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HomeMy WebLinkAbout2h. Pension Status Update Mount Prospect Village of Mount Prospect Mount Prospect, Illinois ~ INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: APRIL 24, 2009 SUBJECT: UPDATE ON PUBLIC SAFETY AND IMRF PENSIONS Information on the status of the Village's three pension plans (Illinois Municipal Retirement Fund- IMRF, Firefighters' Pension and Police Pension), was presented at the February 10 strategic planning meeting with the Village Board. Discussed specifically were funding levels that had dropped significantly in 2008 as a result of the negative investment returns on the equity portions of the portfolio. The impact to the pension funding requirements as a result of these losses in 2008 will be considerable absent any changes is current funding requirements. Legislative and executive action has been undertaken in an effort to moderate the impact on contribution rates. Below is an update of where these efforts stand at this time. IMRF Pension This past January, the IMRF held informational meetings on the impact of investment losses in 2008. Shared at these meetings was information on how employer rates would be impacted if IMRF followed their normal rate setting procedures. Also presented at the meeting were options the IMRF Executive Board was considering in an effort to mitigate the impact on these rates. At its February 27 Board meeting, the IMRF Board adopted a phase-in plan for employer contribution rates which will cap most employer rate increases at 10%. A copy of the executive summary from the February 27 meeting is included as Attachment I. Employers received preliminary rate notices in April that included the regular contribution rate and the optional phase-in rate for 2010. Employers have the option to select the regular contribution rate, the phase-in rate or a rate between the two. A copy of the Village's preliminary rate notice is included as Attachment II. The Village's contribution rate for 2009 is 8.89%. If the Village were to go with the regular contribution rate for 2010 the employer rate would be 11.87%. The optional phase-in rate for 201 0 is 9.78%. Selecting the regular contribution rate, the increase to the annual budget in 2010 is approximately $427,000. Selecting the phase-in rate the increase to the budget is approximately $127,000. IMRF permits its members to also select any rate between the two. The Village also has the option to make an additional contribution at the end of the year, funds permitting. Staff will provide various options for funding IMRF during the 2010 budget review meetings. Police and Firefighter Pension Based on investment results from 2008, increases to the required contribution (tax levy) for both the police and fire pension plans was estimated to be between 28-32%. This assumed no change to the current funding requirements guided by state statute. In February there was a coordinated Update on Public Safety and IMRF Pensions April 24, 2009 Page 2 of 2 effort by several cities and villages and the Northwest Municipal Conference to propose legislation to ease the impact on municipal tax levies for public safety pensions. Senate Bill 2011 is a result of this coordinated effort. Senate Bill 2011 resets the amortization deadline for fully funding police and fire pension to 2049 from the current 2033. The Bill does not do anything to reduce the amount needed to fully fund the pension, but by extending the amortization period, municipalities will be able to smooth out the funding needs over a longer period of time. This will lessen the impact to the annual property tax. Senate Bill 2011 passed out of the Senate by a 48-8-1 margin and has moved onto the House for their approval. A first reading was held on April 1. The Bill is currently assigned to the House Executive Committee. There is no further information available as to the passage of the Bill. An actuary study will be done by the Village in June to determine what the impact will be to the annual pension contribution and tax levy. A calculation will be done based on existing statutes and as amended by Senate Bill 2011. More information will be provided to the Board at that mid-year budget review. .~~~~ DAVID O. ERB DIRECTOR OF FINANCE DOE/ Attachments (2) 1:\Pensions\Pension Update - April 2009.doc Attachment I Illinois Municipal Retirelllent Fund Suite 500 2211 York Road Oak Brook IL 60523-2337 Member Services Representatives 1-BOO-ASK-IMRF www.imrf.org GENERAL MEMORANDUM Number: 586 Date: March 3. 2009 To: All Authorized Agents Subject: IMRF Board's Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates We encourage each Authorized Agent to share this memorandum with the unit of government's chief financial officer, other officials, and governing body members. Executive Summary This preliminary information is based on unaudited investment return data and projected actuarial information. All finalized information will not be available until early May 2009. The estimated 2008 investment return for IMRF is a negative 24.8%. This return translates into investment Joss of approximately $6.1 billion. If IMRF were to follow its normal rate setting procedures, the magnitude of this loss would dramatically impact employer contribution rates for 201 O. To moderate the impact of the 2008 investment losses on employers, the IMRF Board took the following actions at its February 27, 2009, Board meeting: . Changed two actuarial techniques which will provide short-term and longer-term relief for employer rates and funded status. . Adopted a phase-in plan for employer contribution rates which will cap most employer rate increases at 10% and provide immediate rate relief in 2010 and subsequent years. Preliminary phase-in plan rates will be available the week of March 2, 2009, on IMRF's employer website and are subject to change based upon the final actuarial data. Employers will receive preliminary rate notices in mid-April 2009. Final rate notices will be available in November 2009. The preliminary rate notices will show the full actuarial required contribution (ARC) and the finalized phase-in rate. Although employers may contribute the full ARC rate, the phase-in rate or some rate between the two, employers who are capable of funding the additional costs are encouraged to choose the higher ARC rate. - over - General Memorandum 586 March 3, 2009 IMRF Board's Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates Page 2 of 3 Actions Taken by IMRF Board At its February 27, 2009 meeting, the Board took several actions to moderate the impact on employers' funded status and contribution rates. It made three changes to the actuarial techniques used to calculate employer funded status and the actuarial required contribution rates (ARC): Widened the allowable corridor between the market and actuarial value of