Evanston’s Finance and Budget Committee agreed Tuesday night to recommend City Council adopt a public safety pension funding policy that calls for assuming a 6.5% annual rate of return on pension investments.
That rate is at the low end of the range of returns assumed by 20 other municipal pension programs in Illinois checked by committee members. Rates in those other towns ranged as high as 7.25% and averaged 6.83%, with a median of 6.77%.
Committee members — and representatives of the city’s fire and police pension boards — agreed that the lower rate of return assumption would make it more likely the goal of fully funding pension by 2040 would actually be met.
“Everybody’s now committed to get to 100% funding by 2040,” Committee Chair David Livingston said.
The agreement came after months of sometimes acrimonious debate in the committee.
The policy statement calls for re-evaluating the rate of return assumption periodically based on actual performance.
It also sets out a formula for determining where the money to fund the pensions would come from — starting with the current pension property tax levy, adding personal property replacement tax funds from the state, unrestricted revenue from the general fund and other city funds, and then, only if a gap remains, a possible increase in the pension property tax levy.
It also calls for reviewing the pension policy every four years.
The city’s pension actuary firm, Foster and Foster, has estimated that closing the pension funding gap, assuming that 6.5% return on investments, will require spending about $6 million more per year on public safety pension fund contributions than the $25 million the city is contributing this year.
But the projections show that once the funding gap is closed the required contributions would drop to a total of less than $5 million a year by 2042.
So the long term benefit to future city taxpayers appears to be very dramatic.
The public safety pension funds have been hovering around a 50% funding level in recent years, despite previous, less dramatic efforts by the City Council to increase contributions.
In a last-minute move, Ald. Devon Reid (8th) proposed that the committee recommend that the council adopt the new pension policy as an ordinance rather than a resolution — arguing doing so would make it more difficult to change the policy in the future.
But, in reality, a policy the Council adopts can be changed by a simple majority votes of the Council at any time. Making it an ordinance would just mean the council would have to vote twice to adopt the change.
After getting pushback from other committee members, Reid withdrew the proposal to structure the policy as an ordinance and it will advance to the City Council in the form of a resolution.