Council backs more time to fund pension liabilities

Council backs more time to fund pension liabilities

CHAMPAIGN — City council members all said Tuesday night that they were comfortable with giving themselves a bit more leeway with how they fund police and fire pensions.

The straw poll to give budgeters more time to pay off liabilities created by state legislative action decades ago went off without any opposition from city council members, but a police pension trustee once again highlighted the disagreement between the city and the pension board on what is actually owed.

Champaign, like cities throughout the state, has been working for 20 years to catch up on paying for pension benefit increases which state lawmakers have passed during the past couple decades. The city still has nearly $40 million in "unfunded liability," the amount it still needs to pay toward its pension funds to stay on track for paying benefits to retired police and firefighters and future retirees.

City and police pension board officials disagree about that dollar amount. It is based on actuarial evaluations that look at things like expected investment returns, retirement ages, mortality rates, employee marriages and disability, all of which affect how much employees will eventually draw from their pensions.

The city and the police pension board use two different actuaries, and they differ on a few key points like expected investment returns and mortality rates. The city says its unfunded police pension liability is about $25 million. Police pension board chairman Bill Neumann puts that number closer to $38 million.

The city and fire pension officials share an actuarial report and say they have about $15 million in unfunded liabilities there.

In any case, Finance Director Richard Schnuer said the city is on a payment plan that is even more aggressive than what most financial officers would suggest is the best policy. Relative to other Illinois cities, many of which have unfunded liability payoff dates as late as 2033 or 2040, Champaign is pretty close to getting those paid off in 2020.

The city will pay $10.43 million this year toward its police, fire and municipal employee pensions. That is about 50 percent more than the minimum contribution required by the state.

The city does not have a pension funding problem, Schnuer said: "A funding problem is not having the resources and the plan to pay that liability over a reasonable amount of time."

Instead, as the city nears that 2020 payoff date, it has less time to absorbs spikes in what it owes toward its police and fire pensions. With only years left to go, Schnuer said stock market volatility can leave the city vulnerable to extreme costs each year.

"What we do have is a policy problem," Schnuer said. "We have the problem of funding those unfunded liabilities to a fixed date."

The changes proposed Tuesday target police and fire pensions and would leave existing obligations — the $40 million the city knows today it will have to pay — on track to be paid off in 2020. But anything above that — the unexpected spikes in pension costs — will be put on a longer payoff schedule extending to 2027.

Police pension board trustee Patrick Simons, who is also a Champaign police detective, warned that the projections could change if city finance officials do not take the pension board's predictions on investment returns and mortality rates into consideration.

"You have the chance of these mortality tables changing dramatically on you," Simons said.

If that were the case, the city could find itself owing more than it expected, and under the new policy, those increases would be pushed out to the 2027 payoff date.

Still, Simons commended city officials for staying on top of pension payments. He said he hopes that continues.

"It's one of those things that if you don't take care of it and stay on top of it, it compounds out of control," Simons said.

Former Deputy Police Chief Holly Nearing, now retired, also said she wanted to "give credit where credit is due and thank the council" for keeping up with pension payments.

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