assets from 15% to 20%; Changed the amortization method from a closed to a rolling one and changed the period to 30 years for taxing bodies and 10 years for non-taxing bodies; and Increased the threshold for the rapid amortization of over funding credits to reduce employer contribution rates from 100% to 120%. Second, the Board adopted an optional phase-in plan for employer contribution rates with the following components: . Capped most employer contribution rate increases at 10% of the 2009 rate, excluding ERI and SLEP enhancement costs (For example, an employer with a 10% rate would increase to 11%); . Maintained the Board's policy of requiring all employers to pay the full cost for current service regardless of the percentage increase (for example, using the full cost of the IMRF program for 2009, the minimum employer contribution rates for the regular, SLEP and ECO plans for most employcrs would be 8.37%,12.58% and 25.69% respectively in 2010); Provided employers the option of paying the full actuarial required contribution (ARC), the phase-in rate or some rate between the ARC and the phase-in rate; and . . Provided the Board the prerogative to review the phase-in plan annually and to modify it based on actual future investment returns and other relevant factors. Employer Contribution Rates The average employer rate for the Regular plan was 9.47% for 2008 and is 9.27% for 2009, a decrease of 20 basis points or 2.1 %. The 2009 rate reflects the fact that the Regular plan was less than 100% funded on an actuarial basis as of December 3 I, 2007. The impact of 2008 investment losses on individual employer contribution rates is difTicult to forecast, since each employer has a unique rate affected by its own demographics and funded status. IMRF's actuarial return (used to determine employer contribution rates and actuarial funding status) is estimated to be a negative 6.7% in 2008. significantly less than the 7.5% assumed return. Therefore, despite the moderating impact of widening the corridor to 20% and changing the amortization method to a rolling 30 years for taxing bodies and to a rolling 10 years for non-taxing bodies, the average employer rate for the Regular plan is expected to increase to 14% in 2010, an increase of 4.73%, or a 51 % increase from the 2009 rate. - more - General Memorandum 586 March 3, 2009 IMRF Board's Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates Page 3 of 3 Phase-in Plan rates Because of this dramatic increase, the IMRF Board adopted the phase-in plan discussed above. Most employers will see their 20 I 0 contribution rates increase by 10% from their 2009 rales. For example, if an employer had a 10% contribution rate in 2009, the optional phase-in rate would be I 1 % for 20 I O. The phase-in plan applies to all three of IMRF's plans-the regular plan, the SLEP plan and the ECO plan. Employers who are paying less than the full cost of the IMRF program in 2009 (8.37% for the regular plan, 12.58% for SLEP and 25.69% for ECO) because they were over funded as of December 31, 2007, will have to pay the full cost of the IMRF program in 20 I O. The preliminary phase-in plan rates will be available the week of March 2, 2009, on IMRF's employer website. We believe these rates will be very close lo the finalized phase-in rates but are subject to change based upon the final actuarial data which will be available in late April. Rate Notices As in prior years, employers wiII receive preliminary rate notices in mid-April 2009. Final rate notices will be available in November 2009. The preliminary rate notices, which will be available in April, will show the full actuarial required contribution (ARC) and the finalized phase-in rate. IMRF employers will be given the option to contribute based on the full ARC rate, the phase-in rate or some rate between the two. In conjunction with the preliminary rate notice, employers will receive a memorandum outlining how the phase-in plan will work for contribution year 2010 and beyond. Since selecting the phase-in rate delays the recovery of unfunded pension costs, over the long-term the phase-in rate is more costly for employers than the ARC rate. Because of the additional cost, employers who are capable of funding the additional costs are encouraged to choose the higher ARC rate. IMRF will assume that an employer has chosen the lower phase-in rate unless the employer contacts IMRF with a different rate by August 31, 2009. Questions? If you have any questions regarding the information presented in this memorandum, please call or e-mail Chief Financial Officer Richard DeCleene at (630) 368-5345 or rdecleene@imrf.org. Sincerely, ~~~ Louis W. Kosiba Executive Director Attachment II Preliminary Notice of Illinois Municipal Retirement Fund Contribution Rate for Calendar Year 2010 Date April 2009 Employer name VILLAGE OF MT PROSPECT Employer No. 03115 The IMRF Board of Trustees adopted an optional phase-in plan for 2010 employer contribution rates. Shown below are member contribution rates and 2010 employer contribution rates. Your preliminary 2010 IMRF ARC Contributions rate(s) are based on the actuarially calculated annual required contribution (ARC). The Optional Phase-in Contribution rate(s) are based upon the Board's optional phase-in plan. IMRF ARC Contribution Rates Regular Member Contributions (tax-deferred) Employer Contributions . Retirement Rate Normal Cost ........................................................................ Funding Adjustment <over> under ...................... Net Retirement Rate ....................................................... . Other Program Benefits Death ..................................................................................... Disability ............................................................................. Supplemental Benefit Payment ............................ Early Retirement Incentive ....................................... 4.50% 7.58% 3.39% 10.97% 0.13% 0.15% 0.62% 0.00% . TOTAL EMPLOYER RATE .................................... 11.87% Below are the 2010 optional phase-In rate(s): IMRF Optional Phase-In Contribution Rates Regular TOTAL EMPLOYER RATE 9.78% You may select the ARC, the optional phase-in employer rate, or a rate between the two. If you do not provide us with your selection by August 31, 2009, we will assume you have chosen the optional phase-in rate. This rate will be reflected on your 'Final Notice of Illinois Municipal Retirement Fund Contribution Rate for Calendar Year 2010,' which will be available in Novermber 2009. For more information about the Preliminary Notice of IMRF Contribution Rates for Calendar Year 2010, refer to General Memo 587. If you have any questions, please contact IMRF Employer Relations Audit Supervisor Audrey Brown-Ryce at 630-706-4246 or IMRF Employer Account Associate Analyst Corey Lockwood at 630-706-4226.