Associated Fire Fighters of Illinois

AFFI COGFA REPORT ANALYSIS The Commission on Government Forecasting and Accountability (COGFA) completed it’s 1 st Biennial study as required by Public Act at the beginning of 2010 The report conducted an in-depth fiscal analysis of ten funds Arlington Heights Police & Fire Bellwood Police & Fire Champaign Police & Fire Springfield Police & Fire Wilmette Police & Fire The AFFI’s summary of the COGFA data is found in the following slides

Illinois Municipal League “Pension sweeteners and out-of- whack actuarial estimates have created $162 million in unfunded pension debt for the city, according to Jim Donelan, the mayor’s executive assistant. Of that amount, $89.3 million is for fire pensions….” – Springfield Journal Register, “Pension sweeteners cost City millions, study finds”, Dec 31 st, Only 16% of the increase in “unfunded pension debt” or “Unfunded Liability” is from any “pension sweeteners” – what about the remaining 84%?

Pension Fairness for Illinois Communities No mention of the Unfunded Liability created by Municipal Contributions (or lack thereof) from the very same report Municipal contributions to Police and Fire Pension Funds (combined) have increased by a minimum of 50%

Associated Fire Fighters of Illinois – HB 5497 Amendment #1 (Rep. Burke) $0.77 of every unfunded $1.00 is due to a reckless funding approach and poor market conditions. Based on data provided by the 2010 COGFA Analysis

04-08 FR Change% Benefit Increase Impact on ULBenefit Increase PortionNon-Benefit Portion Arlington Fire-5.20%39%-2.05%-3.15% Bellwood Fire-20.60%23%-4.84%-15.76% Champaign Fire-1.00%47%-0.47%-0.53% Springfield Fire-16.10%16%-2.62%-13.48% Wilmette Fire-8.50%24%-2.08%-6.42% Totals-51.40% %-39.35% Average10.28% 2.41%7.87%

COGFA Analysis Where this is a large decrease in the Funding Ratio The Benefit Increase portion of the Unfunded Liability is small Where the Benefit Increase portion of the Unfunded Liability is large There is only a small decrease in the Funding Ratio

Entity2004 Funded Ratio2008 Funded RatioIncrease/Decrease Springfield Fire 65.3%49.2%-16.1% COGFA REPORT – BENEFIT INCREASE IMPACT ON % CHANGE IN FUNDED RATION FROM 2004 TO 2008 Salary Increase Investment Returns Employer Contributions Benefit Increase AssumptionsOtherTotal Dollar Value $2,664,685$10,249,952$6,593,042$9,145,327$18,677,819$8,970,443$56,301,268 % Value5%18%12%16%33%16%100% Funded Ratio Change Benefit Contribution to Unfunded Liability % Contribution of Benefit Increase to FR Change % NON-Benefit Increase to FR Change -16.1%16%-2.62%-13.48%

Entity2004 Funded Ratio2008 Funded RatioIncrease/Decrease Champaign Fire 75.4%74.4%-1.0% COGFA REPORT – BENEFIT INCREASE IMPACT ON % CHANGE IN FUNDED RATION FROM 2004 TO 2008 Salary Increase Investment Returns Employer Contributions Benefit Increase AssumptionsOtherTotal Dollar Value $2,651,407$2,717,233$733,931$5,878,250$623,828-$792,128$12,604,649 % Value 21%22%6%47%5%100% [1] [1] The Other Reduction in UL is not included in the chart or Total for Champaign. [2] [2] Total does not include the -792,128 in “Other” Savings and percentages are based on the total of all other factors Funded Ratio Change Benefit Contribution to Unfunded Liability % Contribution of Benefit Increase to FR Change % NON-Benefit Increase to FR Change -1.0%47%-0.47%-0.53%

Associated Fire Fighters of Illinois – HB 5497 Amendment #1 (Rep. Burke) Public Act 95—0950 does address the creation of unfunded liability caused from benefit changes by requiring a detailed fiscal analysis of any future legislation Public Act does not address what the COGFA Study has shown to be the overwhelming drivers of Unfunded Liability including… Irresponsible and Reckless Actuarial Assumptions Poor Investment Returns/Market Conditions In some cases…failure to make the required statutory contribution and lack of enforcement

HB 5497 Amendment #1 Limits an investment return assumption to a ½ of a percent greater than the assumption used by the Illinois Dept of Insurance (currently set at 7%) Grants enforcement authority to the State Comptroller Provides parity with IMRF’s ability to enforce a statutory contribution Directs Local Government with Funding Ratio of less than 50% to make a contribution consistent with the Dept of Insurance’s requirement’s.

HB 5497 Amendment #1 The AFFI recognizes the impact of the Economy and it’s effect on Local Governments Creates (rolling) 30 year Amortization Period Unfunded liabilities existing as of July 1, 2010 – 30 year amortization till July 1, 2040 Unfunded Liabilities created in years subsequent to 2010 – 30 years from July 1 of the year unfunded liability is created

HB 5497 Amendment #1 Provides long term taxpayer relief Eases the budgetary pressures many local units of government are experiencing Implements common sense reform measures that will provide for long term solvency in the downstate fire pension funds

What other’s have to say… Crain’s Chicago…on why the IMRF plan is better than the current Police & Firefighter plans: “…main reason for IMRF’s success…plain old discipline.” “Every year, IMRF reviews the books, checks with the actuaries and lets each of its members know how much they will have to pay next year to keep reserves adequate. And the towns effectively have no choice but to pay, because IMRF has the legal authority to tap the tax incomes of towns and districts that don’t pay up.” “In comparison, the state never has followed any discipline in contributing to its pension funds. Sometimes they pay, sometimes they don’t.” Source: Crain’s article: “An Illinois public pension plan that actually works”, March 3 rd, 2010

What other’s have to say…

Follow the status of HB 5497… On the web ( Via Twitter (forthcoming) AFFI Legislative Conference April 20-22nd