October 18, 2011
The pension crisis at the City of Chicago is severe. As described here, the City faces two distinct pension crises: two of its four funds are expected to run out of money by the year 2030 while the other two funds are scheduled to be rescued from insolvency but at a very steep cost to the City.
Data from the latest audited financial reports of the City’s Police, Fire, Municipal and Laborers’ pension funds shows continued negative trends. Despite strong investment returns in FY2009 and FY2010, the overall financial health of the funds continued to deteriorate as major losses from FY2008 are recognized over a multi-year period.
The actuarial value funded ratios of all four City pension funds declined again in 2010 as they have each year since 2007. The Fire Fund fell to 32.4% and the Police Fund fell to 39.7%. The funded ratio for the Municipal Fund was 49.8% and the Laborers’ Fund was 73.8%. These ratios are roughly half of what they were for each fund in 2001. A funded ratio below 80% is cause for concern as it raises questions about the ability of the government to adequately fund its retirement systems over time.
Unfunded actuarial accrued liabilities are the dollar value of liabilities not covered by assets. Over the past ten years, the unfunded liabilities of the four pension funds combined have grown by $12.1 billion or 449.3%. The total unfunded liabilities reached $14.8 billion in FY2010, the largest portion of which, $6.0 billion was in the Municipal Fund followed by the Police Fund at $5.7 billion.
A summary of the ten-year changes in unfunded liabilities by fund is shown below:
- Fire Pension Fund: 204.2% increase or $1.7 billion;
- Police Pension Fund : 223.4% increase or $3.9 billion;
- Laborers Pension Fund: 253.2% increase or $0.9 billion; and
- Municipal Pension Fund: 1,194.2% increase or $5.6 billion.
Between the U.S. Census years of 2000 and 2010, the unfunded liability per resident of Chicago grew from $827 per capita to $5,473 per capita.
