Response to Budgeting for Results Commission Pension Questions

Pensions GOMB Response to Budgeting For Results Commission Pension Questions

Overview Schedule of Funding Progress Components of UAAL 2011 UAAL contribution by retirement system Employee contributions to pensions

Schedule of Funding Progress(1) Unfunded Accrued Actuarial Liabilities (UAAL)(2) (b-a) $35,014.55 42,979.32 35,143.40 38,601.10 40,732.10 42,177.40 54,383.90 62,439.10 75,740.90 82,907.01 Actuarial Value of Assets(2) (a) $40,238.98 40,925.69 54,769.42 58,577.90 62,341.40 70,731.20 64,700.50 63,996.40 63,053.40 63,553.03 UAAL as a Percentage of Payroll(2) ([b-a]/c) 264.4% 316.0% 257.0% 273.6% 280.1% 276.6% 341.0% 376.0% 444.4% 485.9% Actuarial Accrued Liability (b) $75,253.53 83,905.02 89,912.82 97,179.00 103,073.50 112,908.60 119,084.40 126,435.50 138,794.30 146,460.04 Fiscal Year Funded Ratio(2) (a/b) 53.5% 48.8% 60.9% 60.3% 60.5% 62.6% 54.3% 50.6% 45.4% 43.4% Payroll (c) $13,241.45 13,601.60 13,675.84 14,106.80 14,540.50 15,249.20 15,949.20 16,606.60 17,042.20 17,061.93 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2009(3) 2010(3) 2011(3) 48,664.00 53,225.10 63,382.38 126,435.50 138,794.30 146,460.04 77,771.50 85,569.20 83,077.66 38.5% 38.3% 43.3% 16,606.60 17,042.20 17,061.93 468.3% 502.1% 486.9% Source: Comprehensive Annual Financial Reports of the Retirement Systems for the fiscal years ending June 30, 2002 through June 30, 2010 and Actuarial Valuations of the Retirement Systems as of June 30, 2011. (1) In millions of dollars. Table may not add due to rounding. (2) For fiscal years prior to 2009, the actuarial value of assets was equal to the fair value of assets. Beginning in fiscal year 2009, the actuarial value of assets was determined in accordance with the Asset Smoothing Method. See discussion of Asset Smoothing Method under "ACTUARIAL METHODS - Actuarial Value of Assets" above. (3) Measures the Actuarial Value of Assets at fair value.

Schedule of Funding Progress The funded ratio is worse today than it was prior to the $7.3 billion contribution from the 2003 pension bond issuance. The 2011 unfunded accrued liability is virtually the same if measured on a market basis or actuarial basis (5 year smoothing). 43.4 percent compared to 43.3 percent. The 2011 unfunded actuarial liability as a percentage of payroll is 1.84 times what it was in 2002.

COMPONENTS OF CHANGE IN UNFUNDED LIABILITY Employer Contributions Higher/(Lower) than Normal Cost Plus Interest(2)(4) Investment Returns (Higher)/Lower Than Assumed Total Change in Unfunded Liability From Previous Year Salary Increases/ (Decreases) Changes In Actuarial Assumptions Fiscal Year Benefit Increases Other Factors(3) 2002 134.4 5,575.4 1,741.0 234.1 1,377.8 903.4 9,966.1 2003 125.6 2,071.5 2,435.1 2,425.0 - 1,101.0 8,158.3 2004 135.7 (3,841.8) (4,689.8) - - 385.3 (8,010.6) 2005 35.1 (1,033.6) 2,431.5 - 26.4 2,048.3 3,507.8 2006 108.3 (1,843.1) 3,484.5 - 704.6 (323.2) 2,131.2 2007 314.9 (6,064.1) 3,321.0 - 2,735.2 1,138.3 1,445.2 2008 72.8 9,312.3 2,785.9 - - 35.5 12,206.5 2009 (105.8) 7,080.7 3,237.0 - - 1,097.7 8,055.2 2010 (424.1) 4,818.1 2,746.1 - 5,209.1 950.5 13,301.8 2011 (847.3) 2,667.2 3,666.1 - 581.3 1,098.7 7,166.2 Total (450.4) 18,742.6 21,158.4 2,659.1 10,634.4 8,435.5 57,927.7 Source: Commission on Government Forecasting and Accountability, Report on the Financial Condition of the Illinois Retirement Systems: Financial Condition as of June 30, 2010. See "RECENT REPORTS REGARDING THE RETIREMENT SYSTEMS - Report of the Commission on Government Forecasting and Accountability." Fiscal year 2011 data compiled from the annual Actuarial Valuations of the Retirement Systems as of June 30, 2011. (1) In millions. Table may not add due to rounding. (2) To determine whether employer contributions represented an increase or decrease in UAAL, such contributions are measured against contributions based on the Normal Cost plus interest. If employer contributions exceed Normal Cost plus interest, the UAAL will decrease. If employer contributions are less than Normal Cost plus interest, the UAAL will increase. Other factors include, but are not limited to, higher or lower incidences of retirement, disability, in-servie mortality, retiree mortality or terminations than assumed. Includes 2003 Pension Bonds. See "HISTORY OF CONTRIBUTIONS TO THE RETIREMENT SYSTEMS" above. (3) (4)

