Bridget Gainer: June 19 2013 Pension Committee Report

Cook County Pension Fund

FY2012 Report Actuarial Valuation Report

as of December 31, 2012

Cook County Pension Committee – June 19, 2013 Commissioner Bridget Gainer

Chair Cook County Pension Committee

www.BridgetGainer.com

www.OpenPensions.org

312-603-4210

[email protected]

Cook County Pension Fund Facts

• The Cook County Pension Fund is 53.5% funded. ▫ FY 2012 – 57.5%

• The unfunded liabilities of the Pension Fund have increased $1.6B since 2010

• FY 2012 unfunded liability $6.79 billion

• The FY 2012 Actuarially Required Contribution (ARC) was $529 M

▫ The statutory/actual employer contribution was $190,575,229

• A $66.8 million increase in the difference between contribution and ARC from FY2011

• The FY12 investment return:

• 12.5% on a market basis • 3.1% on an actuarial basis (five year smoothing). ▫ The fund assumes 7.5% annual returns.

▫ FY11 return was 1.2% (market) and 1.7% (actuarial)

• The Fund is projected to go insolvent in 2034 – 21 years.

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Cook County Pension Report Commissioner Gainer – June 19, 2013

Buck Consultants Actuarial Valuation Report as of December 31, 2012

Comparing Current Employees, Current Retirees & Current Inactives

Inactive Members: Not current employees, but have qualified for a benefit in the future

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Cook County Funded Status Cook County Pension Report

Commissioner Gainer

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Breaking Down The

Increase in Unfunded

Liability

Unfunded liability increased by $969,457,746 in FY12 due to:

$376,601,751 ( 40%)

Due to lower than assumed investment returns.

$305,896,670 (32%)

Due to other sources, largely increased retiree healthcare liabilities

$252,886,106 (27%)

Due to difference between the Statutory Contribution and normal cost + debt on unfunded liability. (ARC)

$34,073,219 (4%)

Due to Salary Increases higher than assumed. The County reduced headcount by 539, but salaries rose by $21M

.

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$946,457,746 Increase



Incoming Revenues/ Contributions

Additions – FY12 Additions – FY11

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Total FY12 additions: $1,219,169,583 Total FY12 outflows: $600,477,205

Outflows – FY12 Outflows – FY11

Total FY11 additions: $423,230,443 Total FY11 outflows: $556,640,805

Cook County Pension Fund &

Retiree Healthcare

Actuarial Valuation Report

as of December 31, 2012





312-603-4210

[email protected]

Retiree Health Care

Overview • Since 1991 the Cook County and Forest

Preserve Pension Funds have provided subsidized health benefits to annuitants and their eligible dependents.

▫ Not state law

• 8,179 retirees ( 60% of total ) participated in the health care plan in FY12.

▫ 91% of dependents participated

• 2012 Total Cost to the Fund: $44,951,460.

▫ 1991 cost to the fund: $1M

• Cost of promised benefits $1,845,609,132.

as of FY 2012.

• The actuaries assume 70% of future retirees elect medical benefits at retirement.

Health Benefits Subsidy History

2011 2012 2013

Member Fund Member Fund Member Fund

Medicare eligible Retiree

45% 55% 45% 55% 46% 54%

Non-Medicare eligible Retiree

45% 55% 50% 50% 51% 49%

Survivor HMO all and PPO Medicare

30% 70% 30% 70% 31% 69%

Survivor PPO Non-Medicare

30% 70% 35% 65% 36% 64%

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Health Care & Total Unfunded Liability

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The key drivers behind

this increase are:


The Future Cost of promised Retiree Health Care benefits are $1.8B – an

$167M increase from FY11.

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Health Care Eligibility

Requirements & Plans

Requirements

• Tier 1: age 50 with 10 years

• Tier 2: age 62 with 10 years

• All active employees who separate with 10+ years can receive health care

• Surviving dependents of actively employed members and surviving dependent

• Eligible annuitants may cover their spouses and dependent children under the age of 26.

*CEABF pays approximately 55% of the total premium for retiree annuitants, including the cost of family coverage, and approximately 70% of the total premium for survivor annuitants, including the cost of family coverage

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Segal Report to Pension Fund Board of Trustees Health Benefits Committee

Projected Health Care Costs with

existing benefit plan

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Segal Associates Report to the Health Benefits Committee of the Cook County Pension Fund. Segal is the Plan design consultant retained by the Pension Fund Board of Trustees.



