Police Pension Board

DEKALB POLICE PENSION FUND Board of Trustees AGENDA January 17, 2014 10:00AM DeKalb Police Conference Room 1. Call to Order. CLOSED SESSIONS MUST BE TAPED! Post agenda 48 hours prior! 2. Roll Call. 3. Minutes. 4. Public Comment. 5. Treasurer’s Report. 6. Old business. 7. Bills for Payment. a) Consulting fee Wall and Associates $8,561.38 for 4th quarter 2013. b) Asset Holding Charges Castle Bank #5004186 01/10/14 $911.00 for 4th quarter 2013. c) Art Tepfer #15680 for actuarial valuation of Fund 10/24/13 $2500.00 (70040 10/31/13). d) Lauterbach and Amen #3502 $700 for October, 2013; #3763 $550 for FY13 Municipal Compliance Report (both paid under 70041 12/30/13); #4000 $700 for November, 2013; #4176 $1,175 for FY13 IDOI report; #4187 $640 for yearend work papers for FY13. e) Ric Reimer #17610 $316.39 11/12/13 correspondence with Dr. Katznelson re: Diedrich annual exam including previous balance of $209.82. Invoice #17516 was apparently lost in the mail. Also #17715 $150 12/10/13 for review of Dr. Katznelson’s report. f) INSPE Associates, Ltd #43116 11/19/13 $1,695.60 for annual medical exam for Officer Diedrich. g) Sikich #171920 11/18/13 $2,500 progress billing for FY13 audit. 8. Applications for Membership. 9. Requests for Benefits 10. New Business. a) Municipal Compliance Report forwarded to City 11/8/13. b) Tax levy demand letter and Tepfer report sent to Mayor and Council 11/14/13.  c) Tax levy adopted 11/25/13 of $1,472,175. Tepfer’s statutory minimum (less than what he recommended) was $1,890,750. Difference of $418,575. d) Tepfer actuarial valuation received. e) Vote to continue disability benefit for Officer Diedrich. f) Officer Pristave Chapter 3 transfer. $23,743 received from Sycamore Pension Fund 10/25/13. She has elected to pay the remainder of the “true cost” ($3,440) back over three years. g) Received and distributed FY13 audit from Sikich. h) Approve 2014 COLA increases. 11. Adjournment. Next meeting April 18, 2014. cc: City Hall Lobby, City of DeKalb website (as of 7/1/06 meeting minutes must be posted on City’s website).  DeKalb Police Pension Fund Board of Trustees November 14, 2013 To: Interim City Manager Rudy Espiritu Mayor Rey Council Members Jacobson, Finucane, Lash, Snow, O’Leary, Naylor, Baker From: Jim Kayes, President of the Board of Trustees Subject: Annual Tax Levy Recommendation The DeKalb Police Pension Board has once again commissioned Art Tepfer to perform an independent actuarial review of our Fund. The following are the levies recommended by Tepfer, the City of DeKalb, and the State of Illinois. City of DeKalb’s recommended levy is: $1,472,175 Tepfer’s statutory minimum levy is: $1,890,750 Tepfer’s recommended levy is: $2,329,787 We have not yet received the levy recommendation from the State of Illinois. For reference however, please note that last year the City levied $1,379,234; while the State recommended a levy of $1,949,873. Over the past 12 years the State of Illinois’ recommended levy has averaged approximately $300,000 more per year than the amount levied by the City. Had the State’s recommendations been levied, the Fund balance would have benefited from the extra $3,605,429 that would have been levied. The Fund would have also benefitted from a $1,055,569 return on the investment of these extra dollars. Every dollar that is not levied and invested is an opportunity lost, and a cost deferred into the future. It continues to be the Board’s position that the assumptions used by the City’s actuary are too optimistic. The City actuary’s own figures indicate an average rate of return of 5.59% for the past decade, yet he is utilizing a 7.5% rate of return in his actuarial assumptions. Prior to the last two years he was using an 8% rate of return. Our funding level was at 97.4% in 1995 and has been, in general, declining ever since. The City has always had the option of adopting the State’s or Tepfer’s recommended tax levy, yet has always opted to instead use their actuary’s lower recommendation. Continuing this strategy will almost surely lead to future volatility in the Fund’s