93-240 Resolution No. 93-240
RESOLUTION
ACCEPTING AND PLACING ON FILE THE POLICE PENSION FUND
ACTUARIAL VALUATION REPORT
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN,
ILLINOIS, that it hereby accepts and places on file the Police
Pension Fund Actuarial Valuation Report as of December 31,
1992 prepared by Actuarial Associates, Ltd.
s/ George VanDeVoorde
George VanDeVoorde, Mayor
Presented: August 25, 1993
Adopted: August 25, 1993
Omnibus Vote: Yeas 7 Nays 0
Recorded:
Attest:
s/ Dolonna Mecum
Dolonna Mecum, City Clerk
IrEIEWIn
{ Agenda Item No.
,,,7„,
o _ ,,,o,�
4. 1S
�R�hDfEO
August 5, 1993
TO: Mayor and City Council
FROM: City Manager
SUBJECT: Police and Fire Actuarial Reports
PURPOSE: To review actuarial valuation reports of the Police and
Fire Pension Funds as of December 31, 1992.
BACKGROUND: Each year the City is required to have actuarial
valuations completed for the locally administered pension funds.
The valuation report recommends the dollar amount required to
ensure that the pension funds comply with the state statues that
flik mandate the funds be fully funded by the year 2020 (reflected on
page 7 of each report) . In both cases the City contributed more
than the required amount.
Actuary City Adjusted
Recommendation Contributed Contribution
Police $109,325 $469,299 $219,656
Fire 309,763 982,822 503,712
The City contributed amount is unusually high for 1992 due to a
change in accounting method. In order to implement the modified
accrual basis of accounting for the pension funds, two years' tax
levies were recognized as revenue in 1992. After adjusting for
this change the comparable figures are shown under the "adjusted
contribution" column.
Both pensions are in excellent financial condition as shown in
Section III of each report. The investment income yields fell
below 10% for the first time in many years but are still very good
when compared to current investment yields.
RECOMMENDATION: Formally accept the reports and place them on
file. The staff will respond to any questions you may have.
.?"Xliviliw
City 77-71 ger
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CITY OF ELGIN
Police Pension Fund
Actuarial Valuation as of 12/31/92
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FOREWORD
Actuarial Associates, Ltd. was retained to perform an independent study of the
Police Pension Fund.
The study developed a minimum level of contributions which would meet the
requirements of State statutes and fund the plans on an actuarially sound
basis.
The minimum contribution required from the City decreased from $113,484 or
2.6% of salary to $109,325 or 2.2% of salary.
ACTUARIAL ASSOCIATES, LTD.
Charles W. McKenzie, A.S.A. , M.A.A.A.
Consultant
Actuarial Associates, Ltd.
1315 Elmwood Avenue
Wilmette IL 60091
(708) 256-0479
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CITY OF ELGIN
Police Pension Fund
Actuarial Valuation as of 12/31/92
CONTENTS
SECTION PAGE NO.
FOREWORD 1
I REPORT SUMMARY AND ACTUARY'S CERTIFICATION 2
II GENERAL DISCUSSION 4
III RESULTS OF VALUATION 6
A. Normal Cost and Accrued Liability 6
B. Determination of Minimum Annual Contribution 7
C. Projection of Benefit Payments 8
D. Census and Financial Data 9
E. Summary of Principal Plan Provisions 13
IV ACTUARIAL ASSUMPTIONS AND METHODS 17
A. Actuarial Assumptions Used in Valuation 17
B. Illustration of Assumptions Used in
Valuation for Member Hired at Age 28 18
C. Service Table 19
D. Actuarial Method 20
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Section I
Report Summary and Actuary's Certification
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Section I
Report Summary and Actuary's Certification
This section of the report compares the results of the December 31, 1992 and
1991 valuations:
December 31. 1992 December 31. 1991
1. Minimum Contribution $ 109,325 (2.2%) $ 113,484 (2.6%)
2. Normal Cost at
Valuation Date $ 404,318 $ 356,185
3. Unfunded Accrued Liability
at Valuation Date $ 1,364,689 $ 1,413,935
4. Assets on Valuation Date $23,777,671 $21,785,769
5. Number of Participants
a) Active 122 112
b) Inactive 50 59
182 171
6. Annual Salaries of
Active Participants $ 4,900,296 $ 4,335,624
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Actuary's Certification
The results shown in this report are based upon:
