ACTION REQUESTED:
Title
Communication from the Police and Fire Pension Boards with a request to:
A. Execute a CONTRACT with LAUTERBACH and AMEN to develop an OPTIMAL FUNDING POLICY for Public Safety Pensions, with options; and
B. ADOPT an ORDINANCE AMENDING the CITY OF PEORIA 2018 - 2019 BIENNIAL BUDGET Relating to the USE of the GENERAL FUND BALANCE in the amount of $5,765 to fund the City’s portion of the OPTIMAL FUNDING POLICY for PUBLIC SAFETY PENSIONS Study.
Body
BACKGROUND: Police and Fire pension funds are funded at a municipal level, but many of the laws that govern the operation of the funds are not in the control of the City. The State of Illinois establishes the benefit levels for police officers and fire fighters, sets the employee contributions, determines the composition of the pension boards, and even regulates the percentage of investments that can be placed into equities or fixed income investments. The State requires that each pension fund be 90% funded by 2040.
The individual Police and Fire pension boards have duties as well. These boards hire investment fund managers and determine investments. The boards also make disability determinations that can provide retirees with tax free retirements and at times, city health insurance for an employee and his or her spouse until 65, and their dependents until 26. And the boards hire actuaries that calculate how much the Cities need to contribute annually to the funds.
The actuaries will work with the pension boards to establish a rate of return for each fund, and then calculate a level of funding that the City, by law, is obligated to make. Should the City not fund at a level that would meet the statutory level of funding, State law can allow the pension boards to intercept other state revenues to meet that funding obligation.
The City has a duty to levy the taxes necessary to meet the employer’s pension obligation.
The pension boards have performed actuary studies to determine contribution levels based upon 100% funding instead of 90% funding as set out in the statutes. As a courtesy they included a statutory minimum calculation which is lower than their requested funding amount. The funding levels for 2019 are included in the table below.
The City requested an actuarial report from the State Department of Insurance. This actuarial analysis shoots for 90% funding by 2040, but uses more conservative rates of return (6.5% versus 6.75%) and higher mortality tables (assuming retirees will live longer). The table below shows our current budget estimates for 2019 and the differences between the City’s budgeted contributions and the actuarial contribution amounts.
|
|
Police |
Difference |
Fire |
Difference |
|
2019 Budgeted Contribution |
10,611,837 |
|
9,700,182 |
|
|
Foster & Foster 2019 Actuarial Contribution |
12,655,659 |
(1,943,822) |
11,261,880 |
(1,561,698) |
|
Foster & Foster 2019 Statutory Minimum Contribution |
11,008,712 |
(396,875) |
9,719,282 |
(19,100) |
|
Illinois Department of Insurance 2019 Statutory Minimum Contribution |
11,462,938 |
(851,101) |
10,260,050 |
(559,868) |
The actuary studies also include on page 18 of each report, the projection of benefit payments. It is from this that we calculated that over the next 10 years (2019-2028) the City, the public safety employees and the pension boards will have to pay out more than $80,000,000 in additional benefits.
At the most recent meetings of the Fire Pension Board and Police Pension Board, the bodies voted to support a $17,295 proposal from the accounting firm Lauterbach & Amen to develop an Optimum Funding Policy for public safety pensions. Along with this funding policy, the proposal would develop options to fund future obligations, and present the findings to the Council. The pension boards have asked the City to share in one third of the cost.
FINANCIAL IMPACT: The $5,765 in funding is nominal, but the City has few options to meet future obligations. Either the City funds pensions at the levels set by the actuaries, or funds at the statutory level of funding. Both routes lead to the same point, 90% funded pensions by 2040.
NEIGHBORHOOD CONCERNS: The City has reduced headcount by over 125 positions since 2008, and shifted property taxes to the point where almost 9 out of every 10 dollars collected goes to pension obligations. The balancing act is between paying for legacy costs and providing services today. The City can either cut costs or increase revenues to meet these obligations, but cutting costs translates into reduced services throughout the City.
IMPACT IF APPROVED: The study would be performed over the next several weeks.
IMPACT IF DENIED: The study would not be undertaken.
ALTERNATIVES: The pension funds could fund the study without the City’s participation.
EEO CERTIFICATION NUMBER: N/A
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2017 - 2032 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Financially Sound City
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Support sustainability.
2. Keep taxes and fees competitive.
3. Have an efficient government.
DEPARTMENT: City Manager's Office