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.

Bill Smith is the editor and publisher of Evanston Now.

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2 Comments

  1. It’s the pensions stupid!

    All of this talk about public safety is a red herring. We will not be at risk with three fewer firefighters. If our fire department’s leadership can’t figure out how to do more with less as every private company has done during this recession than let’s get leadership that can!
     
    And let’s focus on the real problem. According to an Evanston Now story 8% of city spending goes to funding our pension obligations, which despite that contribution remain woefully underfunded even with a assumed return of 7% (How’s your 401(k) doing? Has it been earning a 7% annual return lately?).
     
    The situation is not sustainable and must be addressed, something the private sector realized years ago when it moved from defined benefit to defined contribution retirement plans, froze existing plans and negotiated roll-backs of benefits.
     
    I well understand the politics of this issue but the plain truth is that the city can not afford the course it is on. Everyone would be better served by dropping the alarmist tactics and getting to work on a solution to the real problem.
  2. Here’s a MUCH better way to

    Here’s a much better way to go ………………. time to get rid of the trash called unions.  No unions = No union dues = No money to bribe politicians = no reason for politicians to give the unions workers excessive pay, pensions, and benefits !

    Indiana has the best approach …decertifiying Indiana’s public-employee unions ….now we’re talking. Time magazine story

    Indiana Governor Mitch Daniels, a budget czar in the free-spending Bush administration, has proved an efficiency fiend at the state level, privatizing bureaucracies, selling a poorly managed toll road, even harvesting the paper clips from state tax returns for reuse in government offices.

    Daniels took the controversial step of decertifying Indiana’s public-employee unions, a move that may endear him to Republican voters should he decide to run for president in 2012.

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