MWRD Proposes Pension Reform Task Force

December 09, 2009

As noted on page 9 of its FY2010 Tentative Budget, the Metropolitan Water Reclamation District of Greater Chicago will begin to address concerns over its increasing pension liabilities. The District is proposing to create a task force to study pensions and possibly commission a report that would present analysis of the current and future costs of the District’s pension benefits. The report would also explore strategic alternatives to increase the funded ratio of District’s Retirement Fund while maintaining a fair and competitive benefit plan for District employees.

The Civic Federation supports the District’s initiatives to reform its retirement fund. The Civic Federation’s analysis of the MWRD FY2010 Proposed Budget and Status of Local Pensions reports present evidence of the retirement fund’s declining fiscal health. The MWRD retirement fund’s funded ratio, which is the percentage of pension liabilities covered by assets, has declined every year since FY2004, falling from 73.6% in FY2004 to 65.4% in FY2008. The retirement fund’s total unfunded liability, which is the dollar value of pension liabilities not covered by assets, totaled $640.4 million in FY2008 and increased by 53.7% or $223.9 million between FY2004 and FY2008.

The State of Illinois and City of Chicago have created similar task forces to address the declining health of their own pension funds. The Illinois General Assembly created the State’s Pension System Modernization Task Force in May 2009 with House Joint Resolution 65 and charged the task force to analyze the State’s five pension benefit systems, recommend changes to modernize the State’s pension benefit systems and report its findings to the General Assembly and Governor. The General Assembly formed the task force at a time when the State’s five pension funds were estimated to have $73.4 billion in unfunded liabilities and a combined funded ratio of 40.0%.

The City of Chicago’s Commission to Strengthen Chicago’s Pension Funds, formed in January 2008 by Mayor Richard M. Daley, was created to address fiscal health of the City’s four pension funds and develop solutions to improve the long-term health of the funds. The Commission began when the City’s pension funds had a combined unfunded liability of $8.6 billion and funded ratios of 40% for fire, 49% for police, 92% for laborers and 67% for municipal employees (see the Civic Federation’s Status of Local Pensions report for FY2007).

The Civic Federation commends MWRD for addressing concerns about its retirement fund before the fund’s fiscal health declines to a crisis point. However, we caution the District that substantial changes may be necessary to stem growing pension liabilities. The Federation recommends that the District pursue contribution, benefit and board governance pension reforms going forward. For details, see the Civic Federation’s analysis of the MWRD budget.