Bloomington and Normal see stock market gains help trim pension liability for police and fire
A booming stock market has been good for lots of investors, including state and local governments who are counting on market gains to help cover their pension payments for police and fire retirees.
Town of Normal finance director Andrew Huhn said the town's pension-related investments improved 18% over the 12-month period that ended in September. That's a $15 million increase for the town, and it followed a year that saw a lot of market volatility because of the pandemic.
“That will likely mitigate downward as things change, but it’s been a very good investment year for the town,” Huhn said in a Sound Ideas interview.
Still, Huhn sad the town's rate of public safety pension funding dropped to less than 50% in the last year because the town recalculated life expectancy.
“We changed a major assumption in our analysis that people are living longer, which is a wonderful thing, but that increases liability significantly. That was a headwind against the positives of a nice increase in investment earnings,” Huhn said.
The town increased its payments to police and fire pensions 25 percent this year to $7 million.
The value of Bloomington's public safety pension investments improved by nearly $50 million in the last year. City finance director Scott Rathbun said that's mostly because of a robust stock market, but he said the city uses an actuarial practice that spreads those gains over multiple years to save for a market downturn. That drops the city's police and fire pension liability $13.2 million for the year.
“We are all benefitting from a raging stock market now from a point-in-time standpoint, but there can also be a correction in the stock market,” Rathbun said.
Bloomington's police pensions are about 67% funded and its fire pensions are 65% funded, by measuring the total value of the city's investments, Rathbun said.
The city has set a target to have its public safety pensions fully funded in 20 years. The state mandate is 90% funded by 2040.
“Everyone is looking at that because that is a challenge for everyone,” Rathbun said. “We are in a lot better shape than a lot of municipalities.”
Huhn suggested the 90% benchmark is not realistic for most governments and it’s possible state lawmakers will adjust that that requirement.
“Most places are struggling with pensions for a variety of reasons. That’s going to be quite a funding contribution to get to that 2040 date,” Huhn said.
The state of Illinois saw its unfunded pension liability drop because its investment returns topped 20%.