Police and fire pension contribution jumps $2.2 million as overtime and ‘spiking’ drive liabilities, actuary says

Francois Pieterse, senior consultant and actuary at Gabriel, Roeder, Smith & Company (GRS), told the Dearborn Heights City Council that the police and fire retirement system’s required employer contribution rose from $5,969,000 to $8,147,000 — an increase of about $2,178,000 — for the most recent valuation period. Pieterse attributed most of that increase to a roughly $2,000,000 jump in payroll largely caused by elevated pay and overtime in the membership.

Pieterse said that the membership count remained roughly stable year to year but that total payroll rose sharply: in the three-year summary the actuary reported active-member payroll of about $9.7 million in 2023 and about $11.5 million in 2024, a roughly 20% increase. "I think there were 1 member who earned more than a hundred thousand dollars in overtime," Pieterse said, noting that excessive overtime in a single year can materially increase an individual’s final average compensation and therefore lifetime pension benefits.

The police and fire plan’s benefit formula uses the best three years of a member’s career to calculate final average compensation, which the actuary described as a design feature that can amplify the impact of high overtime or pay spikes late in a career. Pieterse said that a single year with large overtime becomes part of that three-year average and can produce a significantly larger pension payment payable for multiple decades. The actuary also reported that the plan’s five-year smoothing method is phasing in past investment gains and losses; while recent market gains produced a large dollar gain in 2024, smoothing and prior-year losses left a small unrecognized net loss recognized this year (about $837,000 recognized across years), which added only modestly to the contribution increase.

Pieterse identified three main contributors to the higher contribution: higher employer normal cost driven by pay increases; a spike in payroll caused primarily by overtime and high-pay years; and small changes from an experience study of plan assumptions. The actuary noted that approximately 11.88 million dollars of actuarial loss this year included both investment and liability components, with most of the liability loss tied to pay increases larger than assumed.

Council members and staff discussed whether overtime inclusion and the definition of final average compensation are negotiable in future collective bargaining. Pieterse and staff said those terms are contractual and typically negotiated; the actuary noted that changing the definition (for example, moving to best three of the last 10 years or a consecutive period) likely would affect future hires more than the current retiree population. No contract change or formal motion was recorded at the meeting.

A resident spoke during public comment to say the numbers were "very disturbing" and urged elected officials to review the contract language and the city charter so taxpayers are not left with unexpected costs. The resident asked the council to require the pension system participants to bear more risk when investments perform poorly instead of shifting the burden to taxpayers.

Pieterse said the city’s contribution requirement is sensitive to both membership pay patterns and contract terms; he recommended monitoring payroll trends and considering plan provisions as part of future negotiations. The council did not take formal action on the actuarial report during the meeting.