La Grange's Pension Plight

Recently some La Grange Trustee candidates have written and spoken of the village’s conservative financial practices.  La Grange deserves praise for the grants it has secured and its budget presentation awards, and many Illinois municipalities would happily trade financial places with our village. However, in one key area, pension funding, La Grange is far from conservative.  In fact, La Grange’s pension funding practices are irresponsible.  

The 2012 Illinois Department of Insurance Tax Levy Report indicates La Grange ’s active, retired and disabled police officers and fire fighters have earned $53.3 million in pension benefits, but the plans hold just $24.1 million of market assets, a paltry 45% funded ratio.  Our $29.2 million pension funding deficit is more than double the $13 million village operating budget.  On a per household basis the police and fire unfunded pension obligation approaches $6,000.  Regrettably, few La Grange officials recognize the severity of the situation.   

How did we get here?  The past decade’s weak financial markets have contributed to the plans’ poor funding position, but less apparent is La Grange ’s use of life expectancy assumptions which underfund our plans.  By using mortality experience from to the mid-1960’s, when cigarettes were advertised on television and before seatbelts were mandatory in new cars, La Grange assumes retirees will live far shorter lives than more responsible pension plans predict.  A shorter life expectancy requires smaller village contributions.  Additionaly, the assumption that a retiree and his wife are the same age instead of the wife being three years younger, like most plans do, reduces the joint life expectancy of the couple and causes lower village contributions. 

What does longer life expectancy mean to the pension plans?  The longer a retiree and their survivor lives, the greater the pension benefits collected.  In La Grange , a retiring police officer or fire fighter with 30 years service can earn an initial pension exceeding $75,000 which grows 3% annually, compounded.   Using sound estimates of retiree and spousal longevity is critical because drawing benefits even a few years longer than expected can cost the pension plans hundreds of thousands of dollars per retiree.  Betting retirees and their spouses live shorter than normal lives, especially with our plans already so underfunded, is risky and costly for La Grange taxpayers, today and tomorrow.  

What are the implications for the village budget?  Using flawed assumptions causes the village to underestimate its pension burden, underfunding the plans each year.  Money not added to the plans is spent elsewhere in the village budget, though ultimately pension costs remain unchanged. The result is that La Grange spends money it really doesn’t have.  

According to the DOI Tax Levy Report, the village’s current assumptions cause it to under-contribute to its pension plans by $385,000.  Using existing assumptions, our five year budget projects a surplus of nearly $500,000; using appropriate assumptions, our five-year budget would be $1 million in deficit.  Many financial decisions such as when to replace squad cars and the size of employee salary increases would likely change if the entire board recognized the severity of our pension challenges. 

Unless and until Springfield offers substantive local pension reform, continuing our current pension funding practices endangers the sustainability of our police and fire pension plans and weakens our Village’s financial security. 

Do any Village Board Candidates understand all this? Three candidates running for the La Grange Village board recognize our pension funding challenges.  Trustee Mike Horvath has consistently voted to make our budgeting more transparent and secure by using sound pension funding assumptions.  Joan Hoigard and Jeff Tucek also have the analytical skills to tackle these challenges and as Village Clerk, Lisa Sher will deliver the transparency necessary to reform our village finances.  All will work to deliver "Government that Works Better".  Give each of them your vote on April 9.