1. Employee census data submitted by the City;
2. Financial data submitted by the City;
3. Actuarial assumptions which I believe are reasonable and adequate;
4. Generally accepted actuarial methods.
I certify that the results so obtained are accurate and correct to the best of
my knowledge.
ACTUARIAL ASSOCIATES, LTD.
Y �A
Charles W. McKenzie, A.S,J , M.A.A.A.
Enrolled Actuary No. 93-2416
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Section II
General Discussion
rm.
Section II
General Discussion
This section of the report discusses the experience of the fund during the
year ended December 31, 1991, and explains the change in contribution.
A. Census Data
During the year, the following changes occurred in the group of active
policemen:
Active
Policemen Salaries
1. Included in 12/31/91 valuation 112 $4,335,624
2. Retirements -2 -107,080
3. Disabled -1 -38,328
4. Vested terminations -1 -49,068
5. Non-vested terminations -74.592
6. Policemen active all year 106 $4,066,556
7. Salary increases to policemen
active all year _ 341,956 (+8.4%)
8. New members +11 491.784
9. Included in 12/31/92 valuation 122 $4,900,296
Average salary increases to members active for the entire year were more than
projected by the valuation assumptions, 5.5%. This generated an actuarial
loss which increased the minimum required contribution by about $42,200.
A history of salary increases is as follows:
Fiscal year Approximate
Ending December 31 Annual Increase
1986 4.4%
1987 5.0
1988 5.0
1989 5.6
1990 5.6
1991 8.5
1992 8.4
1986-1992 6.1
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B. Financial
During the fiscal year ended December 31, 1992, the assets of the Plan
realized a return of approximately 9.3%. A history of investment return
it as follows:
Fiscal year Approximate
Ending December 31 Annual Yield
1984 12.0%
1985 11.8
1986 11.4
1987 11.0
1988 10.9
1989 10.7
1990 10.2
1991 10.2
1992 9.3
1984-1992 10.8
The investment return during 1992 was in excess of the 8.5% assumption,
resulting in actuarial gains which reduced the minimum required contribu-
r tion by about $16,800.
C. Reconciliation of Costs
1. Gross contribution for 1992 $520,300
2. Increases due to
a. Expected salary increases 19,900
b. Salary increases greater than expected 42,200
c. New hires 43.900
106,000
3. Decreases due to
a. Investment return greater than expected -16,800
b. Contributions greater than required -18,600
c. Experience gains -21.800
-57,200
4. Gross contribution for 1993 $569,100
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Section III
Valuation Results
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Results of Valuation
(Entry Age Normal Cost Method)
Normal Accrued
Cost Liability
(as of December 31, 1992)
1. Active Policemen
Retirement Pension $270,179 $12,304,074
Disability Pension $ 13,457 $ 148,951
Death Pension (survivors) $ 46,449 $ 446,959
Withdrawal Pension $ 74.233 $ 795.723
Total Active $404,318 $13,695,707
2. Retired Policemen and
Beneficiaries
Service Retirees 0 $ 9,273,281
Widows 0 $ 858,600
Disabled Retirees 0 $ 1,068,124
Deferred Vested ____2 $ 246.648
Total Inactive 0 $11,446,653
3. Total--active and inactive $404,318 $25,142,360
4. Assets as of 12/31/92 $23,777,671
5. Unfunded accrued liability
12/31/92 (3-4) $ 1,364,689
(0m.
