Benefits July 18, 2007

Chicago Transit Authority Pondering DB-DC Switch

July 18, 2007 (PLANSPONSOR.com) - With a defined benefit pension plan struggling at a 34% funding level, the Chicago Transit Authority (CTA) has proposed moving new employees to a defined contribution program.

Reported by

Fred Schneyer

A report in Budget & Tax News said existing CTA employees could stay in the DB plan but would be required to double their contributions.

According to the news story, the search for a more efficient retirement program is being driven by the requirements of a 2006 state law that CTA and its employees begin paying into the pension plan every month by 2009 with enough money for the plan to be 90% percent funded by 2058. The plan has about $1.2 billion in assets to cover $3.5 billion in liabilities.

That expense, along with other higher operating costs, translates into a $110 million CTA deficit this year, Budget & Tax News reported.

Under the proposed plan, CTA’s DC fund would be given a start with a $150 million bond issue and be administered by a separate trust. CTA estimates the plan would save the agency $34 million a year, according to the news report.

A CTA spokeswoman said Chicago Mayor Richard M. Daley, the state’s most powerful Democrat, has signed on to the retirement restructuring, but the CTA’s unions oppose the proposal. Among other things, the unions contend it would be unfair to new workers.

The retirement restructuring is part of a larger bailout package CTA is seeking from the Illinois legislature. Without legislative approval of the bailout and pension reforms, CTA said it would have to impose drastic service cuts and a fare hike, the news report said.