Benefit Changes valued by Segal as directed by the Health

Benefit Committee: coverage, deductible and out-of-pocket

Plan Provision Current Benefit Proposed Change Est. Annual Savings

Deductible In: Individual: $200 / Family: $400 Out: Individual: $400 / Family: $800

In: Individual: $300 / Family: $600 Out: Individual: $600/ Family: $1,200

$1,661,592 First Year

Savings

$2,33,853 Annual

Savings By 2020

Coinsurance In-Network: 90%/ Out-of-Network: 70%

In-Network: 85%/ Out-of-Network: 60%

In-Network Out-of-Pocket Limit

Individual: $1,500 / Family: $3,000 Individual: $2,000 / Family: $4,000

Out-Network Out-of-Pocket Limit

Individual: $5,000 / Family: $10,000

No limit

Skilled Nursing Facility Benefit

120 days 90 days

Deductive Carryover Provision

States that “if you have any expenses during the last three months of a benefit period which were or could have been applied to that benefit period’s deductible, these expenses will also count as a credit toward the deductible of the next benefit period.”

Remove provision

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Benefit Changes valued by Segal as directed by the

Health Benefit Committee:

Example of a Subsidy Tiers by Years of Service

• Applying a tiered contribution strategy based on years of service will ensure that appropriate coverage is provided and subsidized for ‘career’ annuitants. Segal Report to Health

Benefits Committee April 11, 2013.

• If the fund implemented the proposed changes effective e 1./1/2014, the projected 2014 savings are $1.7mm, increasing to $16.2m in 2023. Segal Report to Health Benefits

Committee April 11, 2013.

Years of Service

Current Subsidy Amount

Possible Subsidy Amount

0 – 9 55% 0%

10 – 15 55% 15% -24%

16 – 20 55% 25.8% - 33%

21 – 25 55% 34.8% - 42%

26 – 30 55% 43.8% - 51%

31 – 34 55% 52% - 55%

35+ 55% 56%

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Illinois General Assembly &

Pension Reform

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312-603-4210

[email protected]

Overview

• Governor Quinn has called a special session that convenes today – June 19, 2013.

• Legislative Conference Committee.

▫ Made up of five members each from the House and Senate.

▫ Operating on an early July deadline.

• Current pension reform packages:

▫ SB 2404 (Cullerton Bill)

▫ SB2404 HA #1 (Madigan Bill)

▫ SURS

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Cook County Tier 1 Cook County Tier 2 SB2404 HA#1 SURS Plan

Changes for Hired before January 1, 2011 Hired after January 1, 2011 Tier 1, current & future retirees Only SURS Tier 1

Funding Goal None None 100% by 2044 "Reasonable closed

amortization period"

Defined Benefit Yes Yes Yes Yes

Hybrid Plan (DC plan) No No No Yes for all new EE

Employee Contributions 8.50% 8.50% Tier 1: 2% increase over two years Tier 1 EE - 2% increase over

four years

Employer Contributions 13.09% 13.09% No change None

Investment Rate of Return 7.50% 7.50% 7.50% Equivalent to 75 basis points

above 30 year Treasury Bonds

Additional Revenue None None $1B annually None

Cost Shift N/A N/A N/A

Universities & colleges will contribute up to 6.2% of normal

cost

Cost of Living (COLA) 3% Lessor of 3% or 1/2 CPI

3% of $1,000 per each (cap) year of service 1/2 CPI-U

COLA Compound or Simple Compound Simple Simple Simple

COLA Delay None None Until 67 or until fifth retirement

anniversary None

Service Credit Formula 2.4 2.4 No change No change

Retirement Age 60 (50 w/30 years) 67

Age 40 -4 4 +1 year - Age 35 to 39 +3 years- Below 35 +5 years No change

Minimum Retirement Age 50 w/10 years, 1/2% reduction for

every month before 60 62 w/10 years, 1/2% reduction for

every month before 67 No change

Final Average Salary 48 months 96 months No change

Cap on Pensionable Wages None Same as SS ($113,000 in 2012) Same as SS ($113,000 in 2012 No change

Pensionable Wage Cap None Lessor of 3% or 1/2 CPI Lessor of 3% or 1/2 CPI No change

Retiree Health Care Subsidy 45 - 55% 45 - 55% Can not be paid out of pension fund No change

Legal Recourse None None Yes Yes

Unfunded liability payment schedule No No No

Yes; straight-line amortization

Background & Assumptions FY12 Actuarial Valuations for the Cook County Pension Fund

Pension Plan Overview

• The County Pension Plan is codified in Title 9 and 10 of the Illinois General Assembly Pension Code.

