Evanston’s new pension actuary says a series of aggressive assumptions by the city’s former actuary helped create the city’s pension funding crisis.
Alex Rivera of Gabriel Roeder Smith & Company told aldermen today that individually each of the assumptions made by former actuary Ted Windsor might have been justified, but taken together they doomed the fire and police pension funds to suffer increasing funding shortfalls.
Rivera said the aggressive assumptions included expecting higher investment returns, later employee retirement ages, shorter pensioner life spans and smaller employee salary increases.
In addition, Rivera said, the former actuary failed to adjust the projections after several years of actual performance showed the fire and police pension plans failing to meet their investment targets. And, Rivera said, he also apparently failed to adjust his projections to account for state-mandated benefit increases for pensioners.
City Manager Julia Carroll said she invited Windsor to attend Saturday’s City Council meeting but he was unable to appear.
The new actuary’s report adjusts the anticipated rate of return on the pension investments from 7.5 to 7.25 percent.
Rivera said there is roughly a 40 percent probability that the funds will achieve the new, lower targeted rate of return over the long haul, compared to only a 25 percent chance with the old rate of return assumption.
Alderman Ann Rainey, 8th Ward, said that under the previous actuary "we knew we were a tad under funded."
The city’s unfunded liability under the old actuary’s assumptions had grown from $48 million in 1997 to $98 million in 2006, according to the city’s 2007 Comprehensive Annual Financial Report. And the combined funded ratio had fallen from 56 to 50 percent — during a time when the funded ratios should have been improving.
Once the new city manager and finance director started questioning that performance and called in the new actuary to take a fresh look at the funding needed to meet state requirements that the pension programs be fully funded by 2033, the estimate of the size of the problem grew dramatically, raising the projected total unfunded liability to $140 million.