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Determination of Minimum Annual Contribution
1. Normal Cost due 1/1/93 $404,318
2. Payment required 1/1/93 to
amortize unfunded accrued
liability over 27 years $120,194
3. Interest at 8.5% for a year on
Items 1 and 2 $ 44.584
4. Total contribution required from
all sources for fiscal 1993
(1 + 2 + 3) $569,096
(11.6% of
salary)
5. Contributions expected from
active policemen (9% of salary) $441,027
rm. 6. Interest expected on contributions
from active policemen $ 18.744
7. Net contributions required from
City (4 - 5 - 6) $109,325
(2.2% of
salary)
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Projection of Benefit Payments
Year Ended Benefits Expected Actual
April 30 to be Paid Payments
1990 $ 746,100 $708,624
1991 $ 829,800 $794,074
1992 $ 900,000 $888,408
1993 $1,041,400
1994 $1,205,500
1995 $1,315,100
1996 $1,445,800
1997 $1,552,100
The following assumptions were made:
1. Mortality according to the UP-1984 table for spouses currently receiving
benefits, otherwise no mortality.
2. Active members assumed to retire as soon as they reach age 53 and complete
20 years of service.
3. Benefits, except those to surviving spouses, assumed to increase each year
by 3% of the initial benefit awarded if age is 55 or over (age 60 if
disabled).
4. Refunds of contributions upon termination are not included in the
calculations.
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Distribution of Membership by Age. Service
and Average Annual Base Pay
as of December 31, 1992
Years of Service
Average
Age 1-9 10-14, 15-19, 20-24 25-29 30+ Total f
20-24 7 7 $31,334
25-29 25 4 29 $34,586
30-34 7 7 1 15 $38,182
35-39 3 5 10 18 $42,365
e., 40-44 1 4 14 1 20 $42,083
45-49 1 1 7 9 3 21 $44,637
50-54 1 1 5 2 9 $46,553
55-59 3 3 $48,208
Total 42 18 16 22 11 11 2 122
Average
Pay $33,803 $40,620 $43,364 $42,917 $45,512 $48,171 $40,440 $40,166
Average Age: 37.1
Average Service: 11.2
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Census of Inactive Members
Service Retirees Disabled Retirees Widows Deferred
Attained Aaed # Mo. Bfts. # Mo. Bfts. # Mo. Bfts. # Mo. Bfts.
35-39
40-44 1 $ 998.50 1 $ 677.83
45-49 2 $3,593.50 1 $ 506.17 2 $4,267.08
50-54 6 $12,261.06 1 $1,144.50
55-59 8 $18,156.51 1 $1,547.65
60-64 7 $14,267.93 2 $1,778.17
65-69 6 $9,375.51 2 $1,915.33
70-74 6 $4,414.50 5 $2,503.42
75-79 2 $ 891.25
80-84 3 $1,449.67 2 $ 848.42
85 & Over 2 $1,171.15
Total 36 $59,925.18 5 $7,284.15 16 $9,613.91 3 $4,944.91
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Investment Experience
Fiscal Year Ended
1988 1212 1990 1991 1992
1. Beginning Assets $14,209,831 $16,011,298 $17,874,229 $19,888,081 $21,785,769
2. Contributions
a) Property Taxes $ 466,035 $ 462,392 $ 519,761 $ 302,662 $ 202,102
b) Replacement Taxes $ 42,982 $ 43,102 $ 48,761 $ 27,555 $ 18,544
c) Salary Deductions $ 315,878 $ 316,564 $ 349,593 $ 389,329 $ 445,155
d) Net Accruals S -6,139 $ 62,725 S -218,824 $ -99,934 S 48.826
e) Total $ 818,756 $ 884,783 $ 699,291 $ 619,612 $ 714,627
3. Benefits Paid $ 526,158 $ 652,079 $ 708,624 $ 794,074 $ 888,408
4. Separation
Benefits $ 21,292 $ 10,337 $ 31,232 $ 41,639 $ 50,326
'i. Expenses Paid $ 5,199 $ 31,178 $ 23,421 $ 4,844 $ 10,132
6. Net Accruals S 24.775 S 51.697 $ -236,472 $ -100,000 S -199,954
7. (3)+(4)+(5)+(6) $ 577,424 $ 745,291 $ 526,805 $ 740,557 $ 748,912
8. Ending Assets $16,011,298 $17,874,229 $19,888,081 $21,785,769 $23,777,671
9. Investment
