The combined total of the required Fiscal Year 2023 State contribution for the six retirement systems was $10.97 billion, an increase of $0.14 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.
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%.
According to the systems’ 2021 actuarial valuation reports, the funded ratio of the retirement systems ranged from 47.5% (CTPF) to 19.3% (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.
Author(s): Frank J. Mautino
Publication Date: 22 Dec 2021
Publication Site: Office of the Auditor General, State of Illinois
One recent line of ERISA litigation involves the actuarial equivalence factors used by defined benefit pension plans. The lawsuits apply both to active defined benefit pension plans and pension plans that have been “frozen” as to future benefit accruals.
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Basically, the lawsuits allege that the plan, through the use of out-of-date and “unreasonable” actuarial assumptions and conversion factors, has “overcharged” participants when converting from the Life Annuity Benefit to payment in an alternate payment form.
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In many of the cases, the challenge focuses on allegedly outdated mortality tables that do not take improved life expectancy into account. In some situations, the actuarial factors (including mortality table assumption) were established decades ago and have never been updated. In essence, the lawsuits allege that the plan (by not using updated factors and tables) is not paying out the full value of the participant’s benefit when the participant has elected payment in an alternate payment form.
