Public Act 95-708 amended the
Illinois State Auditing Act by adding requirements for the Auditor General to
annually review and report on information submitted by the Board of Trustees of the Retirement Plan for
Chicago Transit Authority Employees and submit a report to the General
Assembly. The State Auditing Act
requires the Retirement Plan to submit to the Auditor General by September 30
of each year the following documents:
1)
the most
recent audit or examination of the Retirement Plan;
2)
an
annual statement containing the information specified in Section 1A-109 of the
Illinois Pension Code; and
3)
a
complete actuarial statement applicable to the prior plan year, which may be
the annual report of an enrolled actuary retained by the Retirement Plan
specified in Section 22-101(e) of the Illinois Pension Code.
The Office of the Auditor General reviewed documents submitted by the
Retirement Plan and concluded that 2007 Audited Financial Statements submitted met
the requirement for the most recent audit of the Retirement Plan required by
Section 5/3-2.3(e)(1) of the Auditing Act. In addition, the Actuarial Valuation as of January 1, 2008 met the requirement for
the complete actuarial statement for the prior plan year required by Section 5/3-2.3(e)(3)
of the Auditing Act.
Regarding the required “annual statement containing the information specified
in Section 1A-109 of the Illinois
Pension Code,” based upon
information subsequently provided by the Retirement Plan, we concluded that the
annual statement information required by the Pension Code was provided.
The documents showed that the financial condition of the Retirement
Plan continued to decline in calendar year 2007.
- The net assets held in trust for both
retirement and retiree health care benefits totaled $1.02 billion as of
December 31, 2007, compared to $1.12 billion at December 31, 2006.
- The actuarial value of assets for pension
benefits under GASB 25, as of December 31, 2007, was $942 million and the
actuarial liability was $2.5 billion.
- This results in a funded ratio for
retirement benefits of 37 percent for 2007, which is a decrease from the 41
percent funded ratio for the year end December 31, 2006. The Plan’s actuarial valuation projects
that the funded ratio will increase to 80 percent in 2009, with the
infusion of $1.1105 billion in pension obligation bond proceeds.
- The Retirement Plan’s audit report notes
that the decline in funded ratios has been developing over the past 27
years and has become more pronounced in recent years.
The Retirement Plan’s invested assets were $1.0 billion at year-end
2007, a decrease of $98 million over 2006.
The Retirement Plan experienced a rate of return of 9.8 percent on its
investments in 2007. This rate of return
predates the economic downturn in 2008.
Additional Reporting
Requirement Beginning in 2009
The Illinois
Pension Code (40 ILCS 5/22-101(e)(3)) places an additional reporting
requirement on the Auditor General, which becomes effective in 2009. The Code requires that the Retirement Plan, “By September
15 of each year beginning in 2009 . . . shall determine the estimated funded
ratio of the total assets of the Retirement Plan to its total actuarially
determined liabilities. A report
containing that determination and the actuarial assumptions on which it is
based shall be filed with the . . . Auditor General . . . .” The
Pension Code then requires the Auditor General to review the determination and its
assumptions to determine whether it meets the requirements established by the
Pension Code.
Since the requirement does not become effective until 2009, this report
does not make that determination.
However, subsequent reports issued by the Auditor General will address
this requirement.
RETIREE HEALTH CARE TRUST
Public Act 95-708 also added reporting requirements for the Auditor
General regarding the Board of Trustees of the Retiree Health Care Trust. Section 5/3-2.3(f) of the State Auditing Act
requires the Auditor General to examine the report from the Board on the annual
assessment of the funding levels of the Retiree Health Care Trust, as delineated
in Section 22-101B(b)(3)(iii) of the Illinois Pension Code. Section 22-101B(b)(3)(iv) requires the
Auditor General to review the report on the information submitted by the Board within
90 days.
The Retiree Health Care Trust submitted a report on October 2, 2008 to
the Office of the Auditor General. The
report included information required by Section 22-101B(b)(3)(iii) (A)-(D) of
the Pension Code:
·
Subsection
(A): The actuarial present value of
projected benefits expected to be paid to current and future retirees and their
dependents and survivors totaled $1.45 billion;
·
Subsection
(B): The actuarial present value of
projected contributions and trust income plus assets totaled $665 million; and
·
Subsection
(C): The reserve required by subsection
(b)(3)(ii) of the Pension Code was $0 as of January 1, 2008 and $85 million as
of January 1, 2009.
Regarding Subsection (D), which requires both an assessment of whether
projected benefits exceed or are less than projected contributions and income, as
well as a plan to cure any funding shortfall, the Retiree Health Care Trust’s
report concluded the following:
. . . the
actuarial present value of projected benefits expected to be paid to current
and future retirees and their dependents and survivors exceeds the actuarial present value of projected contributions and
trust income plus assets in excess of the reserve required by subsection
(b)(3)(ii).
At this
point in time, the Board of Trustees has
not yet developed the details of the plans of benefits to be provided
beginning next year or the initial contribution levels for retirees, dependents
and survivors for each of those benefit plan options. Therefore, it is not possible at
this time to provide additional specifics concerning a plan to cure the funding
shortfall. [emphasis added]
Since the Board of Trustees has not developed the required plan to cure
the funding shortfall, the Auditor General is unable to review the plan as
required by Section 22-101B(b)(3)(iv).
The Board indicates that it is presently working on developing a plan to
address the funding shortfall.
The Retiree Health Care Trust notes in its
report submitted to the Auditor General, that it was “. . . unclear
whether the Pension Code contemplates the submission of a report this year
because the Health Care Trust was only just recently established and does not,
and is not yet authorized to, begin providing benefits until next year.”
As part of its planned issuance of bonds
to help fund the Retirement Plan and Retiree Health Care Trust, in May 2008 the
Trust submitted to the Office of the Auditor General an Actuarial Report as of
January 1, 2008 which explored various funding and benefit scenarios for the
Trust. The development of the scenarios
indicates that the Retiree Health Care Trust has begun undertaking the analysis
necessary to develop a plan to cure the shortfall.
Consequences of Ongoing
Shortfall
A plan
which consistently has projected benefits in excess of projected contributions
is not sustainable. Although it may be
viable in the short run, eventually the required benefit payments will dwarf
the annual contributions and plan costs will increase. The systematic underfunding of the CTA
Retirement Plan, and its resultant financial condition, serves as an excellent
example of the need to adopt a plan to adequately fund the Retiree Health Care
Trust.
WILLIAM
G. HOLLAND
Auditor
General
WGH:AD
December 2008
