On July 12 the City of Chicago released its annual report for 2016, after significant state budget legislation was enacted. This report was legally required to be published on June 30th. The report included a ‘letter of transmittal’ addressed in part to the citizens of the city – a letter dated June 30.
This wasn’t the only curious feature.
A few days ago, the city finally released an actuarial report for the Chicago firefighter pension plan, an actuarial report the overall financial report relied on – kind of.
The actuarial valuation report yielded a ‘net pension liability’ using a discount rate of 7.5%. This discount rate was based on the fund’s expected rate of return on investments. It did not use a rate blended with both investment returns and municipal bond rates, because the plan was expected to have assets sufficient to pay benefits within the forecast horizon.
But the overall city financial report included in its net pension liability a calculation of the firefighter pension liability using a lower discount rate, given that the assets weren’t expected to be sufficient in the forecast horizon.
Meanwhile, the actuaries are also projecting the funded ratio to rise from a woeful roughly 25% presently to over 90% in the next 25 years. Those projections “show” the fund’s assets rising from about $1 billion today to nearly $8 billion by 2055.
But the overall City financial report states that “Based on these assumptions, the Plan's fiduciary net position and future contributions were sufficient to finance future benefit payments only through the year 2066. As a result, the long-term expected rate of return on pension plan investments was applied to projected benefit payments through the year 2066, and the municipal bond rate was applied to all benefit payments after that date.”
The overall city financial report can be seen here; see p. 84.
The actuarial valuation report for the firefighter pension plan can be seen here; see p. 14.