Vernon Hills lowers investment expectation for police pension

Problems with pension funding have been in the news but Vernon Hills is touting its practices regarding police employees.

Finance Director Larry Nakrin reported the village is using more conservative expectations of investment returns and other measures to provide a more realistic picture of where it stands.

The village is one of few that has dropped its investment rate assumption from the 6.25 percent implemented by the state for downstate police and fire pension funds to 6 percent, he said.

The village also has opted not to follow a state method that has employees contributing more of their pension cost later in their careers, which pushed more of the village cost to the future as they near retirement, he added.

“We weren’t comfortable their assumptions and methodologies were conservative enough to be realistic,” said Nakrin, who made a presentation Tuesday to the village board.

Nakrin said the village’s average return on investment has been 4.9 percent over the past five years and 5.7 percent over the last 10 years.

Every year the village tops the investment target, funding levels improve, but are hurt when the target is missed, he said.

The conservative approach means the village will pay more in the coming fiscal year, though the time to pay it off was extended to the state permitted level of 29 years. Nakrin said that was done to allow a longer recovery period from the negative return of 9.4 percent in 2008-09.

For 2013-14, the village expects to contribute about $1.29 million compared with about $1.18 million this year — about 10 percent higher.

“We’re covering the costs we should be covering now so there isn’t a ticking time bomb in the future,” Nakrin said.

The amount of the pension obligation that is funded will drop from nearly 73 percent to about 70 percent, still among the best funded among police pension funds, according to Nakrin.

“We’re very solvent and we’re very compliant and we’ve always done the right thing,” Mayor Roger Byrne said.

Employees contribute 9.91 percent of their salaries to pension and the village provides 31.7 percent to cover current employees and future retirees. The fund covers 42 active employees and 16 retirees and beneficiaries.

Communities can levy a tax to pay for police pensions but Vernon Hills does not and makes its contributions from its general fund.