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CITY COUNCIL 2017/06/19 Minutes (2)The City of Lake Forest CITY COUNCIL WORKSHOP Proceedings of the Monday, June 19, 2017 City Council Workshop Meeting – City Hall, 220 E. Deerpath 4:00 p.m. CALL TO ORDER AND ROLL CALL: Honorable Mayor Lansing called the meeting to order at 4:01pm, and Assistant to the City Manager called the roll of Council members. Present: Honorable Mayor Lansing, Alderman Beidler, Alderman Morris, Alderman Newman, Alderman Rummel, Alderman Tack, Alderman Reisenberg, Alderman Moreno and Alderman Buschmann. Also present were: Robert Kiely, City Manager; Mike Strong, Assistant to the City Manager; Catherine Czerniak, Director of Community Development; Elizabeth Holleb, Finance Director; Susan Banks, Communications Manager; Sally Swarthout, Director of Parks & Recreation; Michael Thomas, Director of Public Works; Karl Walldorf, Chief of Police; Rob Copeland, Deputy Chief of Police; Kevin Cronin, Deputy Chief of Fire; Mike Gallo, Battalion Chief of Fire. There were approximately 20 people in the audience. CALL TO ORDER AND ROLL CALL 4:01 p.m. 1. Pension Primer Mayor Lansing, welcomed the Council, Members of the Community, and City Staff to the Workshop meeting. He stated that there will be no decisions made by the Council at this meeting. Instead the meeting is meant to present information and to re-open dialogue among the City Council on pensions. He introduced Elizabeth Holleb, Finance Director, to lead the presentation. Alderman Buschmann arrived at 4:03 p.m. Alderman Tack arrived at 4:05 p.m. Elizabeth Holleb, Finance Director, gave an overview of the presentations, studies and actuarial reports that were provided to City Council in their agenda packets and stated that she would run through the presentations and will allow for questions to be asked during the presentations. She began the presentation by reviewing the three pension plans (i.e. Police, Fire, IMRF) that the City provides including information on plan types, benefit types, contribution levels, and benefit levels. She reviewed the portability and termination standards for each and stated that the investment authority for each, which was added to the presentation, is important considering the City is limited in how police and fire pensions can be invested. Those plans are regulated largely by State Statute, which can impact the prospects of Proceedings of the Monday, June 19, 2017 City Council Workshop Meeting their returns. As a result, the funded ratios for both of these pensions have been similar. She added that with the adoption of a Tier 2 system, the City is seeing growth in Tier 2 which will have long-term benefits for reducing the pension obligations for the City; however, we are many years away from seeing a dramatic impact on the City’s contributions to these programs. She stated that the City adopted a policy to achieve 100% funded ratios for both systems by 2040, which is what drives the annual contribution levels and property tax levy requirements. Alderman Moreno arrived at 4:40 p.m. COUNCIL ACTION: Informational Item for Discussion. No Council action was taken. 2. Summary of Police/Fire Preliminary Actuarial Results Elizabeth Holleb, Director of Finance, provided a brief presentation on the preliminary results of the Police and Fire actuarial valuations. She stated that the results are based on current pension funding policy. She reviewed the Police/Fire funds and stated that since April 2016, both funds saw increases in net assets, accrued liabilities and funded ratios. In addition, she stated that the investment return for the Police Fund was 9.67% over the past year, and has averaged a 6.87% return over the past five years. The Fire Fund saw a 9.69% return over the previous year, and has averaged 6.47% over the previous five years. COUNCIL ACTION: Informational Item for Discussion. No Council action was taken. 3. Alternative Scenarios for Public Safety Pension Plans Elizabeth Holleb, Finance Director, introduced Jason Franken, of Foster & Foster, and stated he would be discussing the actuarial assumptions and amortization payments for the funds. She stated that City staff was going to be looking for feedback from the City Council regarding potential modifications to the assumptions. Jason Franken, Foster & Foster, provided some background on the agenda item and stated that the actuarial assumptions help determine liabilities and contribution amounts for the pension plans; and should be reviewed and amended, as desired, to ensure they remain realistic so that they can provide a more reliable sense of security for funding the plans. He briefly reviewed the set of assumptions that are used to determine contribution levels for each plan. These included investment return, salary increase, payroll growth, mortality, retirement, turnover, disability, and others. He stated that there were three assumptions that the City may want to review or further discuss, including: • Mortality Assumption – This determines the rate at which members and beneficiaries pass away. He stated that the Society of Actuaries releases new mortality tables every 10 years to reflect the longer life expectancies. The City currently utilizes the 2000 table; however, a new table was released in 2014, and a specific public sector table is expected to be released next year. He stated that the new table is a bit aggressive, so Proceedings of the Monday, June 19, 2017 City Council Workshop Meeting his recommendation was to make standard adjustments to the 2000 table in line with the Scale BB. This would result in an increase in the liability for Fire plan by $2.1 million and contribution by $135,000; and Police Plan’s liability by $2.4 million and contribution by $155,000. • Salary Increase Assumption – He stated that this assumption is probably the second most important assumption used by an actuary, and it determines how an individual’s salary will increase over his or her career. He stated that flat salary increases do not typically reflect experience due to different step programs, bonuses, and other types of compensation plans. He stated that his recommendation would be for the City to switch to the Department of Insurance (“DOI”) service-based table that starts at 11% or 12% and grades down to 4%. He stated that this would decrease the Fire Plan by $676,000 in liability and reduce its contribution requirement by $75,000; and decrease the Police Plan by $1.2 million in liability and reduce its contribution requirement by $120,000. • Payroll Growth Assumption – He stated that the payroll growth assumption is the extent to which salary increases determine how a department’s payroll grows. He stated that as higher paid members retire, they are replaced with salaried positions that are at a lower level than the salary increase assumption (newer employee salaries grow at a lower rate than veteran or retiree levels). He stated that this assumption is what drives the amortization payments. He stated that if the payroll growth rate were set higher, the future liability would be increased but the current amortization payment could be lowered which provides greater generational equity with the contribution payment. He stated that the City may want to discuss how this assumption could be set, including a level dollar amount or percentage of payroll (i.e. 0, 2.5, or 5.5%). Elizabeth Holleb, Finance Director, reviewed the three assumption discussion points and presented an exercise for understanding their impacts on the liability and contributions for each plan. COUNCIL ACTION: The City Council was favorable to implementing the recommendations for the mortality table and salary increase assumptions. However, requested additional information on the payroll growth assumption. Mayor Lansing requested that the actuary develop a projection of the impact on the liability amortization for the pension funds assuming the City contributes an additional amount from fund balance reserves. 4. Adjournment There being no further discussion. Alderman Reisenberg made a motion to adjourn, seconded by Alderman Newman. Motion carried unanimously by voice vote at 6:00 p.m. Respectfully Submitted, Proceedings of the Monday, June 19, 2017 City Council Workshop Meeting Mike Strong Assistant to the City Manager A complete Binder including all slides and handouts is available at City Hall.