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As the City gears up to create the budget for Fiscal Year 2014, which begins Jan. 1, Council members must decide the amount the City should contribute to the firefighters’ and police officers’ pension funds.

A memo from Martin Lyons, assistant City Manager/treasurer, Timothy Schoolmaster of Police Pension Board and Deron Daugherty of the Fire Pension Board recommended that the City contribute $6,239,481 to the Firefighters’ Pension Fund, and $8,358,924 to the Police Pension Fund in the fiscal year 2014 budget. Those amounts, recommended by the City’s actuary, Tepfer Consulting Group (TCG), represent a reduction of about $137,000 from last year’s contributions to those pension funds – $35,000 less to the police pension fund and $102,000 less to the firefighters pension fund.

The memo said there are three possible funding levels for the pension fund contributions: the State minimum level of funding, the funding required/shown under Government Accounting Standards Board (GASB) and the funding recommended by Tepfer.

The memo recommended against using the State minimum, because neither of the local pension boards would agree to those amounts – which are lower than Tepfer’s recommendation – and the Tepfer group “does not recommend using the State minimum calculation, especially if the City’s goal is to become 90 percent funded by 2040.” Nor did TCG recommend using the GASB assumptions.

Last year the City contributed more than the actuarially required contribution, in order to chip away at the unfunded liabilities in both pension funds. A straw poll among the eight aldermen at the Sept. 12 City Council meeting showed an even split between those who favored contributing only the recommended amount and those who supported additional contributions.

Eighth Ward Alderman Ann Rainey said she opposed making any contribution beyond what was required because of “the burden that it imposes on the taxpayers in this town. … I think adding even one penny to that is just plain wrong.”

Alderman Don Wilson, 4th Ward, said, “I don’t want to go below what we put in last year.”

Had there been a vote, Mayor Elizabeth Tisdahl would have been the tie-breaker. She said she agreed with Ald. Wilson.

City Manager Wally Bobkiewicz will take the Council’s conversation about the pension fund contributions into consideration as he prepares next year’s budget, the Mayor said.

Change in Assumptions

To calculate the recommended contributions to the pension funds, TCG used a lowered rate-of-return assumption – 6.75 percent rather than 7 percent. The bond-rating company Moody’s recommends an even lower percentage – about 5.6 percent – Mr. Tepfer said, adding that he did not endorse such a low assumption rate.

Both Moody’s and Fitch, another bond-rating company, downgraded the City’s bond rating one notch this year – Fitch to AA+ and Moody’s to Aa1. (See July 2, 2013 story on line.)

Alderman Jane Grover, 7th Ward, asked whether the rating agencies took into consideration the efforts by the City to address the unfunded pension.

“I think we have benefited slightly, because we dropped only one level. It could have been two [levels] if we hadn’t made those efforts, such as putting in more money than was required last year,” said Mr. Lyons.

“We’re on the right track,” said Mr. Tepfer.

Unfunded Pension Liabilities

Information provided in a memo from Martin Lyons, assistant City Manager/treasurer, Timothy Schoolmaster of Police Pension Board and Deron Daugherty of the Fire Pension Board shows an aggregate of about $213 million in unfunded liabilities in the police and firefighters pension funds.

According to that information, the firefighters pension fund is about 48.15 percent funded with an unfunded liability of $123,367,084. 

The funded ratio of the police pension fund is 47.31 percent, according to that information, with an unfunded liability of $89,225,756

Mary Gavin

Mary Gavin is the founder of the Evanston RoundTable. After 23 years as its publisher and manager, she helped transition the RoundTable to nonprofit status in 2021. She continues to write, edit, mentor...