Why longer life spans may spell bad news for public pensions

When a mortality study finds people are living longer, it sounds like good news — except to those paying for pensions.

Some municipalities are being asked by the professionals who calculate their annual police and fire pension contributions to pay more, thanks to updated estimates from the Society of Actuaries that say retirees are living an estimated two years longer than previously thought.

This mortality study, however, did not include police officers and firefighters in its calculations. And that's leading the city of Naperville — facing an increase of up to $4.5 million in police and fire pension payments this year alone — to call for a new study that could prove more accurate.

Naperville made its pitch to the legislative committee of the DuPage Mayors and Managers Conference, and the organization is considering whether to work with other groups to conduct a new mortality study.

“If the (mortality) tables are incorrect, then we would be overbudgeting and overtaxing for the funding of our local public safety pensions,” Naperville Mayor Steve Chirico said.

Not all municipalities are immediately feeling the pressure of increased police and fire pension costs.

Arlington Heights, for example, is projecting its pension contributions will be unchanged next year — $4.5 million for police and $5.1 million for fire. The village's actuary has recommended not to switch to the latest major mortality study by the Society of Actuaries, referred to as RP 2014, specifically because the study didn't include cops and firefighters.

“It doesn't apply to us,” Finance Director Thomas Kuehne said.

Some municipalities recently made the switch to the mortality estimates developed before the RP 2014 study was completed — the RP 2000 tables. Crystal Lake, for example, switched in 2014, and Libertyville and St. Charles made the move in 2015. Finance officials in each of those towns were not yet sure of their estimated contributions for next year because their new fiscal years just began May 1.

Even if many towns are not yet facing higher pension costs because of longer estimated life spans, officials say they soon could be — and that could lead to a higher tax burden for residents.

“When the mortality tables are changed in the way they have been recently,” said Mark Baloga, executive director of the DuPage Mayors and Managers Conference, “it has a big impact on cost for the taxpayers.”

Naperville Finance Director Rachel Mayer said the latest tables increased the post-retirement life expectancy from 25 to 27 years.

In Naperville, using the new tables would mean a pension contribution of $16 million this year for police and fire combined. Sticking with the old tables from 2000 would require a $14 million total contribution. Last year, the city paid $11.6 million.

The police- and fire-specific study of Illinois workers that Naperville officials want to conduct wouldn't necessary lead to lower pension costs.

Research could find retired police officers and firefighters are living just as long on average as the other types of employees studied by the Society of Actuaries to create the most recent mortality table. Even if a new study determines they aren't living as long now, pensions could end up underfunded if life spans lengthen in the future. That's the risk of trying to create new estimates.

“If the tables are correct and we challenge them and we lower them, it will take pressure off of our current system,” Naperville's Chirico said. “But at some point, as the data proves out, we'd end up underfunded. This is a tricky thing.”

In Roselle, pensioner life spans already have proved difficult to predict. The village in some cases is paying police and firefighter pensions for 25 or 30 years — longer than some of those receiving the benefits spent working, Mayor Gayle Smolinski said.

“We do have to start changing our assumptions,” she said. “We've had to pay slightly more.”

The village is contributing a total of $1,364,969 for police and firefighter pensions this year — up $27,099 from last year.

The Illinois Municipal League has been hearing similar concerns from its members who fear increasing pension costs, Executive Director Brad Cole said.

The league has considered the idea Naperville is pitching now to hire an actuary to study mortality among retired police officers and firefighters in Illinois and use that data to calculate pension contributions. Cole says the organization is willing to consider it again.

“The desired result is we have a very specific basis on which to fund the pensions,” he said, “so we know exactly how long this certain classification of employees generally would be receiving retirement benefits.”

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