• The Pension Board of Trustees has 9 members: 4 elected by current employees, 3 elected by retirees, 1 appointed by the Treasurer, and 1 appointed by the Comptroller.

• The Pension Fund Board chooses investment managers and consultants.

• The Pension Fund Board also sets the healthcare subsidy amount and oversees the type of plan being offered.

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Current Benefit Structure Tier 1 Tier 2

Employee Contributions 8.5% 8.5%

Employer Contributions 13.09% 13.09%

Cost of Living Adjustment (COLA)

3% Lessor of 3% or ½ CPI

COLA (Simple or Compound) Compound Simple

Service Credit Formula 2.4 2.4

Retirement Age 60 (50 w/ 30 years) 67

Minimum Retirement Age 50 with 10 years, ½% reduction for every month before age 60

62 with 10 Years, ½% reduction for every month before age 67

Final Average Salary 48 months 96 months

Cap on Pensionable Earnings None 96 months

Growth of Cap on PE None $113,000 in 2012

Retiree Healthcare Subsidy 45-55% Lessor of 3% or ½ CPI

Employees Hired before 1/1/11

Employees Hired after 1/1/11

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Current County

Employees

2012 2011

Number of Active Employees 21,447 (-590) 22,037

Average Age 47.5 47.3

Average Years of Service 14 13.7

Total Annual Salary $1,478,253,368 (+21M) $1,456,444,123

Average Annual Salary $68,926 $66,091

• Between 2011 and 2012, employees decreased by 590, total payroll increased by $21,809,245. The 5.2% increase was higher than the 5% increase used for actuarial assumptions.

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Current Inactives

2012 2011

Total inactive members 11,856 12,584

Average Age 44.8 44.7

• This group represents members who did not elect to receive their accumulated contributions when they left County employment. This is a 5.8% decrease from the previous year.

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Assets vs. Liabilities

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Actuarial Unfunded Liability

The unfunded liability is the difference between the actuarial value of assets and liabilities

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Current Retirees

& Dependents

2012 2011

Retirees Receiving an Annuity 13,609 13,023

Spouses and Dependents Receiving an Annuity

2,565 2,532

Total 16,174 15,555

Average Age of Annuitant 71.2 71.1

Average Annual Pension $35,795 $34,332

Average Monthly Pension Benefit $2,982 $2,893

586 people retired in 2012, representing a 4% increase from 2011

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Expenditures v Revenues

2011

Expenditures $556,640,805

Revenues

$423,230,443

2010

Benefit Payments $511,640,181

Contributions + Investment

Returns $1,156,807,879

2012

Expenditures $600,477,205

Revenues

$1,219,169,583

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Cook County Pension Fund

Investment Returns 1981-2012

Average Return

1 year: 3.1%

5 years: 2.2%

10 years: 6.04%

15 years: 5.23%

20 years: 6.76%

25 years: 7.71%

30 years: 8.51%

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Returns calculated using five year smoothing



Retiree Health Care

• “The Cook County Pension Fund Board considers the healthcare premium subsidy an additional retirement benefit, with no contribution rate or asset allocation associated with it.” (Dec. 31 2010 County Employees and Officers Annuity and Benefit Fund of Cook County Financial Report prepared by

Legacy Professionals LLP p.20)

• If the retiree health care expenses were not subtracted from the Pension fund the 2012 overall funded status would be approximately 66.4%, instead of 53.5%.

• Only Cook County and CPS pay retiree health benefits from the pension fund.



Health Benefits Cost Review “While total spend continues to increase, the Fund spend has declined since 2011 and Member spend has increased.”

Segal Report to Pension Fund Board of Trustees Health Benefits Committee February 14, 2013



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Total Annuitants Receiving a

Health Care Subsidy


Average Health Care Cost Per Retiree

Medicare Eligible vs. Non-Medicare Eligible

• Monthly premium for retirees under 65: $1,304.03 ▫ Annuitants: 1,952

▫ Covered Dependents: 749

• Monthly premium for retirees over 65: $271.57 ▫ Annuitants: 6,227

▫ Covered Dependents: 1,585

• The premium for Non-Medicare eligible employees is twice that of the Medicare eligible population.

• These numbers do not include pharmacy costs.


Health Insurance Coverage

by Retiree Age

Cook County Pension Report Commissioner Gainer

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