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Actuary reports modest funded-status improvement for Glencoe police pension; potential state changes could raise future liabilities
Summary
Foster & Foster actuary reported a modest year‑over‑year improvement in the police pension’s funded ratio and described methodological changes, actuarial assumptions and how possible state-level changes to Tier 2 benefits could materially increase the village’s future pension liability and contribution requirements.
Heidi, an actuary from Foster & Foster, presented the police pension actuarial valuation and said the fund’s funded ratio improved slightly to 58.9% for the valuation date but that unfunded accrued liabilities remain material.
Heidi (actuary, Foster & Foster) summarized the valuation and said the plan’s total liability for all participants under the actuarial assumptions was $87,100,000 and that the liability for service earned to date was $77,200,000, leaving an unfunded actuarial accrued liability (UAAL) of about $31,700,000. She reported the plan’s normal cost was roughly $945,000 for the active population (about 24.8% of payroll when blended between Tier 1 and Tier 2 members).
Heidi also explained a scheduled assumption change: the payroll-growth assumption was reduced (the leftmost column in the report reflects a new 2.5% assumption). She said the actuarial method will move from a 16-year amortization to a 15-year amortization next year and then to a more level, fixed-amortization approach thereafter.
On investment returns and smoothing, Heidi said the plan uses a five-year smoothing method and reported a five-year smoothed return of 5.93% versus a 6.5% assumed return. She said, "2.5% is as low as I see most funds at this point," referring to the payroll-growth assumption and noting the village is in a conservative position relative to assumptions.
Policy and legislative risk: Heidi reviewed possible statewide changes to Tier 2 benefits being discussed in Springfield that could increase liabilities substantially if enacted — particularly proposals to lower retirement age and make Tier 2 unreduced benefits closer to Tier 1. She said those proposals remain under negotiation and that the governor has voiced reluctance to move forward with large Tier 2 enhancements because of the statewide fiscal impact.
Funding practice: Heidi noted the village contributed 100.6% of the recommended amount in the most recent cycle. She described the recommended contribution as roughly $3.4 million, of which about $2.8 million is the amortization payment addressing the UAAL.
Why it matters: actuarial assumptions, amortization policy and possible state changes to pension benefits materially affect the village’s long-term pension costs and annual contribution requirements. Committee members asked about scenarios in which Tier 2 benefits move toward Tier 1; Heidi showed how the normal cost and contribution could increase under aggressive benefit changes.
Ending: Heidi said the funding policy (last updated in 2021) should be reviewed in 5–7 years and earlier if state statutory changes occur. She offered to answer follow-up questions after the meeting.
