This report examines the financial status of the five State-funded retirement systems.
The following is a summary of the findings:
• Public Act 88-0593 requires the State to make contributions to the State retirement systems such that the total assets of the systems will equal 90% of their total actuarial liabilities by Fiscal Year 2045. The contributions are required to be made at a level percent of payroll in Fiscal Years 2011 through 2045, following a phase-in period that began in Fiscal Year 1996.
• From FY 2002 through FY 2016, the combined unfunded liabilities of the systems increased by $94.8 billion based upon the market value of assets. The main factors for this increase in unfunded liabilities were actuarially insufficient employer contributions, changes in actuarial assumptions and lower-than-assumed investment returns over 5 years, along with other miscellaneous actuarial factors.
• The discussion of the financial condition of the State retirement systems centers on the funded ratio, or net assets divided by accrued liabilities. A system with a 100% funded ratio is fully funded because its assets are sufficient to pay all benefits earned by employees. Based upon the market value of assets, the funded ratio of the State retirement systems combined was 37.6% as of June 30, 2016.
• Projections of the future financial condition of the State retirement systems provide valuable information on the effect that past funding has had on the retirement systems’ financial position. The funding projections shown in the appendices A-J of this report were prepared by the systems’ actuaries and by CGFA’s actuary based on the June 30, 2016 actuarial valuations.
• If the State continues funding according to Public Act 88-0593, the projected accrued liabilities of the State retirement systems will increase from $214.9 billion at the end of FY 2017 to $328.7 billion at the end of FY 2045. At the same time, the projected actuarial value of assets is projected to increase from $85.4 billion to $295.8 billion. Consequently, the projected unfunded liabilities are projected to decrease from $129.5 billion at the end of FY 2017 to $32.9 billion at the end of FY 2045, and the projected funded ratio is expected to increase from 39.7% in FY 2017 to 90.0% by the end of FY 2045. All of the projected figures in this paragraph come from the various systems’ actuaries, and are predicated upon the State making the necessary contribution as required by law.
• Each of the 5 State retirement systems provided a certification of the required State contribution for FY 2018. These certification letters are displayed in the appendices Y-HH.