May 8, 2013 Via Hand Delivery The Honorable Toni Preckwinkle President, Cook County Board of Commissioners 118

N Clark St, Room 537 Chicago, IL 60602 Via Hand Delivery Cook County Board of Commissioners 118 N Clark St, Room 567 Chicago, IL 60602 RE: Submission of Annual Reports for December 31, 2012

RETIREMENT BOARD John E. Fitzgerald, President Robert Benjamin Diahann Goode Alexis Herrera Brent Lewandowski Robert Janura Patrick J. McFadden Samuel Richardson, Jr. Ivan Samstein

Dear President Preckwinkle and Commissioners: On behalf of the County Employees and Officers Annuity and Benefit Fund of Cook County and the Forest Preserve District Employees Annuity and Benefit Fund of Cook County (collectively, the Fund), please find enclosed reports of the December 31, 2012 actuarial valuations as prepared by Buck Consultants, LLC, as well as audited 2012 financial statements as prepared by Legacy Professionals, LLP. The Retirement Board reviewed these reports at the May 2, 2013 meeting. The actuarial valuation provides a snapshot of the Funds financial condition, measuring assets against accrued benefits and projecting the future trajectory of the funded ratio. As of December 31, 2012, the Funds assets were valued at $7.8 billion with liabilities of $14.6 billion, resulting in an unfunded liability of $6.8 billion. During this period strong investment performance grew the Funds assets by approximately $900 million. Despite this growth, the funded ratio continued to deteriorate, reaching 53.5% at year end, compared to 57.5% at the December 31, 2011 valuation. 1 The funded ratio has trended downward for several years due to factors that include increasing life expectancy, market conditions, and contributions not keeping pace with benefit increases or early retirement initiatives. Additionally, the Fund provides retiree health benefits for Cook County employees, a benefit that increases the total unfunded liability insofar as it lacks a dedicated funding source. These factors, combined with the size and strength of the total active payroll relative to the retiree population, impact the Fund on a current and cumulative basis. Changes over time have led to an unfunded liability that increases annually at a compounding rate, growing by almost $1 billion in 2012. Meanwhile, the statutory County contribution fixed at 1.54 times the member contributions from two
1

Numbers shown above reflect the Cook County Fund only. As of December 31, 2012, the Forest Preserve District Funds assets were valued at $172.6 million with liabilities of $304.5 million, resulting in an unfunded liability of $131.9 million and a funded ratio of 56.7% (compared to 61.6% at the December 31, 2011 valuation).

County Employees and Officers Annuity and Benefit Fund of Cook County Forest Preserve District Employees Annuity and Benefit Fund of Cook County 33 N Dearborn St, Suite 1000 | Chicago, IL 60602 | 312.603.1200 | 312.603.9760 fax | www.cookcountypension.com

years prior 2 has remained unchanged since 1984. In absolute terms, the annual County contribution has declined by over 25% since its peak in 2007, while the unfunded liability roughly tripled over the same period. The actuarial reports illustrate that this fixed funding regime is not adequately responsive to changes in funded status, nor is it sufficient even to maintain the funded ratio at its current level. Cost-savings initiatives, benefits administration, and investment performance cannot address the ever-widening gap. Investment returns have grown to account for roughly half of the total benefit payments our members receive. Together with investment returns, current contributions meet the annual cost of accrued benefits under todays conditions (the normal cost), but do not extend to the growing unfunded liability. Without a provision to address the unfunded liability, our actuary estimates that the funded status will decrease every year until the assets are exhausted in 2034. 3 Our actuary asserts, and we agree, that a change in funding is necessary to address the threat posed by the current unfunded liability and to guard against future deterioration of the funded ratio. In response to the actuarys recommendation, we ask for your advocacy for a new funding policy to be legislated that is based upon actuarial methodology rather than a fixed multiple of member contributions. The new funding policy must at a minimum be sufficient to (1) pay the annual normal costs of active members as well as Fund expenses, and (2) pay down any unfunded liability over a period no longer than 30 years. We recognize that returning to fully funded status will require shared sacrifice on the part of many of our stakeholders. Together with the County administration, we are deeply committed to safeguarding a secure and healthy retirement for all employees of Cook County and the Forest Preserve District. We look forward to working together towards this goal. Sincerely, The Retirement Board County Employees and Officers Annuity and Benefit Fund of Cook County Ex officio for the Forest Preserve District Employees Annuity and Benefit Fund of Cook County

Encl:

County Employees and Officers Annuity and Benefit Fund of Cook County (1) Actuarial Valuation as of December 31, 2012 (2) Audited Financial Statements as of December 31, 2012 Forest Preserve District Employees Annuity and Benefit Fund of Cook County (1) Actuarial Valuation as of December 31, 2012 (2) Audited Financial Statements as of December 31, 2012

2 3

By statute, the Forest Preserve District contributes 1.30 times the member contributions from two years prior. The actuary estimates that the Forest Preserve District Fund will become insolvent in 2031.

County Employees and Officers Annuity and Benefit Fund of Cook County Forest Preserve District Employees Annuity and Benefit Fund of Cook County p. 2