REPORT DIGEST
REVIEW OF INFORMATION SUBMITTED BY THE RETIREMENT PLAN
FOR CHICAGO TRANSIT AUTHORITY EMPLOYEES
2011 ANNUAL REVIEW
Release Date: November 2011
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 Illinois State Auditing Act requires the Retirement Plan
for Chicago Transit Authority Employees (Retirement Plan) to submit its most
recent audit, annual statement, and actuarial statement to the Office of the
Auditor General (OAG) by September 30 of each year. These documents were submitted by the
Retirement Plan on September 30, 2011.
The OAG reviewed these documents and concluded that the Retirement Plan
had complied with the requirements established in the Auditing Act.
The Illinois Pension Code (40 ILCS 5/22-101(e)(3)) requires
the Retirement Plan determine, based on a report prepared by an enrolled
actuary, the estimated funded ratio of the total assets of the Retirement Plan
to its total actuarially determined liabilities. The Retirement Plan is also required to
determine the contribution rates needed to meet the funding requirements
established by the Pension Code. The
Auditor General is then required to review the Retirement Plan’s determination
and assumptions to determine whether they are “unreasonable in the
aggregate”. This report does not
constitute an audit as that term is defined in generally accepted government
auditing standards.
• The OAG reviewed the Retirement Plan’s assumptions in the January 1, 2011 Actuarial Valuation and concluded they were not unreasonable in the aggregate.
– The Retirement Plan kept most of its assumptions unchanged from the prior year’s Actuarial Valuation except that it reduced the investment rate of return assumption from 8.75 percent to 8.5 percent.
–
– While this
reduction improves its reasonableness, the 8.5 percent investment return
assumption remains at the upper end of returns used by other pension
plans.
• The Pension
Code requires the Retirement Plan to set employee and employer contribution
rates at levels so that the Plan’s projected funded ratio does not decline
below 60 percent in all years through 2039.
– Based on the January 1, 2011 Actuarial Valuation, the Retirement Board increased the employee and employer contribution rates for 2012 to keep the Plan’s funded ratio from declining below the statutorily required 60 percent level in all years through 2039.
– The employee contribution rate will increase from 8.345 percent to 8.65 percent of pay and the employer contribution rate will increase from 10.69 percent to 11.3 percent of pay (the employer contribution rate is net of debt service credit of 6% of pay).
ANNUAL REVIEW RESULTS
AND CONCLUSIONS
STATUTORY REQUIREMENTS
The Illinois State Auditing Act (30 ILCS 5/3-2.3(e))
requires the Retirement Plan for Chicago Transit Authority Employees
(Retirement Plan) to submit an audit, annual statement, and actuarial statement
to the Office of the Auditor General (OAG) by September 30 of each year.
• On September 30, 2011, the Retirement Plan submitted these
documents to the Auditor General.
• 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 determine the estimated funded
ratio of the total assets of the Retirement Plan to its total actuarially
determined liabilities, based on a report prepared by an enrolled actuary.
• The Retirement Plan is also required to determine the
contribution rates needed to meet the funding requirements established by the
Pension Code.
• The Auditor General is then required to review the
determination and the assumptions to determine whether they are “unreasonable
in the aggregate”. (pages 3-4)
REVIEW OF ACTUARIAL VALUATION
The Retirement Plan submitted the Actuarial Valuation as of
January 1, 2011 to the OAG on September 30, 2011. This Actuarial Valuation was adopted by the
Retirement Plan’s Board of Trustees (Board) at its September 22, 2011 meeting.
Most of the Valuation’s assumptions were the same as the
prior year’s Valuation. However, the
Board reduced the investment return assumption from 8.75 percent to 8.5
percent. While this reduction improves
the reasonableness of the investment return assumption, the 8.5 percent
investment return assumption remains at the upper end of returns used by other
pension plans.
The OAG reviewed the Retirement Plan’s assumptions in the
January 1, 2011 Actuarial Valuation and concluded they were not unreasonable in
the aggregate. This report does not
constitute an audit as that term is defined in generally accepted government
auditing standards. (pages 4-10)
As of January 1, 2011, the actuarial value of assets for
pension benefits was approximately $1.91 billion and the actuarial liability
was $2.72 billion, according to the Retirement Plan’s Actuarial Valuation.
• The funded ratio decreased from 74.8 percent as of January
1, 2010 to 70.1 percent as of January 1, 2011.
• The 2011 Valuation notes the decrease is due primarily to
the amortization of deferred asset losses and the decrease in the investment
return assumption from 8.75 percent to 8.5 percent. (page 10)
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.
• Based on the January 1, 2011 Actuarial Valuation, the
Retirement Plan increased the employer and employee contribution rates for 2012
to keep the Plan’s funded ratio from declining below the statutorily required
60 percent level in all years through 2039.
• The Board increased the employee contribution rate for
2012 from 8.345 percent to 8.65 percent of pay and the employer contribution
rate from 10.69 percent to 11.3 percent of pay (the employer contribution rate
is net of debt service credit of 6% of pay).
(pages 4, 9-10)
WILLIAM G. HOLLAND
Auditor General
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This Annual Review was conducted by OAG staff with the assistance of our consultants, Aon Hewitt.