1. Firemen’s Annuity & Benefit Fund of Chicago
October 4th and 5th, 2019
Firemen’s Annuity & Benefit Fund of Chicago
Pension Funding Seminar
Brady O’Connell, CFA, CAIA
Senior Vice President

2. C+ I = B + E Pension Math Contributions (employee and employer) plus
Investment returns
equals
Benefits plus
Expenses

3. C + I: U.S. Public Pension Sources of Revenue, 1989 - 2018
Source: Complied by NASRA based on U.S. Census Bureau data
Investment earning are by far the largest contributor for all public funds in terms of dollars available to pay pension benefits.
BUT…gains from investments cannot be made if contributions are not made.

4. FABF Funded Status
Plan Assets Compared to Plan Projected Benefit Payments (Actuarial Liabilities)
Funded status is very low. Unfunded liability is over $5 billion.
Investment returns need to be more than 5 times the growth of liabilities—just to keep up.
The historic lack of employer contributions has severely limited the Fund’s ability to generate investment earnings.
Source: GRS

5. FABF Investment Results
Strong Investment Returns Measured Against Target and Peers
The Fund fully participated in the rebound following the Global Financial Crisis (time periods ending 6/30/19).
FABF Investment Return
Range of returns earned by other public pension plans of a similar size (10th-90th percentiles)
Source: Callan, Northern Trust

6. Investment Advice to FABF
Asset Allocation Strategy
Current investment strategy seeks:
Strong returns
Improved diversification
Liquidity to meet benefit payments
Key assumptions in setting this strategy:
Expected contributions, projected benefits, expected return on assets.
FABF financial health highly dependent on City contributions.
If anticipated “ARC funding” changes, the Board will need to reconsider this investment approach.

7. City Contribution Projections
City contribution increases $126 million when shifting from ramp to “ARC”
Will result in Fund moving to a position where positive net cash flows into the Fund are expected.

8. Major Points
The path to sound long-term funding for the FABF is through steady and increasing employer contributions over a long period of time.
This is necessary to make up for historic funding levels far below what was necessary for financial health.
Investment strategy alone is unlikely to solve the underfunding.
Investment results have been strong the past decade.
Investment performance will be critical in providing time for the higher employer contribution rates to kick in.
Net cash outflows, while presenting near-term challenges, do not preclude illiquid investments over the long term (which produce higher investment returns).
The Fund’s ability to make certain investments has not yet been compromised by funded status.