Actuary puts a price tag on improving Chicago firefighters’ pension

A state-approved pension enhancement for some Chicago firefighters adds $180 million to the fund’s $5.29 billion in existing unfunded liabilities and $16-17 million in additional annual costs that stand at $700 million by 2055.

The legislative change approved last year and signed by Governor JB Pritzker made permanent a cost-of-living adjustment that lawmakers had previously approved every few years, meaning the full cost was never taken into account. account in actuarial valuations.

the Segal reviewwhich does the actuarial valuations for the fund, provides the clearest picture of the expected cost and comes as the legislation’s sponsor plans to pursue a similar measure for the police fund in the current legislative session.

“They’re going to profit from it eventually, so what you’re doing is accounting for it now,” said State Sen. Robert Martwick, D-Chicago.

Last year, Mayor Lori Lightfoot and the Chicago Civic Federation sounded the alarm that the city could not afford what city officials then estimated at $18 million to $30 million in annual contributions. additional.

Lightfoot’s chief financial officer, Jennie Huang Bennett, recently warned the similar tab for the police, if this legislation is approved, could drive up annual costs by $90 million, with the total price reaching $3 billion.

The sponsor of the legislation remains firm in his support for change saying it is the honest approach.

“It’s not really an additional cost, because when you start paying it now, it’s actually a reduced cost. They’re going to profit from it eventually, so what you’re doing is accounting for it now,” said Sen. Robert Martwick, D-Chicago. Martwick chairs the Senate Pension Committee. “It’s about transparency and long-term common sense that saves taxpayers in the long run.”

The city carries heavy net pension liabilities of $33 billion with funded ratios between 19% and 44% between its four funds and rising debt service contributions are weighing heavily on its budget and ratings.

The numbers provide “further evidence of the General Assembly’s recklessness in passing improved benefits outside of the collective bargaining contract and against the objections of the City of Chicago,” the Chicago Civic Federation president said. , Laurence Msall. “I think the actual number is still a very large number that none of the sponsors or promoters have any idea how the city should pay for it.”

City pension contributions rose $2.28 billion this year, from $1.8 billion in 2021, as a long-planned shift to actuarial contributions hit city and labor funds. Police and fire funds reached actuarial payments two years ago.

The 2021 legislation raised all firefighters in the city’s former Tier 1 benefit plan to a mere 3% annual increase. Firefighters with certain birth years had previously eliminated some from the benefit. The city had long since upgraded every few years as birth dates reached.

The fund’s $1.28 billion in assets in 2020 fell short of covering $6.57 billion in liabilities, leading to a $5.29 unfunded tab billion. Factoring in the Firefighter COLA change brings the tab to $5.47 billion.

The actuarial capitalization ratio stood at 19.42% before the impact of the COLA change with the market value at 19.92%. The legislative amendment lowers the capitalization ratio based on market value to 19.42%. The actuarial impact on the funded ratio was not available.

The change increases the amount of the tax in 2022 from $16.4 million to $415 million with an increase of $16.8 million in 2023, $17.3 million in 2024 and $17.6 million in 2025. The payment year follows the direct debit year. In 2040, the royalty amount increases to $532 million from a previous estimate of $511 million and to $614 million from a previous amount of $589.6 million in 2055.

Although the city has moved to an actuarially-based payment formula, it still fails to achieve an actuarially determined contribution based on recommended accounting principles. The city’s tax amount of $367 million in 2021 was less than an ADC of $476 million. Chicago’s payment system puts public safety funds on track to reach a 90% funded ratio by 2055.

The slightly lower price for firefighters than the city’s initial projections likely means the cost of policing is likely lower as well, but it would still be significant. The police fund reported $12 billion in net pension liabilities in 2020 for a funded ratio of 22.21%. City officials did not respond to a request for comment.

Martwick said he intended to push for the passing of the policing legislation, but the pension arrangements are politically complicated, this year’s session days are condensed with an earlier adjournment scheduled for the late spring, and it’s an election year, so he couldn’t predict if that would make him upstairs for a vote.

Martwick expects a proposed two-year extension of an existing buyback program and $1 billion in additional general obligation authority to fund it will pass this session.

Another issue that could be up for debate is a so-called tier two benefit “solution” for Chicago public safety pension participants, which was incorporated into 2019 legislation consolidating the Chicago public safety pension funds. state and suburbs.

That, too, would increase the city’s retirement costs, but most believe the state needs to act because Tier Two benefits potentially violate minimum benefit requirements set by the federal Social Security system.

Eleanor C. William