For Immediate Release
Year-end Pension Fund Report Available
The year-end actuarial valuation report for the Police Officers’ and Firefighters’ Retirement Fund recommends a nearly 10 percent increase in total contributions to the pension plan from both the City and police and fire employees for the FY11 budget.
The overall contribution rate should increase to 73.1 percent of payroll to cover losses based on the plan’s assumption changes and the investment returns, according to the report prepared by the Milliman firm of St. Louis.
As of June 30, 2009, the plan’s market-value funded ratio is 35.5 percent.
“The Plan’s funded status is steadily and significantly eroding,” the report states, suggesting that the funded status would be improved by increased contributions, improved investment returns, reduction in future benefit liabilities or a combination.
The plan lost about 19 percent due to market returns over the past year, compared to a one-year 26 percent loss in the S&P 500. Much of that loss was abated, however, by the infusion of the $10.22 million telecommunications settlement announced in March. Addressing the market loss represents about 2.9 percent of the recommended increase, because it will be smoothed in over the next four years.
The assumption changes approved in the recent five-year experience study account for 7.1 percent of the increase. Assumption changes address factors such as life expectancy, final average salary rates, employee turnover, disability rates, and other factors. They are adjusted every five years to better align with the fund’s actual experience.
The recommended increase would make the City’s FY11 contribution total $13.7 million (57.77 percent of current staffing level of police-fire payroll), up from $13.1 million (52 percent of payroll) for the current fiscal year. The rate recommended for employees averages 15.34 percent; Tier 1 employees would pay 16.02 percent, a 4.67 percent increase, which is refunded without interest upon retirement. Tier II employees would maintain their current 8.5 percent rate, which is not refunded upon retirement.
“This report confirms what we had been expecting and projecting in terms of the continued impact on the City’s budget,” City Manager Greg Burris said. “We’ve made $12.7 million in budget cuts over the last two years to make the full contributions. This ups the ante by more than another half million dollars to make the full contribution next year. It’s simply unsustainable for the long term.”
The year-end report also shows that as of June 30, 2009:
- The plan’s assets were $112.3 million.
- The actuarial liability is $316.6 million, which essentially represents the total benefits due to plan members.
- The unfunded market-value liability is $204.3 million
- The market value funded ratio is 35.5 percent. The actuarial value of assets, which smooths in gains and losses over four years, is 46.5 percent. (The Government Accounting Standards Board uses actuarial value instead of market value when calculating the funded ratio.)
- The total funding obligation (the present value of future benefits) is $373.1 million. That would include certain assumptions from the Experience Study.
“The plan provision changes implemented in 2006 were a step in the right direction but since these changes only apply to post June 1, 2006 hires, it will take many years before these changes have an appreciable impact on the Plan’s funding requirements,” the report states.
The total number of plan participants was 967 as of June 30.
The full study is available under “Recent Updates” at: www.springfieldmo.gov/boards/firepension
For more information, contact: City Manager Greg Burris, 864-1006.