Presented by: Dan Hankiewicz, Pension Manager Commission on Government Forecasting and Accountability 703 Stratton Office Building; Springfield, Illinois January 27 th, 2012 Financial Condition of the State Retirement Systems FY 2011 Budgeting for Results Commission Presented to:

-2- CGFA Background & Responsibilities Bi-Partisan, joint legislative commission, provides the General Assembly with information relevant to the Illinois economy, taxes and other sources of revenue and debt obligations of the State. Preparation of annual revenue estimates with periodic updates; Analysis of the fiscal impact of revenue bills; Preparation of State Debt Impact Notes; Periodic assessment of capital facility plans; Annual estimates of the liabilities of the State’s group health insurance program and approval of contract renewals promulgated by the Department of Central Management Services; Implement the provisions of the State Facility Closure Act; Annual estimates of public pension funding requirements and preparation of pension impact notes.

-3- CGFA Commission Members Senate Senator Jeffrey M. Schoenberg Co-Chair Senator Michael Frerichs Senator Matt Murphy Senator Suzi Schmidt Senator Dave Syverson Senator Donne Trotter Dan R. Long Executive Director Jim Muschinske Revenue Manager Dan Hankiewicz Pension Manager House of Representatives Representative Patricia R. Bellock Co-Chair Representative Kevin McCarthy Representative Elaine Nekritz Representative Raymond Poe Representative Al Riley Representative Mike Tryon Trevor J. Clatfelter Deputy Director Edward H. Boss, Jr. Chief Economist

-4- Current Financial Condition of the State-funded Retirement Systems Summary of Financial Condition State Retirement Systems Combined Assets at Market Value / Without Asset Smoothing FY 2011 ($ in Millions) Accrued Net Unfunded Funded SystemLiabilityAssetsLiabilityRatio TRS$81,299.7$37,471.3$43, % SERS$31,395.0$10,970.8$20, % SURS$31,514.3$14,274.0$17, % JRS$1,952.5$606.0$1, % GARS$298.4$60.4$ % TOTAL $146,459.9 $63,382.5 $83, %

-5- Historical Unfunded Liability

FY 2011 Investment Returns TRS23.4% SURS23.8% ISBI*21.7% -6- * The IL State Board of Investments has investment authority for SERS, GARS, and JRS

Factors Causing the Growth in Unfunded Liability -7-

-8- State-by-State Comparison of Funding Ratios Source: Standard & Poor’s Global Credit Portal, U.S. States’ Pension Funded Ratios Drift Downward. (March 31, 2011)

State-by-State Comparison of Unfunded Liability -9- Source: Standard & Poor’s Global Credit Portal, U.S. States’ Pension Funded Ratios Drift Downward. (March 31, 2011)

-10- SB 1946 – Cullerton (Madigan) Passed House: Passed Senate: Systems Impacted IMRF, Chicago Municipal, Cook County, Cook County Forest Preserve, Chicago Laborers, Chicago Park District, Metropolitan Water, SERS, SURS, TRS, Chicago Teachers (Judges and GA separate; CTA, Police and Fire excluded) Retirement Eligibility – Except State Policemen, Firefighters, and Correctional Guards Normal Retirement – 67 years old with 10 years of service Early Retirement – 62 years old with 10 years of service with a 6.0% per year reduction in benefit for each year age is under 67 Annuity based on highest 8 years out of last 10 years of service Annual final average salary may not exceed $106,800, as automatically increased by lesser of 3% or one-half of the annual increase in the CPI-U during the preceding 12-month calendar year Retirement Eligibility – State Policemen, Firefighters, and Correctional Guards Normal Retirement – 60 years old with 20 years of service State Policemen, Firefighters, DOC guards still eligible for Alternative Formula Annual Increases in Annuity Increases begin at the later of the first anniversary of retirement or age 67 Increases equal to the lesser of 3% or one-half the annual increase in the CPI-U during the preceding 12-month calendar year; if increase in CPI is zero or if there is a decrease in CPI, then no COLA payable Increase not compounded

-11- STATE FUNDED RETIREMENT SYSTEMS Public Act (SB 1946) significantly lowers the required employer contribution for each of the five State retirement systems. The Commission’s actuary performed a cost analysis based on this reduction in contributions for members of each State retirement system in Illinois who start participation on or after January 1, The results of this cost analysis and the impact the reduction in contributions will have on the State can be seen in the following table. Projections of Reduction in State Contributions Based on P.A (SB 1946)

Projected State Pension Contributions -12-

-13- Final Thoughts Artemus WARD “Let us all be happy, and live within our means, even if we have to borrow the money to do it with.”