Income $ 1,560,135 $ 1,723,439 $ 1,841,366 $ 2,018,633 $ 2,026,187
10. Average Fund $14,330,497 $16,081,044 $17,960,472 $19,827,609 $21,768,627
11. Average Yield 10.89% 10.72% 10.25% 10.18% 9.31%
Yield 1988-1992 - 10.27%
Notes: (10) - (1) + 1/2 (2e) - 1/2 (7)
(11) - (9) / (10)
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City of Elgin Police Pension Fund
PYE 12-31-89 PYE 12-31-90 PYE 12-31-91 PYE 12-31-92
Number of Number of Number of Number of
Employees Salaries Employees Salaries Employees Salaries Employees Salaries
Beginning of year 101 $3,487,272 103 $3,628,200 111 $4,004,256 112 $4,335,624
Terminations:
Retirement -5 $ -205,272 -1 $ -41,988 -2 $ -83,148 -2 $ -107,080
Disabled -1 $ -38,328
Vested -1 $ -42,792 -1 $ -35,016 -1 $ -36,420 -1 $ -49,068
Non-Vested -11 $ -30.252 1 $ -35.016 -2 $ -52.920 _2 $ -74.592
Total -7 $ -278,316 -3 $ -112,020 -5 $ 172,488 -6 $ -269,068
Number active
all year 94 $3,208,956 100 $3,516,180 106 $3,831,768 106 $4,066,556
Salary increases to
those active all year -- $ 180,060 -- $ 197,016 -- $ 326,232 -- $ 341,956
5.61% 5.6% 8.5% 8.4%
New members +9 $ +239,184 +11 $ 291,060 +6 $ 177,624 +16 $ +491,784
End of year 103 $3,628,200 111 $4,004,256 112 $4,335,624 122 $4,900,296
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emb-
Summary of
police Pension Fund Benefits for Illinois Municipalities 500.000 and Under
Member - Any member of the police force except those
1. employed as part-time policemen, special policemen, night watchmen,
temporary employees, traffic guards or auxiliary police, clerks or
civilian employees.
2. who fail to make the required contributions.
Creditable Service - Time as a member of the police force excluding furloughs
without pay in excess of 30 days, but including leaves of absence for illness or
accident and periods of disability for which no disability payments were received.
Military service counted if member pays required contributions, but only to a maxi-
mum of 5 years, unless prior to 7/1/73.
Also included is time served as an executive of a policemen's organization, if the
officer had previously served at least 10 years and receives no credit for the same
period of time from another plan. The officer must make the required contributions
from his salary, and the organization must make any other contributions required to
pay for his benefits earned during the period.
000. Normal Retirement Pension - On or after age 50 and completion of 20 years of
Creditable service. A monthly benefit equal to:
1. 50% of annual salary for the rank held for 1 year prior to retirement;
plus,
2. 2% of such salary for each year of service in excess of 20 to a maximum
of 10; plus
3. 1% of such salary for each year of service in excess of 30. The maximum
percentage of salary is 75% and no monthly benefit will be less than
$300.
Effective July 1, 1987, the minimum monthly pension shall be $400. Officers retir-
ing on and after July 1, 1987 shall have their pension based on the larger of:
i) the salary attached to the rank held by the officer for one year imme-
diately prior to retirement;or
ii) the salary attached to the rank held on the last day of service.
Mandatory Retirement Pension - After completion of 8 years (but less than 20) of
Creditable Service, a monthly benefit of 21% of salary for the rank held for 1 year
prior to retirement for each year of Creditable Service. For officers retiring July
1, 1987 and later, salary attached to the rank held on the last day of service
shall be used, if larger.
