Trustee questions growths role in pensions
Updated: November 5, 2012 6:43AM
GLENCOE — How much can communities depend on growth in investments to pay public pension payouts?
That question tends to make people nervous if they’re responsible for making sure those payments are made. One of them is Glencoe Trustee Bruce Cowans, who is his board’s finance committee chair.
What got him standing up and challenging his fellow trustees recently was a survey compiled by a finance department intern, who found that Glencoe and a half-dozen area towns’ hired actuaries estimated their current annual rate of return for police/public safety pension fund investments to range from 6.25 to 8 percent.
That was a little too optimistic for Cowans, who, like everybody else, watched the disastrous decline of investments – especially stocks – over the last five years.
Though stocks are not the be-all of conservative pension fund investment, they’re often the most generously providing portion.
At a recent finance committee meeting, Cowans held up a chart that indicated the familiar 10 percent annual return rule for stocks just wasn’t happening in the last five years; In fact, it had been, according to the figures, 1.3 percent.
He then asked his three fellow committee members/trustees to write on a Post-it what they thought the real rate of return would be over the next 10 years.
He wrote down 5.5 percent. Another trustee wrote 4.5 percent, another 5.0, and the last one, apparently both more optimistic and somewhat derisive of long-range forecasting, 7.349 percent.
“No matter who’s in the White House, we may have some difficult years ahead,” Cowans said.
Once foreclosed houses are all sold, perhaps a couple of years from now, will the real estate market and the banking climate both improve, and start a tide that lifts all boats on Wall Street?
Maybe, Cowans said.
“But if you have one really bad year, what does the next year have to be to make up for it – 14 percent?” he asked. “Can we really expect that to happen?”
Trustees have decided to look this fall into pumping more tax dollars into the pension fund to keep it ahead of the game.
Each half-percent lower than expected costs Glencoe about $200,000, Finance Director Dave Clark said Sept. 25.
The village operates the pension fund somewhat conservatively. Last year, the board unofficially dropped expectations to 6 percent, despite its consultant’s figure. About $400,000 was injected into the fund, but it wasn’t necessary to keep ahead of payouts. The fund generated about $1.5 million in profit, and about $1.5 million was paid out.
The additional money — plus about $300,000 in annual contributions by the public safety employees themselves — wasn’t wasted, however. It helped bolster the system for the future.
Clark said last year was one of the first in several that no extra money was pumped into the account to increase the level of funding beyond that suggested by the state.
Right now, Glencoe Public Safety pensions are funded at 65 percent, about 2 percent higher than the average of the other seven towns the intern polled.
Clark said Glencoe may always have to scramble a bit if, for instance, a disability forces a public safety officer to retire before expected, but he expects that 6 percent will remain a safe number to aim at.
He doesn’t mind the Village Board members looking at lowering their expectations for the annual rate of return, and funding the system to cover them.
“I like it when they think this way,” he said.