required tax levy. The EPI Strategic Financial Evaluation report, commissioned by the City, suggested that the City contribute “more money” to the Pension funds. Quoting from their report: “… even though the pension plans have beat the EPI scenario, they have significantly underperformed the 8% investment rate actuarial assumption, validating EPI’s belief that the interest rate assumption is too high. EPI recommends that the City discuss the assumptions used by the current actuary for the Police and Fire Pension Plans, or hire a review actuary to determine if the assumptions being used are best practices in accordance with the pension industry. EPI recommends the City increase its funding of both police and fire pension plans to achieve at least a 75% funded status within ten years. EPI recommends the City hire an actuary to determine the necessary contribution and then contribute the amount necessary to achieve the funding level by 2019.” Earned pension benefits will have to be paid eventually. The question is in what manner and how expeditiously the benefits are financed. What follows is a brief history of how the State has dealt with this issue over the last few decades. When the amortization schedule for downstate pension funds was changed in 1993 (PA 87-1265), the State and other interested parties knew (or should have known) that a day of reckoning, in the form of rapidly increasing required contributions, would come. The prior amortization deadline was moved out to 2032 and the funding formula was changed from “level dollar amount” to “percentage of payroll.” This eventually led to a rapid rise in required contributions as 2032 approached. The recent recession only aggravated the situation. In 2010, in fear of seeing its bond rating downgraded, the State of Illinois rushed through a change in the Pension Code (PA 096-0889), creating a two tier system for State employees. They later followed this Public Act by creating a similar two tier system (PA 096-1495) for downstate police and fire funds. These new laws effectively “kicked the can” even further down the road by moving the amortization deadline out yet another seven years to 2040, along with lowering the amortization target from 100% to 90%. The new amortization schedule will lead to even more dramatic raises in tax levies. The actuarial method to be used under PA 096-1495 is that of Projected Unit Credit (PUC). This method allows municipalities to start out with relatively low employer contributions. However, as the end of the amortization period approaches, these contributions will skyrocket. The net effect of PA 096-1495 is that of deferring contributions and increasing volatility. Continuing to levy based on unrealistic actuarial assumptions will only postpone the inevitable, shifting the burden to future taxpayers. The Board strongly recommends that the City adopt Tepfer’s recommended levy. Return on Investments (CY) Assumptions State* City** 6.75% 7.50% 1998 9.89% 1999 8.47% 2000 1.95% 2001 -1.09% 2002 -2.19% 2003 14.38% 2004 8.35% 2005 5.38% 2006 8.56% 2007 7.87% 2008 -15.64% 2009 18.50% 2010 9.32% 2011 -2.88% 2012 6.17% 2013 8.10% *** Average 5.32% * State assumption was 7% prior to September, 2012 ** City assumption was 8% prior to 2012 *** as of 9/30/13 Unfunded Liability History (FY) funded City levy State levy Tepfer* funded %** %*** FY94 $368,922 92.3% FY95 $133,204 97.4% FY96 $115,237 $398,700 96.6% FY97 $71,397 94.0% FY98 $110,779 91.8% FY99 $170,129 $499,415 88.5% FY00 $227,907 86.7% FY01 $281,316 $571,736 74.0% FY02 $339,780 $641,871 66.1% FY03 $511,381 $785,800 65.3% FY04 $647,960 $943,914 66.9% FY05 $707,922 $1,030,665 67.1% FY06 $808,519 $1,105,838 67.1% FY07 $863,331 $1,208,486 67.2% FY08 $864,215 $1,290,249 71.6% FY09 $1,081,450 $1,310,825 $1,870,258 64.4% 60.36% FY10 $1,342,558 $1,572,906 55.9% 59.44% FY11 $1,306,414 $1,866,473 $1,762,117 65.0% 54.02% FY12 $1,097,501 NA $1,594,916 62.7% 54.15% FY13 $1,379,234 $1,949,873 $1,644,243 60.0% 59.10% FY14 $1,472,175 $1,890,750 59.9% 57.50% *Tepfer's minimum recommendation ** City figures ***Tepfer figures