COMPONENTS OF CHANGE IN UNFUNDED LIABILITY The largest contributor to the increase in the unfunded liability is employer contributions less than the normal cost plus interest. Investment returns less than assumed is the second largest contribution to the increase in unfunded liabilities.

INDIVIDUAL PENSION SYSTEM DATA UPDATE 2011(1) Employer Contributions Higher/(Lower) than Normal Cost Plus Interest(2) Investment Returns (Higher)/Lower Than Assumed Total Change in Unfunded Liability From Previous Year Salary Increases/ (Decreases) Changes In Actuarial Assumptions Benefit Increases Other Factors(3) System TRS (545.6) 1,718.4 1,913.6 - - 589.4 3,675.9 SURS (172.3) 430.0 930.3 - (24.9) 251.8 1,414.9 SERS (116.5) 483.8 749.9 - 554.8 215.2 1,887.2 GARS 4.8 3.6 5.6 - 35.8 (0.1) 49.7 JRS (17.7) 31.5 66.6 - 15.6 42.4 138.4 TOTAL (847.3) 2,667.2 3,666.1 - 581.3 1,098.7 7,166.1 Data compiled from the annual actuarial valuations of the Retirement Systems as of June 30, 2011. Table may not add due to rounding. (1) In millions (2) To determine whether employer contributions represent an increase or decrease in UAAL, such contributions are measured against contributions based on the Normal Cost plus interest. If employer contributions exceed Normal Cost plus interest, the UAAL will decrease. In employer contributions are less than Normal Cost plus interest, the UAAL will increase. (3)Other factors include, but are not limited to, higher or lower incidences of retirement, disability, in-service mortality, retiree mortality or termination than assumed.

INDIVIDUAL PENSION SYSTEM DATA UPDATE Despite a contribution of $4.3 billion (which is higher than the statutorily required contribution of $4.156 billion) in 2011 the unfunded actuarial liability (UAAL) increased $7.166 billion. Two factors contribute the Employer Contributions Higher/(Lower) than Normal Cost Plus Interest increase in UAAL The difference between the actual contribution and the required contribution per GASB 25. Interest (investment) income loss due to prior contributions not being made. Investment returns were less than assumed due to asset smoothing. Smaller than expected salary increases offset some negative pressures

Pensions System Income 2011 How much do employees contribute? SERS TRS SURS GARS JRS Total Employee Contributions $254,201 $909,755 $260,177 $2,006 $16,725 $1,442,687 State and Employer Contributions $1,127,887 $2,326,029 $773,595 $11,444 $62,694 $4,301,648 Investment Income $1,930,208 $7,234,539 $2,801,109 $10,271 $105,258 $12,081,386 Total $3,312,297 $10,470,145 $3,834,881 $23,720 $184,678 $17,825,721 Data compiled from the annual actuarial valuations of the Retirement Systems as of June 30, 2011. Table may not add due to rounding. ($ in Thousands) SURS self managed plan not included.

2011 Pension Contributions as a Percentage of Pension Income SERS TRS SURS GARS JRS Total Employee Contributions 7.67% 8.69% 6.78% 8.46% 9.06% 8.09% State and Employer Contributions 34.05% 22.22% 20.17% 48.25% 33.95% 24.13% Investment Income 58.27% 69.10% 73.04% 43.30% 57.00% 67.78%

2011 Pension Contributions as a Percentage of Pension Income State and employer contributions were three times the size of employee contributions in 2011. Benefits and refunds in FY11 were $7.668bn. The difference between investment income and benefits and refunds paid is the new net assets on a market basis (not actuarial). In 2011, market basis funding ratios improved slightly because the change in net assets exceeded the change in actuarial accrued liabilities (AAL). $10.157bn increase in net assets compared with $7.668 increase in AAL.