Schaumburg expected its police pension fund to earn almost $7.5 million from investments in 2016, but instead it lost more than $1.2 million and created an $8.7 million shortfall.

It was among 65 suburban police pension funds that missed investment income goals that year, creating a combined $76.1 million shortfall that taxpayers ultimately might have to cover. Like Schaumburg, 25 other police pension plans lost money on investments in 2016 -- often while budgeting for returns of 7 percent or more, according to a Daily Herald analysis of 76 municipal audits.

By contrast, police pension funds in Naperville, Rosemont, Elgin, Hoffman Estates, Hanover Park and Winfield all made more than 8 percent on their investments in the same year.

"Our investment adviser always tells us we're in it for the long haul, so we make it up by sticking to our plan," said Schaumburg finance director and police pension board member Lisa Petersen. "We certainly don't want to freak out after one bad year."

But the clock is ticking for police pension funds throughout the state to comply with a 2010 law to become at least 90 percent funded by 2040. The hit Schaumburg's police pension fund took in 2016 -- the most recently audited year for all municipalities -- dropped its funding level from 64.2 percent to 60.5 percent, according to the village's audit.

Biggest shortfalls

Unlike the Illinois Municipal Retirement System, which provides retirement benefits for non-public safety employees for most Illinois towns and is administered by a professional staff, fire and police pension funds are overseen by hundreds of local boards made up of current and retired police and firefighters as well as appointees picked by the municipality who might or might not have financial experience.

Petersen said the pension board asked its investment advisers to be more aggressive in 2017 and "take a little more risk" to realize greater return.

Even after Schaumburg police pension fund investments outpaced expectations in 2017, the fund still recovered less than half of what was lost in the previous year and was aided by the village lowering its assumed investment return rate from 7.5 percent in 2016 to 7 percent in 2017.

Actuaries are responsible for setting the anticipated rate of return on a fund's investments. They base those figures on a formula that includes past performance of the fund's investments, municipal finance officials explained.

The Daily Herald combined audited investment returns with the anticipated income to calculate gains and shortfalls.

On average, the 76 police pension funds anticipated a 6.9 percent return on investments in 2016, but only received an average return of 2.49 percent, according to the analysis.

Elgin's police pension fund investments returned $7.7 million in 2016, $1.4 million more than the board expected. Still, the pension fund was less than 50 percent funded.

Governments are limited in how they can meet the 90 percent funding requirement if investment income falls short, said Tom Sgouros, senior researcher at the Haas Institute for a Fair and Inclusive Society at the University of California-Berkeley.

Governments can raise taxes, but with Illinois' tax cap, most tax hikes are limited without voter approval. The other option is shifting resources. Sgouros said that likely means putting capital projects on hold to ramp up the pension fund.

Eleven of the police pension funds exceeded investment income goals in 2016, but some of those gains were preceded by a down year in 2015. Naperville's police pension fund earned $11.6 million from investments in 2016, an 8.32 percent return on its investment. However, that was on the heels of losing $4.3 million the previous fiscal year, which created a $14.2 million investment earnings shortfall.

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