REPORT SUMMARY

STATE ACTUARY’S REPORT OF THE
ACTUARIAL ASSUMPTIONS AND VALUATIONS
OF THE STATE-FUNDED RETIREMENT SYSTEM

STATE ACTUARY’S REPORT

Release Date:  December 2020

State of Illinois, Office of the
Auditor General
FRANK J. MAUTINO, 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

REPORT CONCLUSIONS

On June 18, 2012, Public Act 097-0694
was signed into law, which directed
the Auditor General to contract with
or hire an actuary to serve as the
State Actuary. Cheiron was selected as
the State Actuary. The Public Act
directed the State Actuary to:

• Review assumptions and valuations
prepared by actuaries retained by the
boards of trustees of the State-funded
retirement systems;
• Issue preliminary reports to the
boards of trustees of the State-funded
retirement systems concerning proposed
certifications of required State
contributions submitted to the State
Actuary by those boards; and
• Identify recommended changes to
actuarial assumptions that the boards
must consider before finalizing their
certifications of the required State
contributions.

On August 31, 2017, Public Act
100-0465 was signed into law, which
added a sixth retirement system to be
reviewed by the State Actuary. The
Illinois Pension Code was revised to
require the Chicago Teachers’ Pension
Fund (CTPF) to submit information to
the State Actuary similar to the
requirement for the other State-funded
retirement systems.

Review of Actuarial Assumptions

Cheiron reviewed the actuarial
assumptions used in each of the six
systems’ actuarial valuations for the
year ended June 30, 2020, and
concluded that they generally were
reasonable. Cheiron did not recommend
any changes to the assumptions used in
the June 30, 2020 actuarial
valuations.

The combined total of the required
Fiscal Year 2022 State contribution
for the six retirement systems was
$10,716,147,973, an increase of $0.8
billion over the previous year.
Cheiron verified the arithmetic
calculations made by the systems’
actuaries to develop the required
State contribution and reviewed the
assumptions on which it was based.

Additional Disclosures and Changes for
Future Valuations

Cheiron made recommendations for
additional disclosures for the 2020
valuations and recommended changes for
future valuations. Recommendations
included the following:

• The Boards of SERS, JRS, and GARS
should periodically retain the
services of an independent actuary to
conduct a full scope actuarial audit.
Such an audit should fully replicate
the original actuarial valuation,
based on the same census data,
assumptions, and actuarial methods
used by the System’s actuary.
• Cheiron recommends the Boards
continue to annually review the
economic assumptions (interest rate
and inflation) prior to commencing the
valuation work and adjust assumptions
accordingly. All of the systems
complied with this recommendation
prior to conducting the 2020 actuarial
valuations.
• Cheiron assessed compliance with
both ASOP 51 (assessment and
disclosure of risk) and ASOP 56
(modeling). Cheiron made
recommendations to improve the
disclosures related to both standards.

State Mandated Funding Method

The Illinois Pension Code (for TRS,
SURS, SERS, JRS, and GARS) establishes
a method that does not adequately fund
the systems, back loading
contributions and targeting the
accumulation of assets equal to 90% of
the actuarial liability in the year
2045. This contribution level does not
conform to generally accepted
actuarial principles and practices.
Generally accepted actuarial funding
methods target the accumulation of
assets equal to 100% of the actuarial
liability, not 90%. In addition, the
State mandated method produces a
contribution that currently results in
an expected increase in the unfunded
actuarial liabilities if all
assumptions are met. Making adequate
contributions in the future to fully
fund the systems will be challenging.
However, Cheiron continues to
recommend that the funding method be
changed to fully fund plan benefits.

According to the systems’ 2020
actuarial valuation reports, the
funded ratio of the retirement systems
ranged from 46.7% (CTPF) to 17.1%
(GARS), based on the actuarial value
of assets as a ratio to the actuarial
liability. If there is a significant
market downturn, the unfunded
actuarial liability and the required
State contribution rate could both
increase significantly, putting the
sustainability of the systems further
into question. Cheiron continues to
recommend the systems include stress
testing within the valuation reports
to better understand these risks.