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Police and fire pensions make gains

Actuarial changes, investment gains aid Oak Park retirement plans

July 2nd, 2018 4:37 PM

By Timothy Inklebarger

Staff Reporter

Retirement plans for Oak Park police and firefighters had a good year in 2017, a result of good investments, a boost in tax funding and changes in actuarial assumptions, according to a report by the village's auditor, Sikich LLP.

Sikich partner Dan Berg said in the 2017 certified annual financial report that the police pension funded status increased 8 percentage points last year to 59 percent funded.

Oak Park's firefighter pension fund made similar gains, increasing from a 37 percent funded to about 44 percent, according to the report.

The funded status is the percentage of funds available if all employees retired at the same time.

The unfunded liability – the amount needed to make the pension fund fully funded – for the police pension fund dropped from $89 million to $67 million in 2017, while the fire pension fund liability dropped from $80 million to $66 million.

The Oak Park Board of Trustees has been working to improve the funded status of the pension plans over the last few years by directing additional funding to the pension plans above the recommended contribution levels.

"There's a lot of different variables that make up the change between the beginning and ending balance, but in general the majority of the change was due to using different assumptions with the new actuary," Steven Drazner, Oak Park's chief financial officer, told the board of trustees on June 25. "Also, in the prior year the board opted to contribute an extra $1.5 million (in the 2017 budget) in the fire pension, so that also helped."

Trustee Bob Tucker, who has pushed for improving the funded status of the plans, praised the improvement.

"I think we have to stand with the public safety employees because they've always been there for us," he said in a telephone interview. "These are people who put their lives on the line."

Oak Park Mayor Anan Abu-Taleb said the pension funded status is important because it affects the village's bond rating. "[I]t has affected how we borrow money and how we get valuated by Moody's and others, and this is fantastic," he said.

Trustee Jim Taglia noted that the pension funded status increase was the result of a number of factors.

"We actually reduced the unfunded liability by about $35 million this year, which is significant, and there are a number of reasons why, some of which are actuarial and … related to mortality tables," he said. "Also, the return on the fund has been very good; it was about 15 percent, on each one of those (funds)."

"All those things add up, and it made a $35 million difference. That is great news for the village."

CONTACT: tim@oakpark.com

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  • Michael O'Malley from Oak Park (Facebook Verified)

    Posted: July 12th, 2018 10:00 AM

    Mark, you may already know this but you can appeal the village's decision to the Illinois Public Access Bureau. The village denied me access to a traffic study. I appealed to the state and two months later the state issued a binding opinion compelling the village to release the info.

  • Mark Glennon (Facebook Verified)

    Posted: July 12th, 2018 9:09 AM

    Oak Park is stonewalling the facts on this. We sent a FOIA request for the underlying actuarial reports. It was denied on the grounds that the reports are preliminary, not final. But major conclusions of those reports are already specifically included in the city's official financial statements -- its CAFR. And a note to the author: It is not correct that unfunded liabilities reflect what happens if everybody retired today. That's a persistent myth.

  • Jeff Schroeder from Oak Park (Facebook Verified)

    Posted: July 6th, 2018 7:38 AM

    This is an improvement certainly, but far from fixed. Keep in mind that this pension fund short fall is just one among many much larger ones, the schools, the state, City of Chicago (and yes, that does ultimately affect us). The Municipal portion of our property taxes went up 22% with our current tax bill over 2017 bill (for 2016) and that is what has me concerned.

  • Jim Palermo (Facebook Verified)

    Posted: July 5th, 2018 5:25 PM

    Mr. Inklebarger's article supplies too little information to conclude Oak Park officials deserves the credit they take for the improved funded ratios of the Village's police and fire pension plans. For example, there is no discussion of the rationale for the increased expected return assumption or of the relaxed mortality assumption. Additionally, while the 15% investment returns far exceed expectations, there is no mention of whether the returns exceeded the portfolios' return benchmarks. Finally readers are left to wonder the name of the new actuarial consultant and why the prior consultant was replaced. Without answers to these questions and more, it is premature to assume further funding progress will be made.

  • Mark Glennon (Facebook Verified)

    Posted: July 2nd, 2018 10:15 PM

    Well, this is definitely the stupidest thing I've seen in the pension world in a long time, which says a lot. But I'll have to wait to calm down before writing about it. In the meantime, keep slapping yourself on your back, Oak Park.

  • Nick A Binotti (Facebook Verified)

    Posted: July 2nd, 2018 10:00 PM

    According to the CAFR, the discount rate used for the 2017 police pension fund is 6.75%, which is a quarter-point higher than 2016. In pension-speak, the higher the discount rate, the lower the pension liability (the amount we owe) appears to be. According to the "Discount Rate Sensitivity" analysis on the following page, a quarter point increase in the discount rate equals about $6 million, or 25% of the fund gain for the year. In a strong stock market, I'm not sure why any actuary would want use more aggressive assumptions. In fact, there is a strong push in the actuarial community to use discount rates below 6%.

  • Bruce Kline (Facebook Verified)

    Posted: July 2nd, 2018 9:11 PM

    David: absolutely correct. Go ahead let's rain on the parade now rather than later, when everyone will be shocked ... shocked I tell you! This reminds me of the CPS pension scams where actuarial assumptions looked so good well a "holiday" was in order - in fact several "holidays" were in order ... until of course they weren't. You are right, this sounds like a scam to me.

  • Jenna Brown Russell (Facebook Verified)

    Posted: July 2nd, 2018 9:04 PM

    In 2017, the low risk S&P 500 had 21.2% return, we had financial acumen, extra tax money, and reworked actuary assumptions, and mastered our way to a 20% improvement in fund balances? I mean, it's not the worst news, but hardly inspirational.

  • Jenna Brown Russell (Facebook Verified)

    Posted: July 2nd, 2018 8:59 PM

    In 2017, you had

  • David Gulbransen (Facebook Verified)

    Posted: July 2nd, 2018 5:59 PM

    Hmmm. "...the majority of the change was due to using different assumptions with the new actuary..." Before we call go clapping everyone on the back, a few questions come to mind: 1. Why is there a new actuary? There isn't some "actuary shopping" going on, is there? Finding someone willing to make assumptions that put the situation in a better light? 2. What _are_ the changes in assumptions made? Why were those assumptions changed? The devil is in the details. I don't mean to rain on the parade, but as the saying goes, "There are three kinds of lies: lies, damned lies, and statistics."

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