Forest Park’s police and fire pension systems took a hit this year because a simple actuarial change recalculated how long safety personnel can be expected to live. Actuary Timothy W. Sharpe, of west suburban Geneva, changed one element of his calculations last year, revealing a $104,000 shortfall in the police pension fund and a $94,000 shortfall in the fire pension fund.
That money was added to the village’s tax appropriation levy in July, boosting property taxes in town by about $200,000.
The change came when Sharpe switched last year from a 1971 mortality table to a new table that more accurately reflected the lifespans of police officers and firefighters living in 2000.
For more than a decade, Sharpe had been using a group annuity mortality table called the GAM-1971. As its name implies the table was created in 1971 using mortality data from police officers and firefighters collected between 1964 and 1968. Life expectancies on the tables tracked public safety workers who, at age 50, would have been born between 1914 and 1918.
According to the updated table, called the RP-2000, male police and fire personnel at age 50 in 2000 could be predicted to live an average of 4 years longer than they did on the 1971 table. Statistically, most firefighters and police officers are male. Longer-living employees mean more money needs to be socked away in pension plans to cover their retirement.
Sharpe was criticized for using the 1971 tables in his calculations.
Jim Palermo, a village trustee for LaGrange filed a complaint in 2012 against Sharpe with the Actuarial Board of Counselling and Discipline (ABCD) in Washington, D.C. for using out-of-date tables.
“[LaGrange was] spending money we didn’t even know we didn’t have,” Palermo said.
The Village of Hinsdale police and fire pension boards and the City of Champaign police pension board also complained to the national board of actuaries about Sharpe.
Other actuaries complained that Sharpe did not take his mortality tables from the correct “universe of assumptions” which is actuary-speak for using the correct formula to calculate risk. Two other actuaries filed complaints against Sharpe this year with the ABCD.
Sharpe defended his actions saying he was using the same tables the Illinois Department of Insurance offered until 2012.
Chicago actuary Sandor Goldstein, who was asked to file complaints on behalf of Champaign and Hinsdale’s police and fire boards, told the Review the Department of Insurance was “way out of date” by offering the 1971 tables. He said professional literature always urged actuaries to use relevant mortality tables.
But according to Sharpe, pension boards would request a calculation from the state Department of Insurance and then a second calculation from him.
“They wanted to verify they were getting consistent numbers from independent sources,” Sharpe said. “They hire the actuary, then they receive results from the Department of Insurance,” he said. “They wanted to reconcile the number they received.”
Sharpe earns about $3,500 per valuation. He has a niche market and has prepared actuarial valuations for around 160 Illinois public safety plans – or more than 70 percent of Illinois towns that used a private actuary.
Money for public safety pension plans comes from three sources: Employee contributions, investment interest income and property taxes.
When Sharpe changed to the updated mortality tables for the municipalities he worked for, tax bumps took place all over the state. Aurora’s police and fire pension funds discovered a $3 million shortfall. Rockford’s gap was $1.1 million. Highland Park discovered an $800,000 shortfall. Streamwood’s was $300,000 and Oswego’s was $200,000. River Forest, LaGrange and Western Springs all replaced Sharpe with another actuary.
Russ Nelson of the Forest Park firefighter pension board said the village was responsible for hiring the pension plan actuary, not the board. Travis Myers of the same board said in an email the board had no comment on the change in actuarial tables. Representatives of the police pension board did not return phone calls.