Just the Facts: Answers to Frequent City Pension Questions
What Are the Retirement Plans for City Employees?
State law establishes retirement plans for all public employees in Illinois, including those employed by the City and its sister agencies. Employees of the City of Chicago participate in one of four pension funds:
This website also provides information about two other funds that cover employees of certain sister agencies of the City.
How Are Pensions Funded?
The City retirement system is funded by three sources:
1. Taxpayer contributions from the City’s (or sister agencies) general fund budget.
2. Employee contributions made through payroll deductions.
3. Returns on fund investments.
How Does the Funding Break Down?
Annual total amounts taken from the taxpayer-supported general revenues to support current retirement benefit levels (2012 estimates):
City Sponsored Funds: $477 million
Based on funding assumptions, this number is expected to grow to $2.4 billion in 2017.
*All current numbers for headcount and average pensions are based on the most recent available CAFRs and actuarial valuation reports from each respective pension Fund. Current funding levels are 2012 estimates from independent actuaries.
What Are Acceptable Funding Levels?
When a Fund’s assets are at a level that when invested they are sufficient to pay all the projected future benefits, the Fund is said to be “100%” or “Fully Funded.” A fully funded pension plan means each generation pays the full cost of the services its public employees provide.
Below 80% funding, a pension plan is vulnerable to swings in investment earnings and can rapidly burn through its assets in order to fund benefit payments.
What is the City’s Current Unfunded Pension Liability?
An unfunded pension liability is the difference between the value of the promises made to retirees and employees for services already rendered and the funds available to pay for those promises.
Currently, the City’s six pension funds only have 50% of the funding needed to support the current pension system.
Total Current Unfunded Liability: $26.8 billion
How Much Do City Employees and their Employers Contribute to their Pension Benefits?
What are the two different types of pension funding?
This is all specified in the Illinois Pension Code. It is important to mention, public employees pay a significant amount towards their defined benefit pensions, an amount that is higher than Social Security contributions of private sector employees.
Funds can have their contributions set based on payroll. Five of the six City funds (not CTPF) currently use this approach.
Funds can have their contributions set based on "actuarial funding," which bases contribution rates on the financial condition of the Fund. This is how CTPF funding is now set.