Retirement Security

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:

  1. Municipal Employees' Annuity & Benefit Fund of Chicago (MEABF)
  2. Laborers' & Retirement Board Employees' Annuity & Benefit Fund (LABF)
  3. Policemen’s Annuity & Benefit Fund (PABF)
  4. Firemen's Annuity & Benefit Fund (FABF)
  5. This website also provides information about two other funds that cover employees of certain sister agencies of the City.

  6. Chicago Teachers Pension Fund (CTPF)
  7. Park Employees Annuity and Benefit Fund (PEABF)

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.

  • Property Tax Revenue
  • Other revenues, such as the Personal Property Replacement Tax (PPRT)

2. Employee contributions made through payroll deductions.

3. Returns on fund investments.

  • All of the numbers and percentages associated with the retirement systems described in this website assume pension fund investments will see a return of 8% or greater per year. However, the low funding levels of the retirement plans means that the funds are liquidating assets to pay pension benefits each year, so the amount invested needs an even higher rate of return. Relying on the stock market to consistently hit this goal is risky.

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
Chicago Parks: $11 million
Chicago Teachers: $204 million

Total: $692 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.

City’s Unfunded Pension Liabilities (projected to end of FY2012):

  • Municipal Employees' Annuity & Benefit Fund of Chicago (MEABF): $8.2 billion
  • Laborers' & Retirement Board Employees' Annuity & Benefit Fund (LABF): $0.9 billion
  • Policemen’s Annuity & Benefit Fund (PABF): $7.0 billion
  • Firemen's Annuity & Benefit Fund (FABF): $3.1 billion
  • Chicago Teachers Pension Fund (CTPF): $7.1 billion
  • Park Employees Annuity and Benefit Fund (PEABF): $0.4 billion

Total Current Unfunded Liability: $26.8 billion

How Much Do City Employees and their Employers Contribute to their Pension Benefits?

  • Number of retired employees and beneficiaries: 71,850
  • Number of active employees: 84,400
  • Average retiree pension: $41,400
  • Taxpayer-supported contribution rate: 12.28% 
  • Employees’ contribution rate: approximately 8.81% (*five funds’ percentages vary from 8.500% to 9.125%)
  • Chicago Teachers: 9% (*CPS pays 7% under collective bargaining agreement, and 2% is deducted from employees’ gross pay)

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.

  • Every pay period, a percentage of each employee’s gross pay is deducted by his or her employer and sent to the pension Fund of which he is a member.  Those percentages range from 8.50% at LABF and MEABF to 9.125% at FABF. Shortly after the end of the year, each of these Funds calculates how much the employer or sponsor of the Fund should contribute, based on a multiple of what employees contributed by payroll deduction in the year just ended. 

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.

  • This approach requires taxpayers to pay taxes sufficient to achieve a specific funding level by a specific date.  These are called “actuarial contributions” because the employer’s contributions are determined by mathematical or actuarial calculations.