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Pension panel spars with city

Streator Mayor Jimmie Lansford will be inducted into the IVCC-LPO Hall of Fame. His community work includes five years as director of the American Red Cross in Streator, serving as a medical team volunteer in Haiti, as a Hurricane Katrina volunteer in Mississippi and eight years as a member of IVCC's board.
Streator Mayor Jimmie Lansford will be inducted into the IVCC-LPO Hall of Fame. His community work includes five years as director of the American Red Cross in Streator, serving as a medical team volunteer in Haiti, as a Hurricane Katrina volunteer in Mississippi and eight years as a member of IVCC's board.

Streator's firefighters pension board accuses the city of shorting its fund by more than $120,000 this year.

The city is contributing $635,000 to the fund, an amount recommended by a consultant who was recently disciplined by his professional organization and has attracted national media coverage for his controversial methods.

In early January, all five pension board members, including two mayoral appointees, signed a letter to the City Council, contending the city's underfunding of pensions has had a "crippling" effect on the fund.

By accepting the current $635,000 tax levy for the fund, the board said, "the city is knowingly and willingly choosing to underfund pensions."

In a letter last week to the board, Mayor Jimmie Lansford said he took "personal offense" at the pension board's assertions.

"The city, lawfully, prudently and responsibly manages its various financial obligations — to firefighters and others — in accordance with current accounting and budgeting practices," the mayor said. "I understand that you would like to see a higher level of funding transferred to the fire pension fund; but for you to make the claims you have made simply because you did not receive the money is irresponsible."

He added, "Gentlemen, it is time to dial back the confrontational and accusatory rhetoric, and together find solutions for the various issues facing our community."

For years, the state has received its recommendations on pension contributions from the state Department of Insurance, but Lansford said it was not received on time this year, so the city went with Timothy Sharpe, an actuary in the Chicago suburbs. The mayor also questioned the state's methods.

The mayor suggested the pension board and the city administration work together to jointly select an independent actuary. If the two sides move quickly, he said, the new actuary can prepare a report in time for the city's 2019 tax levy ordinance, which will be voted upon late this year.

The Department of Insurance actuary suggested the city contribute $775,000 this year. The pension board said $756,000 was required "to simply pay necessary bills."

National attention

In January, the American Academy of Actuaries issued a news release announcing it reprimanded Sharpe for numerous violations of rules that require actuaries to act with competence and perform their services with skill and care.

Last February, reported a committee of the American Academy of Actuaries recommended charges against Sharpe. At the time, Sharpe responded on an online comment board that the charges levied against him were false and unfounded.

"(The charges) were initiated by competitors out to destroy my business and damage my reputation," he wrote. "I am defending myself vigorously and expect to be vindicated in what are supposed to be confidential proceedings."

In 2015, the New York Times ran a story about how actuaries across the country were providing bad projections to government pension boards. Sharpe was presented as an example.

According to the New York Times, an official in La Grange, a Chicago suburb, found Sharpe was using a mortality table from 1971 that showed that the town's 100 police officers and firefighters were expected to die, on average, before reaching age 75, compared with 79 under a more recent table.

This is significant. A shorter projected lifespan means a lower annual contribution to pension funds. If members' average lifespan ends up longer, that will put pension funds in a long-term squeeze. 

A trustee in La Grange called out Sharpe, but the manager and council majority sided with the actuary. 

The Times said in the 2015 story that Sharpe had the biggest market share of police and fire pension business in Illinois.

Sharpe couldn't be reached for comment.

Inaccurate numbers?

Kurt Snow, president of the Streator firefighters union, said Sharpe's report does not accurately reflect the number of current members in the fund and lists incorrect percentages for retirement and widow benefits.

"The question arises that if the city manager knew that the numbers were inaccurate, why would he suggest to the council to move forward with it?" Snow asked in an email. "If he didn't catch the inaccuracies, why didn't he?"

In an email to The Times, City Manager Scot Wrighton defended Sharpe's analysis.

"Mr. Snow apparently believes the Sharpe report is inaccurate, but this is only his opinion," Wrighton wrote. "The city does not agree; actuaries use different methods and assumptions. More important than dueling actuaries, however, it is important to know that the culprits of so-called pension 'underfunding' are not to be found in Mr. Sharpe's analysis."

One of the culprits, Wrighton said, is the fire pension board's investment strategy. The top-performing 15 percent of downstate fire and police pension funds saw investment earning averages of 6 percent or better from 2009 to 2016, Wrighton said. Of 295 fire pension funds that fully reported their financial activity, Streator's placed 262nd, the bottom 12 percent. It earned on average 1.7 percent on its assets from 2009 to 2016, the manager said.

"These shortfalls and poor returns are straining the Streator tax levy, yet the fire union blames the City Council for 'underfunding.' Based on the assets of the Streator fire pension fund, for each 1 percent of investment return shortfalls, it costs the pension fund and Streator taxpayers about $50,000."

As he has before, Wrighton blamed the state for creating a situation in which even rich towns don't fully fund their pension accounts, noting the mandatory 3 percent annual benefit increases and the ability of firefighters to retire with full pensions at age 50.

"So why isn't the fire union willing to discuss meaningful and reasonable reforms before they bankrupt cities and add to an exodus of people leaving the state?" he said. "In all of this, the Streator City Council seeks first and foremost what is best for the future of the entire city. Its modest reform proposals reflect this priority. The interests of narrow special interests should generally be secondary to this broader public interest."

In an email, Patrick Devaney, president of the Associated Firefighters of Illinois, disagreed with Wrighton's analysis. He noted the a report from the state Commission on Government Forecasting and Accountability that details the main causes of underfunding of pensions in Illinois from 1996 to 2016.
"As you can see, the failure to make a lawful employer contribution is the overwhelming driver and benefit increases account for a tiny fraction of it," he said.

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