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
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 Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
Cook County Funded Status Cook County Pension Report
Commissioner Gainer
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Buck Consultants Actuarial Valuation Report as of December 31, 2012
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
Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
Incoming Revenues/ Contributions
Additions – FY12 Additions – FY11
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Cook County Pension Report Commissioner Gainer – June 19, 2013
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
Cook County Pension Committee – June 19, 2013 Commissioner Bridget Gainer
Chair Cook County Pension Committee
www.BridgetGainer.com
www.OpenPensions.org
312-603-4210
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
Health Care & Total Unfunded Liability
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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
The key drivers behind
this increase are:
Cook County Pension Report Commissioner Gainer – June 19, 2013
The Future Cost of promised Retiree Health Care benefits are $1.8B – an
$167M increase from FY11.
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Buck Consultants Actuarial Valuation Report as of December 31, 2012
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
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.
Cook County Pension Report Commissioner Gainer – June 19, 2013
Segal Report to Pension Fund Board of Trustees Health Benefits Committee
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Segal Report to Pension Fund Board of Trustees Health Benefits Committee
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Segal Report to Pension Fund Board of Trustees Health Benefits Committee
Illinois General Assembly &
Pension Reform
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Cook County Pension Committee – June 19, 2013 Commissioner Bridget Gainer
Chair Cook County Pension Committee
www.BridgetGainer.com
www.OpenPensions.org
312-603-4210
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 Pension Report Commissioner Gainer – June 19, 2013
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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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Cook County Pension Report Commissioner Gainer – June 19, 2013
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
Assets vs. Liabilities
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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
Actuarial Unfunded Liability
The unfunded liability is the difference between the actuarial value of assets and liabilities
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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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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Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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 Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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
Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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.
Cook County Pension Report Commissioner Gainer – June 19, 2013
Buck Consultants Actuarial Valuation Report as of December 31, 2012
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
Cook County Pension Report Commissioner Gainer – June 19, 2013
Segal Report to Pension Fund Board of Trustees Health Benefits Committee
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Total Annuitants Receiving a
Health Care Subsidy
Cook County Pension Report Commissioner Gainer – June 19, 2013
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.
Cook County Pension Report Commissioner Gainer – June 19, 2013
Health Insurance Coverage
by Retiree Age
Cook County Pension Report Commissioner Gainer
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Cook County Pension Report Commissioner Gainer – June 19, 2013