A new report questions the assumptions and methods used by River Forest’s actuary to develop a recommended contribution to the village’s police pension fund.
The result is smaller contributions to the fund, which could mean passing on higher payments to future taxpayers, the study’s author told the Police Pension Board July 17.
“In virtually every instance … [River Forest’s actuary Charles] McKenzie has always chosen to use an assumption which will produce a lower future liability and contribution” than standard assumptions, the report reads in part.
McKenzie doesn’t deny the charge. In fact, he said River Forest officials asked him to produce reports recommending lowered pension contributions.
“Sometimes they asked me to do that, yes,” McKenzie said, adding that lowered contributions were a result of budgetary restraint. “I am allowed to take their requests into consideration.”
The study’s author, actuary Arthur H. Tepfer, agreed that actuaries are free to choose their assumptions and methods.
“Two actuaries will give you three different opinions. We always like to say that,” Tepfer told the pension board. “It’s very important to understand that whatever the actuary says, he’s never right. Actuaries try to make estimates-not predictions-of what the future will be.”
But some assumptions are better than others, the measurement being how close an assumption approximates reality. For example, Tepfer took exception with McKenzie’s retirement assumptions: “McKenzie assumes that less than 40 percent of the active employees will retire before age 55 (as compared to [the state’s Department of Insurance and Tepfer] who estimate that over 75 percent will have retired by that age) and that at age 65 there will still be almost half of the active employees working. These assumptions are simply not borne out by actual experience and are completely indefensible for use in funding the retirement program.”
Problems with the process
“It’s fair to say we’re gravely concerned about the funding level of the police pension fund,” said Lt. Craig Rutz, president of the Police Pension Board. “We’ve been raising an alarm about this for many years-for a decade-and we’re concerned that the village hasn’t been listening.”
Every year, the police pension board receives an actuarial report that includes a recommendation for a contribution from village taxpayers. Pension board members say they’re supposed to recommend a figure to the village board’s Finance Committee, which does the village board’s early work on the annual budget and tax levy.
Last year, the pension board paid actuary Tim Sharpe $1,600 for his report, according to pension board minutes.
But every year the village commissions its own actuarial study of the pensions and uses that report to inform its contribution decisions, obviating the pension board’s input.
Pension board members said they’re left out of the process, resulting in under-funded pensions.
Pensions backed by village
The debate over funding levels is not new.
Wednesday Journal reported in November that the Finance Committee and Village President Frank Paris were aware of the pensions’ funding levels and said that no problem existed.
On Monday, Paris said the Police Pension Board raised the issue three years ago and three years before that.
“There’s no chance a police officer will have anything less than his [or her] full pension in River Forest,” Paris said. That’s because pension payments are backed by the full credit of the village, he added. Putting more money than necessary into the fund would mean either taking money out of another part of the village’s budget or raising taxes.
“To without reason stash away a lot of money that belongs to the taxpayers isn’t my way of doing business,” Paris said.
McKenzie said if the pension plan stopped today, all employees would get the payments owed them. What the fund may be missing are assets to pay for benefits that would be earned in the future.
Sharpe put the police pension at 62 percent funded, Tepfer at 64 percent, and McKenzie at 69 percent, although the actuaries said percent-funded figures can be misleading.
CONTACT: dcarter@wjinc.com