For almost 15 years Oak Lawn’s administration has argued that pensions are unsustainable and the collective employees’ greed is the reason pension debt has skyrocketed.
Oak Lawn’s own consultant now recommends that the village pay $3,906,815 and $3,887,620 for Police and Fire pension system contributions for the year. Unfortunately, those funds which are controlled locally, are massively underfunded due to years of failing to make the required payments. A recent analysis by the Illinois Municipal Retirement Fund underscores the importance of the municipalities making the required payments and the fact that the failure to pay creates a greater debt due to the loss of investment income.
The Illinois Municipal Retirement Fund, which is the pension system for the other municipal employees is funded at about 90%. The difference is that the Illinois Municipal Retirement Fund (IMRF) is funded by a mandatory payment from municipalities to the fund based on employees’ salaries. Those payments, unlike the police, fire, teachers and state employees pension payments could not be skipped by the elected officials.
All public employee pension funds receive revenue from three sources: (1) employee contributions, (2) employer contributions and (3) return on investment.
Despite IMRF’s success in being able to mandate employer payments, its assumed rate on investment has always been set higher than other pension funds. However, with notice to Oak Lawn and other municipalities, the IMRF Board voted to lower the assumed rate to 7.25% on December 14, 2018.
IMRF has published the information on its website to provide public transparency. Its representatives have also been making presentations for municipal administration officials to explain the way pensions can work successfully and to remind officials that higher payments will be necessary based on a lower assumed return on investment.
Despite howls from Oak Lawn administration officials that employees are greedy and pensions are unsustainable, the breakdown of the three sources of revenue actually reveal that public pensions are a good deal for taxpayers if elected officials make the required payments.
The graphic above shows that local governments, such as Oak Lawn, do not have an unfair burden in making pension payments if the administration pays the correct amount each and every year. If they fail to make the payments, as is the case with the Oak Lawn Police and Fire Pensions, the return on investment is affected and like a credit card, the debt, and minimum payment, becomes larger.
Employers only pay 26 cents on the dollar while investment return equals 62 cents. Unfortunately, the failure to pay the 26 cents reduces the earnings proportionately. The same concept would apply to other pension funds according to three experts contacted regarding pension funding and Illinois’ Pension Crisis.
The IMRF information is especially timely in light of Mayor Sandra Bury’s recent attack on employees’ salaries and pensions. The village has maintained a list on its website of every employee’s salary along with “Pension Benefits” that the employee is not yet receiving.
The misleading information was uncovered in an exclusive Oak Lawn Leaf story last week.