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Public safety pension debt soars

Despite increasing payments into the funds, Evanston’s unfunded liability for its police and fire pension programs continued to soar over the past year — increasing nearly 10 percent to $174 million.

In a report to be presented to aldermen at a special City Council meeting tonight, Assistant City Manager Marty Lyons says part of the increase is a result of the city asking its actuary to reduce the anticipated rate of return on future investments from the 7.25 percent level used over the past few years to 7 percent.

Lyons says that based on market performance over the past few years, even the 7 percent number may be too high.

He says the actual return achieved recently by other police and fire funds handled by the city’s actuarial firm has been 6.75 percent. (See update below.)

And he added that if the city’s funds don’t start doing better within the next couple of years, it may be necessary to ratchet the projected return rate down again.

The city has made the annual required contribution estimated by its actuary each year — rising from $8.8 million in 2006 to a projected $16 million this year. That represents about 8 percent of the city’s total projected spending of just over $196 million this year.

In addition the city also kicked in a one-time lump sum payment of $4.5 million in 2008-09 to try to improve the condition of the pension funds.

The city’s finance division manager, Steve Drazner, in a separate memo to aldermen noted that even though the equity market recovered somewhat in 2009, the gains didn’t fully offset the losses seen in 2008.

And he noted that for actuarial purposed the losses from 2008 are smoothed over a four year period — so those losses will continue to negatively affect the actuarial value of assets for another two years.

Update 6/23/10 7:20 p.m.: Lyons this evening said his earlier statement about the returns of other fire and police pension funds was misleading. He says he meant to say that the public safety pension funds in other cities overseen by the city’s actuarial firm have set a target return rate of 6.75 percent, but may not even be achieving that during the recession.

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