Bridget Gainer: June 19 2013 Pension Committee Report

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Bridget Gainer: June 19 2013 Pension Committee Report

  1. 1. 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 Info@BridgetGainer.com
  2. 2. 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. 2 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  3. 3. Comparing Current Employees, Current Retirees & Current Inactives Inactive Members: Not current employees, but have qualified for a benefit in the future 3 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  4. 4. Cook County Funded Status Cook County Pension Report Commissioner Gainer 4 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  5. 5. 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 . 5 $946,457,746 Increase Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  6. 6. Incoming Revenues/ Contributions Additions – FY12 Additions – FY11 6 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
  7. 7. 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 Info@BridgetGainer.com
  8. 8. 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% 8 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  9. 9. Health Care & Total Unfunded Liability 9 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  10. 10. 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. 10 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  11. 11. 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 11 Cook County Pension Report Commissioner Gainer – June 19, 2013 Segal Report to Pension Fund Board of Trustees Health Benefits Committee
  12. 12. Projected Health Care Costs with existing benefit plan 12 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
  13. 13. 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 13 Cook County Pension Report Commissioner Gainer – June 19, 2013 Segal Report to Pension Fund Board of Trustees Health Benefits Committee
  14. 14. 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% 14 Cook County Pension Report Commissioner Gainer – June 19, 2013 Segal Report to Pension Fund Board of Trustees Health Benefits Committee
  15. 15. Illinois General Assembly & Pension Reform 15 Cook County Pension Committee – June 19, 2013 Commissioner Bridget Gainer Chair Cook County Pension Committee www.BridgetGainer.com www.OpenPensions.org 312-603-4210 Info@BridgetGainer.com
  16. 16. 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 16 Cook County Pension Report Commissioner Gainer – June 19, 2013
  17. 17. 17 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
  18. 18. Background & Assumptions FY12 Actuarial Valuations for the Cook County Pension Fund
  19. 19. 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. 19 Cook County Pension Report Commissioner Gainer – June 19, 2013
  20. 20. 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 20 Cook County Pension Report Commissioner Gainer – June 19, 2013
  21. 21. 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. 21 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  22. 22. 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. 22 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  23. 23. Assets vs. Liabilities 23 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  24. 24. Actuarial Unfunded Liability The unfunded liability is the difference between the actuarial value of assets and liabilities 24 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  25. 25. 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 25 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  26. 26. 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 26 Cook County Pension Report Commissioner Gainer – June 19, 2013 Buck Consultants Actuarial Valuation Report as of December 31, 2012
  27. 27. 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% 27 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
  28. 28. 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
  29. 29. 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
  30. 30. 30 Total Annuitants Receiving a Health Care Subsidy Cook County Pension Report Commissioner Gainer – June 19, 2013
  31. 31. 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
  32. 32. Health Insurance Coverage by Retiree Age Cook County Pension Report Commissioner Gainer 32 Cook County Pension Report Commissioner Gainer – June 19, 2013

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