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Non-Mandatory Retirement Pension - After completion of 8, but less than 20 years of
Creditable Service, a monthly pension commencing at age 60 equal to 2} percent of
annual salary for the rank held for 1 year prior to retirement. For officers termi-
nating after July 1 1987, salary attached to the rank held on the last day of ser-
vice shall be used, if larger. If the officer receives a refund of his contribu-
tions, he forfeits his right to a pension at age 60.
Return to Employment - If a retired member returns to employment and again retires,
his pension shall be increased if he had returned to work for at least 5 years and
made the required contributions.
Pension Tvpe Retirement Date Pension Increases
a. Non-disabled with before 7/2/71 3% increase in January following
20+ years attainment of age 65. or in January,
1972, if then over 65, for each year
of retirement. 3% increase each fol-
lowing January.
b. Non-disabled 7/2/71 -12/31/85 A. If 60 or older at retirement, 3%
increase on 1st of month following
1st anniversary of retirement, and 3%
increase each January thereafter.
B. Else, 3% increase on 1st of month
following age 60 (if it follows the
1st anniversary of retirement) and 3%
increase each January thereafter.
c. Non-disabled After 1/1/86 A. If 55 or older at retirement, 3%
increase on 1st of month following
anniversary of retirement for each
full year of retirement, and 3% in-
crease each January thereafter.
B. Else, 3% increase on 1st of month
following attainment of age 55 (if it
follows 1st anniversary of retire-
ment) for each full year of retire-
ment, and 3% increase each January
thereafter.
d. Non-disabled 1/1/77 - 12/31/85 3% increase for each full year of
and received no retirement on latest of:
increase under i) 1st day of month following 1st
(b) before anniversary of retirement
7/1/87 ii) 1st day of month following at-
tainment of age 55;
iii) July 1, 1987.
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Pension TvDe Retirement Date Pension Increases (cont'd)
3% increase in each January
thereafter.
e. Disability 3% increase in January follow-
ing age 60 for each year of
retirement. 3% increase each
following January.
Rights on Death - Upon the death of a retired member or a member (whether active or
not) with at least 20 years of Creditable Service, his pension shall be paid to the
surviving widow, or to dependent children (because of age or because of physical or
mental disability regardless of age), or to surviving dependent parents. Minimum
pension is $400.
Disability In Line of Duty - A life annuity of 65% of salary for rank at date of
suspension of duty or retirement. If returns to duty after receiving pension for
2 years, must remain active for 5 years before being eligible for higher disability
pension. Minimum pension is $400.
Disability Not On Duty - A life annuity of 50% of salary for rank at date of
suspension of duty or retirement. If returns to duty after receiving pension for 2
years, must remain active for 5 years before being eligible for higher disability
pension. Minimum pension is $400.
9i sabi l i tv Pension Option - May be elected by a member over age 50 if receiving
disability pension, and years of service plus years on pension equal 20. Election
guarantees 50% benefit for life.
Death in Line of Duty - A life annuity of 50% of salary to widow, or children under
18, or dependent parents. Minimum pension is $400.
Death In Service - Same as Death in Line of Duty, but must have served 10 years.
Minimum pension is $400.
Effect of Marriage - If the member marries after retirement, benefits not payable
after death. Benefits to surviving spouse not payable after remarriage. Benefits
to children not payable after marriage.
Refunds of Contributions - At death, prior to completion of 10 years of service,
contributions returned without interest to widow. If the member leaves no widow,
regardless of length of service, excess of contributions (without interest) over
benefits paid, prior to the members death, will be distributed to the heirs or
estate.
If member separates from service prior to completion of 20 years of service, con-
tributions refunded upon request. Acceptance of a refund cancels any later rights
to a pension.
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eibk
Member Contributions -
7/01/09 - 7/22/43 1% of salary (maximum $1.00/month until 7/01/21,
then $2.00/month until 7/01/27)
7/23/43 - 7/19/49 3% of salary
7/20/49 - 7/16/59 5% of salary
7/17/59 - 6/30/71 7% of salary
7/01/71 - 6/30/75 7-1/2% of salary
7/01/75 - 12/31/86 8-1/2% of salary
1/01/87 - 9% of salary
Salary is the annual salary including longevity for rank held, excluding overtime
pay, holiday pay, bonus pay and merit pay or any other cash benefit over and above
legislated salary.
