May 28, 2014
On May 28, 2014, The Civic Federation sent this letter to Representitive Elaine Nekritz and the members of the House Personnel and Pensions Committee in advance of a 4 p.m. hearing on House Bill 1154. The Civic Federation commends Cook County Board President Toni Preckwinkle, Cook County Commissioner Bridget Gainer and Cook County Chief Financial Officer Ivan Samstein for their work to assemble a comprehensive reform framework to address Cook County and the Forest Preserve District’s pension crisis.
Dear Representative Nekritz and members of the House Personnel and Pensions Committee:
The Civic Federation urges the Personnel and Pensions Committee to approve House Bill 1154, as amended by the Illinois Senate, which would stabilize the financial condition of the County Employees’ and Officers’ Annuity and Benefit Fund of Cook County and the Forest Preserve District Employees’ Annuity and Benefit Fund of Cook County.
The bill is the product of negotiations between Cook County, the pension funds and employee unions and calls for shared sacrifice on the part of employees and taxpayers to ensure a sound fiscal future for the pension funds. Though the County and District funds are in marginally better condition than the City of Chicago’s funds, at 56.6% and 59.5% funded respectively, the urgency for reform is no less. Over the past ten years, both funds experienced more than a doubling of their unfunded pension liabilities and a decline in funded ratios of 20 percentage points. These are clearly not healthy funds. The sooner a plan for long-term sustainability can be implemented, the lower the long-run cost will be for taxpayers and the less onerous benefit reductions must be for employees and retirees.
The bill would reduce some pension benefits for current employees and increase employer and employee contributions to the funds. The agreed reform package chooses to retain retirees’ compounded 3% automatic annual increases and a compounded increase for employees hired before January 1, 2011. However, it also includes more stringent benefit reductions that compensate for the expense of the compounded increase, including changes to how final average salary is calculated, a reduction to the retirement benefit calculation and downside triggers that suspend all annual pension increases if funding gets too low. In sum, this is a carefully considered package of reforms that is projected to increase funding levels to 100% within 30 years and is worthy of support.
It is important to note that, in contrast to the State of Illinois’ pension reforms, the Cook County reforms call for an increase to employer contributions. The Civic Federation believes this is unavoidable given the current extremely low level of statutory funding by the County and District. Illinois has contributed an actuarially-based amount for the last several years and Senate Bill 1 was thus able to bend the pension cost curve enough to reduce employer contributions. In contrast, the General Assembly-mandated employer contributions for Cook County and the Forest Preserve District for the past decade have been well below the actuarial needs of the fund. To fund the Cook County pension fund at an actuarially-based level, the County would have needed to contribute an additional 31.2% of payroll, or $461.3 million, in FY2012. The Civic Federation does not believe, given current funding levels and employer contribution levels, that it would be possible to reduce benefits enough to avoid an increase to employer contributions and a possible tax increase. The fact that the projected increase to employer contributions is $147 million under the reform package demonstrates the significant cost savings compared to current benefits.
The Civic Federation would prefer the County’s contributions (and those for all Illinois public pensions) be based upon an annually calculated, actuarially based funding formula, instead of a multiplier. However, the bill does provide a backstop for an actuarially-related funding formula should assumptions not be met and the multiplier in the bill does not provide sufficient funding.
Again, the Civic Federation urges the committee not to delay in approving House Bill 1154, as amended. The reasons cited by opponents to pension reform for a “wait and see” approach are not compelling. Delay has not and will not improve the fiscal condition of the Cook County and Forest Preserve District pension funds; it will only make their rescue more expensive to taxpayers, painful to employees and hinder the County’s efforts to improve its bond ratings.
Thank you very much for your consideration. Please call me at 312-201-9044 if you have any questions or comments.
Laurence J. Msall