December 1, 2011
The Chicago Park District is the only park district in Illinois with its own pension fund. All other park districts participate in the Illinois Municipal Retirement Fund. The Chicago Park District pension fund is governed by a seven-member Board of Trustees, as prescribed in state statute. Four members are elected by the employees and three members are appointed by the Park District Board of Commissioners.
In fiscal year 2010 there were 2,816 employees participating in the fund and 2,956 annuitants receiving benefits. The Civic Federation estimates that roughly 55% of the participating members were full-time Park District employees while the remainder were part-time (the District budgeted for 1,539 full-time employees in FY2010). Employees in positions that are budgeted to be filled for more than six months of the year are required to participate in the fund (40 ILCS 5/12-101).
Members of the Park District pension fund do not participate in the federal Social Security program so they are not eligible for Social Security benefits related to their District employment when they retire. However, Park District employees who are not eligible for the Park District Pension Fund do participate in Social Security.
The fiscal health of the Park District pension fund has declined sharply over the last few years. The following exhibit shows the actuarial and market value funded ratios for Park District’s pension fund over the last ten years. The actuarial value funded ratio fell from a high of 96.7% in FY2001 to 62.3% in FY2010. The market value funded ratio fell from a high of 89.3% in FY2001 to a low of 49.5% in FY2010.
This continued decline in funded ratio is a cause for concern. In general, a ratio below 80% is considered to be an indication that the fund is in poor health. An estimate based on the FY2009 actuarial valuation projected that the Park District pension fund funded ratio would continue to decline, reaching 1.8% in the year 2024 and depleting its assets completely during 2025.
One significant contributor to this negative trend was Public Act 93-0654, which provided benefit enhancements and an early retirement incentive as well as a temporary reduction in statutorily required employer contributions. These changes increased the fund’s actuarial liability by $57.2 million in FY2004.
The employee and employer contributions to the pension fund are not related to the fund’s fiscal health. The employee contributions are 9.0% of salary and employer contributions are 1.1 times the total employee contribution made two years prior. From FY2001 to FY2004 the employer contributions were adequate to fund the pension plan at a level that would both cover normal cost and amortize the unfunded liability over 30 years (this level is called the annual required contribution or ARC—see this blog post for more information). As shown in the graph below, the employer contributions have been insufficient to maintain the health of the fund since FY2005. In FY2005 and FY2006 the employer contributions to the fund were reduced by a total of $10 million pursuant to Public Act 93-0654, although the District was not required to reduce its total property tax levy equivalently. This created a 50% reduction in the employer contributions for the Park District fund in FY2005 and FY2006 and increased the unfunded liabilities by roughly $20 million.
The FY2010 employer contribution to the fund was $10.8 million, but an additional $11.6 million would have been needed to fund it at a level adequate to cover normal cost and amortize the unfunded liability over 30 years.