Reserve - Unfunded accrued liabilities to be funded over a period of no less than
40 years commencing January 1, 1980.
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Section IV
Actuarial Assumptions and Method
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Actuarial Assumptions Used in Valuation
Mortality Rate For active members -- UP-1984 Mortality
Table Set forward 1 year.
For former members other than disabled
pensioners -- UP-1984 Mortality Table; set
forward 1 year for males, set back 4 years
for females.
For disability pensioners -- Disability
Annuity Mortality Table as published by
the Railroad Retirement Board.
Interest 8.5% per annum net of expenses.
Withdrawal Special table which varies by age.
Retirement for Age A table of retirement percentages account-
ing for the tendency toward early retire-
ment as follows:
Percentage of Active Group
Age Assumed to Retire
50 40%
51 30
52 20
53 15
54 10
55 25
56 20
57 15
58 15
59 10
60 10
61 15
62 20
63 25
64 30
65 100
Salary Index 5.5% increase per annum.
Expenses and Contingencies No loading has been included.
Assets Valued at amortized cost.
Disability Special table.
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Illustration of Assumptions Used in Valuation for Member
Hired at Aae 28
(Percentage of Remaining Active Members)
Mortality Rate Withdrawal Disability Retirement
Agg Prior to Retirement Rate* Rate Rate
28 0.11% 12.5% 0.03%
29 0.11 12.0 0.03
30 0.11 11.5 0.03
31 0.12 11.0 0.03
32 0.12 10.6 0.04
33 0.13 10.1 0.04
34 0.14 8.7 0.04
35 0.15 9.2 0.04
36 0.16 8.7 0.04
37 0.18 8.3 0.04
38 0.19 7.8 0.04
39 0.21 7.4 0.05
40 0.23 6.9 0.05
41 0.26 6.4 0.06
42 0.28 6.0 0.06
43 0.31 5.5 0.06
ep. 44 0.34 5.1 0.07
45 0.38 4.6 0.08
46 0.42 4.1 0.08
47 0.46 3.7 0.09
48 0.51 3.2 0.10
49 0.56 2.8 0.12
50 0.62 2.3 0.13 40.00%
51 0.69 0.14 30.00
52 0.75 0.16 20.00
53 0.83 0.18 15.00
54 0.90 0.21 10.00
55 0.99 0.24 25.00
56 1.08 0.29 20.00
57 1.19 0.34 15.00
58 1.30 0.40 15.00
59 1.42 0.47 10.00
60 1.55 0.60 10.00
61 1.70 0.77 15.00
62 1.87 0.96 20.00
63 2.05 1.19 25.00
64 2.26 1.44 30.00
65 100.00
* No withdrawals assumed after age 47.
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Service Table
Illustrating effect of mortality, withdrawal , disability
and retirement assumptions for age 28 at employment
Number of Members Number of Members
dgg Remaining in Service Ana Remaining in Service
28 1,000 53 51
29 874 54 43
30 768 55 38
31 678 56 28
32 602 57 22
33 538 58 18
34 482 59 15
35 440 60 14
36 398 61 12
37 363 62 10
38 332 63 8
39 305 64 5
40 282 65 4
41 262
42 244
43 229
44 215
45 203
46 193
47 184
48 176
49 170
50 164
51 93
52 64
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Actuarial Method
Entry Age Normal Cost Method
This method determines a normal cost which is the level percentage of
earnings which should be contributed each year, starting in the first
year of employment, in order to pay for the promised benefits.
The accrued liability is the present value of all the normal costs which
should have been paid up to the valuation date.
The unfunded accrued liability is the difference between the accrued
liability and the assets in the fund. To the extent there is a differ-
ence, it is paid off over a set period of years just as a conventional
mortgage is paid off.
Gains and losses arise because experience varies from the assumed. Such
gains and losses are reflected in the accrued liability.
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