TRUSTEES’ CORNER

 • by P.O. Thomas Beyna, Trustee

Policemens

It was an outstanding year for the Fund on the investment side in 2017. The portfolio earned a rate of return of 17% and well exceeded our assumed rate of return of 7.25%. The assumed rate of return is the expected rate of return of our investments for actuarial valuation. The Fund grew by approximately $245 million, which represented strong investment results reduced by benefit payments, and the Fund currently has $2.7 billion in assets. On the downside, our Fund also has $10 billion of unfunded liabilities and a funded ratio of 22%. The City made their required payment to the Fund in 2017 and is required to make payments of $500 million this year, $557 million for 2019, and $579 million for 2020. The Fund has received approximately $200 million so far this year and contributions continue to come in as tax receipts are collected. The strong performance of our portfolio certainly helps meet our cash flow needs but we will not be able to invest ourselves out of our problem of being so poorly underfunded.

There was legislation recently proposed in Springfield that is of interest to the Fund. House Bill 4659 proposes the removal of the birthdate restriction, those born after 1966, and allows for those to be eligible at age 55 for a 3% COLA. Senate Bill 2525 proposes for those officers who retired after September 1, 1967 with 20 years of service and attains the age of 75 shall receive a 3% compounded COLA. These bills were recently proposed and updates on their progress shall be expected.

In order to increase our funded ratio and get on the path to becoming a healthy pension plan it is essential that we receive the required contributions from the City. According to the present legislation that is to get us 90% funded by 2055, the City will have to make actuarial projected contributions reaching $800 million within 5 years, $900 million in 10 years, and $1 billion in 15 years. It would certainly be beneficial, to the City and our fund, to have a dedicated funding source in a casino, which we were to receive in Senate Bill 777.

I often hear inaccurate information regarding the difference between officers in Tier 1 and Tier 2. As part of pension reform legislation passed in 2010, a second tier of pension benefits were created for police officers that were hired on or after January 1, 2011. Every officer participates in the same defined benefits plan; the Fund does not have any officers in a defined contribution plan. (ie. 401(k), 457, IRAs). The following chart highlights the changes between Tier 1 and Tier 2.

Tier Chart

Tier 1
(hired before 01 JAN 2011)
Tier 2
(hired on or after 01 Jan 2011)
Full Retirement Eligibility: Age & Service Age 50 with 20 years of service Age 55 with 10 years of service
Early Retirement Eligibility: Age & Service Age 50 with 10 years of service, with provisions
Final Average Salary Highest average monthly salary for any 48 consecutive months within the last 10 years of service Highest average monthly salary for any 96 consecutive months within the last 10 years of service, capped at $106,800 with an adjustment for inflation
Annuity Formula 2.5% of final average salary for each year of service
Early Retirement Formula Accumulation of age and service annuity contributions plus 10% of City contributions for each year after 10 years of service Reduced by 0.5% per month under age 55
Maximum Annuity 75% of final average salary
Automatic COLA on Retiree Annuity 3% simple interest if born before 01 JAN 1966, starts at later of age 55 or retirement. 1.5% simple interest if born after 01 JAN 1966, starts at later of age 60 or retirement, with a limit of 30% Lesser of 3% or ½ of the annual increase in CPI-U, not compounded, begins at the later of age 60 or the first anniversary of retirement

On a final note, please take the time to update your beneficiary information with the Fund as life changes occur such as marriage, children, divorce, etc. Be certain your benefits will be received by those you wish and keeping your file updated can alleviate additional stress and hardship for loved ones during difficult times. The Fund operates independently and does not share information with the City. There are files that haven’t been updated since documents were filled out a long time ago while sitting in the academy as a recruit.

Thank you and be safe.

P.O. Tom Beyna Policemens

Thomas Beyna, Elected Trustee [BACK]