Illinois State Universities Retirement System, Champaign; a requirement that colleges and universities pick up the normal cost of certain employees' pensions; and smoothed actuarial assumptions at TRS, SERS, SURS, the $49 million General Assembly Retirement System and the $840 million Illinois Judges' Retirement System.
The state has yet to release an actuarial analysis on the changes and expected savings, but the changes are not expected to dramatically reduce the state's unfunded pension liabilities, said Laurence Msall, president of the Civic Federation, an independent government research organization in Chicago.
On Wednesday, ratings agency Moody's Investors Service announced that Illinois' credit rating was under review for a possible downgrade, citing the budget's lack of "concrete measures" to address its unfunded state pension liabilities. On a GASB 68 accounting basis, Illinois faces $141.1 billion in unfunded liabilities across its five pension plans.