REPORT DIGEST
REVIEW OF INFORMATION SUBMITTED BY THE CHICAGO TRANSIT
AUTHORITY’S EMPLOYEE RETIREMENT PLAN
2010 Annual Review
Release Date: December 2010
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
To obtain a copy of the Report contact:
Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887
This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov
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SYNOPSIS
• The Auditing Act requires the Retirement Plan for Chicago
Transit Authority Employees (Retirement Plan) to submit for review to the
Auditor General its most recent audit, an annual statement, and an actuarial
statement by September 30 of each year.
The OAG reviewed documents submitted by the Retirement Plan and
concluded that the Plan had complied with the requirements established in the
Auditing Act.
• The Illinois Pension Code requires the Retirement Plan to
determine, based on a report prepared by an enrolled actuary, the estimated
funded ratio of the Retirement Plan’s total assets to its total actuarially
determined liabilities. The Auditor
General is then required to review the determination and the assumptions on
which it is based and determine whether they are “unreasonable in the
aggregate”.
• The OAG reviewed the Retirement Plan’s assumptions
contained in the January 1, 2010 Actuarial Valuation submitted on October 14
and concluded that they were not unreasonable in the aggregate. However, the investment return assumption of
8.75 percent, while selected using established standards for pension plans and not
unreasonable in the aggregate, is an optimistic assumption and should be viewed
as such.
• Salary scale assumptions were revised in this year’s
Actuarial Valuation to reflect expectations based on current furlough and
salary programs and collective
bargaining agreements. However, when we
requested the documentation to support these changes, the Plan’s actuary stated
that “the parameters used to develop the salary scale assumptions . . . were
provided to us in a conference call with various CTA and Retirement Plan
members.” The Plan’s actuary
subsequently summarized these conversations which explained changes in the
headcount growth and salary increase assumptions.
• The January 1, 2010 Actuarial Valuation Report sets forth the statutory minimum contribution rates that are necessary to keep the projected funded ratio above 60 percent in all years through 2039, based on assumptions which are not unreasonable in the aggregate. The Retirement Plan Board voted to keep the Plan’s 2010 employee and employer contribution rates in effect for plan year 2011. These rates are slightly higher than the statutorily minimum required contribution rates for 2011. The January 1, 2010 Actuarial Valuation noted that the “adoption of slightly higher rates by the Board will improve the funding of the Retirement Plan and reduce the fluctuation of the contribution rate in the future should the Plan incur actuarial losses.”
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
STATUTORY REQUIREMENTS
The Auditing Act (30 ILCS 5/3-2.3(e)) requires the
Retirement Plan for Chicago Transit Authority Employees to submit to the Office
of the Auditor General (OAG) an audit, an annual statement, and an actuarial
statement by September 30 of each year.
On September 30, 2010, the Retirement Plan submitted these documents to
the OAG. The OAG reviewed these
documents and concluded that the Retirement Plan had complied with the
requirements established in the Auditing Act.
In addition, the Illinois Pension Code (40 ILCS
5/22-101(e)(3)) requires the Retirement Plan to determine, based on a report
prepared by an enrolled actuary, the estimated funded ratio of the Retirement
Plan’s total assets to its total actuarially determined liabilities. The Plan is then required to determine the employee
and employer contribution rates needed to meet funding requirements established
by the Pension Code. The Auditor General
is required to review the determination and the assumptions on which it is
based and determine whether they are “unreasonable in the aggregate”.
REVIEW OF ACTUARIAL VALUATION
The Retirement Plan submitted the Actuarial Valuation as of
January 1, 2010, to the OAG on September 30, 2010. This Actuarial Valuation was presented to
the Retirement Plan Board at its September 23, 2010 meeting. At that meeting, the Board of Trustees approved
the valuation for January 2010 and certified the employer and employee
contribution rates for 2011. On October
14, 2010, the Plan submitted to the OAG a revised Actuarial Valuation as of
January 1, 2010 which reflected a change of $50,000 in the market value of
assets based on the Plan’s audit report.
This revision did not have an effect on the contribution rates that were
approved by the Board at its September meeting.
The conclusions contained in this report are based on the Actuarial
Valuation submitted on October 14, 2010.
The OAG reviewed the Retirement Plan’s assumptions contained
in the Actuarial Valuation submitted on October 14 and concluded that they were
not unreasonable in the aggregate.
However, the investment return assumption of 8.75 percent, while
selected using established standards for pension plans and not unreasonable in
the aggregate, is an optimistic assumption and should be viewed as such.
Furthermore, the salary scale assumptions were revised in
this year’s Actuarial Valuation to reflect expectations based on current
furlough and salary programs and collective bargaining agreements, according to
Plan officials. However, when we
requested the documentation to support these changes, the Plan’s actuary stated
that “the parameters used to develop the salary scale assumptions that we used
for our 2010 actuarial valuation, including the rate increases embedded in the
Collective Bargaining Agreements, were provided to us in a conference call with
various CTA and Retirement Plan members.”
On November 9, 2010 the Plan’s actuary provided an email summarizing
their conversations with the CTA Retirement Plan and CTA Budget and Finance
staff and explaining changes in the headcount growth and salary increase
assumptions.
CONTRIBUTION RATES
The Pension Code requires the CTA to contribute 12 percent
of pay, less up to a 6 percent credit for debt service paid on the bonds issued
for contribution to the Retirement Plan; employees are required to pay 6
percent of pay. The Pension Code further
requires that contribution rates be increased if the funded ratio is projected
to decline below 60 percent prior to 2040, with the CTA paying two-thirds and
employees one-third of the required contribution.
The Actuarial Valuation Report submitted by the Retirement
Plan to the Office of the Auditor General sets forth the statutory minimum
contribution rates that are necessary to keep the projected funded ratio above
60 percent in all years through 2039, based on assumptions which are not unreasonable
in the aggregate. The Retirement Plan
Board voted to keep the Plan’s 2010 employee and employer contribution rates in
effect for plan year 2011. These rates
(employee contribution of 8.345 percent of pay and employer contribution of
10.690 percent (which is net of the employer debt service credit of 6% per
pay)) are slightly higher than the statutorily minimum required contribution
rates for 2011. The January 1, 2010
Actuarial Valuation noted that the “adoption of slightly higher rates by the
Board will improve the funding of the Retirement Plan and reduce the
fluctuation of the contribution rate in the future should the Plan incur
actuarial losses.”
DELAYS IN REQUESTED
INFORMATION
The Office of the Auditor General and our consulting
actuaries Aon Hewitt experienced delays in getting timely responses to
questions and supporting documentation during the course of this year’s
review. Documentation, such as Board
meeting minutes and employee and CTA contribution amounts for 2009, took almost
three weeks for the Plan to provide to the Auditor General. Similarly, responses to questions and
associated follow-up questions and requested documentation were not always
provided timely to our consultants.
WILLIAM G. HOLLAND
Auditor General
WGH:JFS
This Annual Review was conducted by OAG staff with the assistance of our consultants, Aon Hewitt.