June 18, 2018
The Cook County Pension Fund (CCPF) is pleased to report improvement in the plans’ financial position benefiting from robust investment performance and a recent experience review by the Board. For the fiscal year ended 2017, the Cook County Fund outperformed its custom benchmark by 136 basis points (gross of fees), earning 15.76% (15.35% net return). Strong earnings growth coupled with additional contributions grew assets by over $1 billion for the year and reduced the plan’s unfunded liability by $500 million. For the same period, the Forest Preserve District Fund earned 16.96% (16.58% net return) and outperformed its custom benchmark by 133 basis points (gross of fees). The Forest Preserve plan’s unfunded liability was reduced by $5.4 million. The reduction in unfunded liability for both funds offsets the tax burden for Cook County tax payers.
As part of a periodic review of plan performance, the Board conducted a study of the actuarial assumptions that are used to produce the funds’ valuations and are based on the plans’ historical experience. Among the assumption changes of the experience study adopted by the Board were revisions to annuitant mortality rates, retirement rates, salary increases, and most notably, the expected actuarial rate of return. The reduction in the assumed actuarial rate of return from 7.50% to 7.25% reflects more conservative expectations for the capital market environment. The combination of these changes decreased the Cook County Fund’s liability by roughly $300 million and by roughly $8 million for the Forest Preserve District Fund.
Based on its recent review of the plans’ financial position, the actuary projects 2042 as the expected solvency date for the Cook County Fund and 2040 for the Forest Preserve District Fund. The Board continues to advocate for a sustainable funding solution for the Cook County and Forest Preserve District plans, these latest developments have been instrumental in helping maintain the funds’ viability.
· What other historical trends were the assumption changes based upon?
When the actuary compared its assumptions about economic factors and CCPF member demographics with the Fund’s actual experience over the past four years, it found the following trends:
o Fewer retirements than expected
o A slightly higher mortality rate later in life than expected
o Fewer retirees married at the time of retirement than expected
o Salary increases were higher than expected for employees under age 45, lower than expected over age 45
· How do these developments ease the tax burden?
The impact of the strong investment return and the impact of the combined assumption changes would lower the annual required contribution of the Employer.
· What is the expected rate of return?
An actuarial expected return rate is the assumed rate at which CCPF assets will earn a return and is used to discount liabilities.
· What is the impact of lowering this assumption?
For some time now, investment return assumptions for public pension plans have steadily declined. While CCPF has assumed a 7.50% long-term actuarial interest rate for over a decade, the Board’s decision to decrease the return assumption to 7.25% has the effect of bringing the assumption in line with forward market expectations, making the prospect of plan investments achieving funding targets over a period of time more realistic.
· When will the changes be reflected in the fund’s actuarial report?
The actuary’s changes are reflected in the 2017 actuarial valuations of the Cook County and Forest Preserve District funds, which are summarized here.
View the actuarial valuation reports in our Annual Financial Reports section.