Evanston aldermen tonight are scheduled to decide how much residents will have to pay in taxes next year to fund public safety pensions.

The City Council will get a report from the city’s pension actuary showing that after years of generally weak investment returns, the city’s public safety pension funds — along with the rest of the market — did somewhat better in 2012.

The fire pension pension fund earned 6.43 percent and the police pension fund earned 9.15 percent in 2012. Both had earned less than 2 percent in 2011.

The improved returns and the City Council’s decision to put an extra $500,000 into the fund last year led to a modest improvement in each pension system’s funded ratio.

The firefighter’s fund went from 45.6 percent to 47.3 percent funded. The police fund went from 45.3 percent to 46.5 percent funded.

Actuary Arthur Tepfer is recommending that the city contribute $8.36 million to the police fund and $6.24 million to the fire fund next year. Combined that’s an increase of $362,568 from his recommendation for last year but $137,432 less than what the city actually contributed.

The actuary is also recommending that the city reduce its assumption of future investment returns from 7 percent to 6.75 percent.

Concern about huge unfunded pension liabilities — now estimated at $68 million for the firefighters and $89 million for the police and possibly overly optimistic assumptions about future investment returns — has led to recent downgrades of the city’s credit rating by bond rating services.

Bill Smith is the editor and publisher of Evanston Now.

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1 Comment

  1. I stand by my comments from 1 year ago

    Last year i spoke before City Council on Sept 18, 2012 regarding the challenges facing our community regarding our Police & Fire Pension funds. (Remember, in addition to our local police & fire pension funds, taxpayers are also liable for IMRF pensions, Cook County Pensions and the 5 state pension plans – Teachers (TRS), Judges (JRS), University System (SURS), General Assembly (GARS) and State Employees SERS))    A couple of updates. Last year the Police & Fire unfunded liability was ~ $152.8mm and this year the reported number increased to ~ $157mm. However, when Moody's downgraded the City of Evanston's debt rating in late June 2013, they calculated a much higher pension liability of about $227.8mm just for Police & Fire (The actual # increased from 170.6mm to 259.9mm, but this includes, Police, Fire, and the City's portion of the IMRF liability – i allocated $32.1mm for the IMRF liability to keep an "apples to apples" comparison)  Here's the link to the Moody's downgrade: http://www.cityofevanston.org/assets/6-27-13%20Evanston%2C%20IL.pdf  –   Is Moody's being too conservative? Is the City's actuary being too aggressive?  The demographics confronting both pension funds remain challenging. As i mentioned last year, the 7% assumed rate of return "is likely too high by 1% and more likely 2%" The actuary is now recommending reducing the assumed rate of return from 7% to 6.75%, a move in the right direction, but still too high in my opinion. A critical change is that one year ago, the 10 year bond yielded ~ 1.8%. Today it is yielding ~ 2.9%, so it is most likely that in 2013 both Police and Fire pension funds will realize losses from their bond investments. The important issue to understand is that the 10 year bond peaked at over 15% about 30 years ago, and bottomed at 1.6% in early 2013, providing bond  investors with generous returns over the last 30 years. Now bond yields are starting to trend higher, creating headwinds for investors. Secular investment returns for balanced portfolios will likely be lower over the next 10 to 20 years, versus the last 10 to 20 years. The pension challenges should not be dismissed. Our community has a responsibility to FULLY pay for the salaries and benefits for the policemen and firemen to ensure not only their retirement, but also to not "kick the can" down the road and leave our children and grandchildren with a massive debt to pay. Currently, instead of leaving some "some nickels and dimes in their piggybank, we're going to leave them with a big I.O.U." Hopefully City Council will recognize the importance of this issue, and understand the direct and indirect implications of their decision.

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