Police and fire pension funds report $200,000 shortfall

Actuarial change leads to property tax boost to cover pensions

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By Jean Lotus


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in 2012 against Sharpe with the Actuarial Board of Counselling and Discipline (ABCD) in Washington, D.C. for using out-of-date tables.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.

 Contact: jean@forestparkreiew.com

Twitter: @FP_Review

Email: jlotus@forestparkreview.com Twitter: @FP_Review

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Reader Comments

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Posted: September 21st, 2014 5:43 PM

@forrest -- your quick solution, although no doubt preferred by Scott Walker and the Koch brothers is an extremely blunt instrument. Why would one think that public workers don't need a similar advocate for conditions and pay that private workers are provided through unions. Here is The Economist, that lefty rag, on public sector unions: http://www.economist.com/blogs/freeexchange/2011/02/labour_unions


Posted: September 21st, 2014 2:28 PM

The quick solution is to simply outright ban all public employee unions, as they run counter to the interests of the general public.


Posted: September 13th, 2014 10:36 AM

The Wirepoints article covering this story includes a comment from Tia Goss Sawhney which adds to the debacle of the IL DOI & local Police & Fire pensions using GAM 1971 long after it should have been replaced. The disability rates are from a defunct actuarial society whom last published its transactions in 1949. Busted: 45-year-old mortality data hid some pensions' debt ?" WP Original. www.wirepoints.com/busted-45-year-old-mortality-data-hid-some-pensions-debt-wp-original

Jim Palermo from La Grange  

Posted: September 12th, 2014 8:22 AM

Mike, the DOI's 2012 Actuarial Experience Study prepared by the actuarial firm of Foster & Foster confirms that the 1971 GAM table was used until 2012. See page 5 for the initial reference to the 1971 table. https://insurance2.illinois.gov/applications/pension/PublicDocuments/DOIExperienceStudy.pdf Regrettably, local pension boards throughout Illinois failed recognized the deleterious effect dated tables had on employer contributions, imperiling the retirement security of plan members.


Posted: September 12th, 2014 2:14 AM

What an incredible turnaround! This is a very helpful and well researched article! Would be interested in hearing if the Illinois Department of Insurance affirms Sharpe's statement that the DOI was using 1971 tables until 2012. Has the DOI been using 1971 tables since 1971, that's 40+ years. The DOI has a Public Pension division that produces reports.

Mark Glennon from Wilmette  

Posted: September 10th, 2014 9:09 PM

Buster- You are mistaken. I am the one that wrote that first criticism of her earlier article, published at www.wirepoints.com. I spoke to her about my criticisms and she accepted them graciously and with an open mind. She apparently then dug deeply into the key issue here, which is a scandal in itself -- outdated actuary tables. She has found more information on it than I have ever been able to find because it is buried so badly. Way to go, Ms. Lotus.


Posted: September 10th, 2014 9:35 AM

Buster--Facts are always helpful in making a persuasive argument; you should try it some time.

FoPa Watcher  

Posted: September 10th, 2014 8:30 AM

@Buster- Shoot the messenger? Yes, pensions are a complex issue. It was made overly complicated by design. The questions that need to be asked, before any discussion of taking away benefits collectively bargained for in good faith, is whether the responsible parties have acted in similar good faith. Elected officials have maintained the legality of their methods whether relying on outdated tables or cherry-picking the information disseminated to the public, playing with these money pools has become a lucrative outlet for the politically connected. The books need to be reconciled and the responsible parties need to be held to account. Ms. Lotus has reported on the problem using a reporters resources. It is not her responsibility to fix the problems.

Bill Dwyer  

Posted: September 10th, 2014 8:13 AM

Why, 'Buster,' Jim Palermo is, as stated in the article, 'a village trustee for LaGrange.' Try reading the words in the story. A story which isn't about the resolution of any complaints against Sharpe, but rather about the nature of the complaints against him. Which the article clearly spells out. So I believe your 'criticizism' is unwarranted.


Posted: September 10th, 2014 12:22 AM

Part 2, Jean Lotus was criticized for her writing about pensions in a previous edition, and this criticizism was proper. Notably when a person in this case Jean Lotus writes about a subject that she is not well versed in her stories are enevitibly going to be short on facts and filled with ample omissions. But hey it just might win an award from the press association. Balonie I say. If you are going to write about a topic do your homework or don't write at all. It truly displays your ineptness


Posted: September 10th, 2014 12:17 AM

This story once again displayes the terrible omissions of the writer and one must believe there is some motive for the lack of research and irresponsible reporting. The writer indicates that complaints were filed, but fails miserably to report the outcome of said complaint. Were the complaints sustained or dismissed? Means a lot when you (Jean Lotus) are writing a pretty one sided story. Who is Jim Palermo? What credentials does he possess? You take one persons word and surmise shortcomings ....

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