CTA Proposes Pension Legislation

April 16, 2007
04/16/07

Bill would give CTA enhanced tools to boost pension funding to 90%

Carole Brown, Chairman of the Chicago Transit Board today proposed legislation that would give the CTA the tools it needs to address a serious and growing shortfall in its employee pension fund. Brown made the proposal in testimony this morning before the Legislative Audit Commission and members of the Illinois House Mass Transit Committee. The precarious condition of CTA's pension funding was one of the issues highlighted in the recent Auditor General performance and financial audit on transit.

"We?ve identified the problem and a solution. We are just asking you to give us the tools and resources we need to fix it," said Brown. ?As Mayor Daley said last week, CTA needs the flexibility to manage transit more like a business. If we can stabilize the cash flow of the pension fund, we won?t have the dilemma faced by your predecessors and ours of having to choose between funding the operating budget or retiree benefits. That is a no win scenario for everyone. "

As of January 1, 2006, the Retirement Plan for CTA employees was 34% funded and projected to run out of money in 2013. In addition, the retiree healthcare portion of the Plan is expected to be depleted sometime this year. Last year, the General Assembly passed, and the Governor signed into law, a provision requiring annual ?level funding? contributions targeting a 90% funded ratio in 2059. Unfortunately, due to the structure of the pension plan, the CTA does not have the management tools to meet those targets and maintain current service.

The Plan is a separate legal entity authorized under the 1946 state law that created CTA. Unlike state statutory pension plans, the contributions, eligibility, and benefit levels of the Plan are set entirely by the collective bargaining process, including binding arbitration under state law. Multiple attempts to address the funds problems through negotiations have failed.

Legislation proposed by the CTA would provide a 90% funded ratio this year ? 52 years ahead of schedule ? by creating a mechanism to fund both pension and retiree health benefits through bond financing. This financing mechanism will permit CTA and its unions to meet all of the obligations in current law, as well as to continue to provide retiree health benefits.

The 1983 RTA Act, which established the current operating funding structure for CTA, Metra and Pace, is at the heart of CTA's pension underfunding. The statute was structured to provide just enough cash flow to cover day-to-day operations, but not long-term pension obligations. It has not sufficiently funded day-to-day CTA operations, let alone employee pensions. If CTA's operating funding had merely kept pace with inflation since 1985, CTA would have received cumulatively an additional $1.6 billion to run its buses and trains ? more than enough to enhance service and fully fund pensions.

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