Pension FundingBack to Recent News Page
Frequently Asked Questions
Q: Which pension funds cover District employees?
A: Firefighters (sworn personnel) are covered by the Orland Fire Protection District Firefighters Pension Plan (Firefighters Pension Fund) which is a defined benefit pension plan administered by the Orland Fire Protection District Firefighters Pension Fund Board. The benefits and contributions are governed by State Statutes.
Non-sworn full-time personnel are covered by the Illinois Municipal Retirement Fund (IMRF) which is a multi-employer plan whose benefit and contribution provisions are governed by State Statutes.
Q: How are pension funds funded?
A: The districts’ pensions are funded in three ways — through investment earnings, employee contributions (set by state statute), and employer contributions (supported by actuarial analysis).
Q: Has the District made its required contributions?
A: Yes, the District makes its required contributions. When required contributions are not made, a net pension obligation liability is recorded. Due to the District’s making its required contribution and the issuance of taxable bonds in December, 2012 (described further below), the District does not have a net pension obligation liability; the District actually has a net pension asset of $21,284,408 for the Firefighters’ Pension Fund and $875,879 for IMRF.
Q: How funded are the pension funds?
A: As of the 12/31/12 audit, the pension funds were 100% funded.
Q: 100% funded? That’s remarkable! How did that happen?
A: In December, 2012, the District’s pension funds had actuarial unfunded liabilities of $26,251,465 and so the District issued taxable bonds to pay off those liabilities.
Q: What is an actuarial unfunded liability?
A: Each year, an actuarial analysis is done to determine the actuarial liabilities and required contributions for the pension funds. The actuary uses assumptions to estimate the accrued liabilities (the value of benefits already earned), and compares the accrued liabilities to the value of assets accumulated to finance the obligations.
An actuarial unfunded liability is very common. A portion of this liability is included in the calculation of required contributions. Over time, the unfunded liability is paid. Essentially, interest is paid on the liability at the pension fund’s assumed interest rate which is 7% for the Firefighters Pension Fund and 7.5% for the Illinois Municipal Retirement Fund.
As of the 2012 audit, the actuarial accrued liability of the Firefighters Pension Fund was $93,554,592 and the value of assets accumulated to finance these obligations was $103,425,685. Accordingly, there was no actuarial unfunded liability for the Firefighters Pension Fund. The actuarial accrued liability of the IMRF was $3,685,467 and the value of assets accumulated to finance these obligations was $4,417,914. Accordingly, there was no actuarial unfunded liability for the Illinois Municipal Retirement Fund.
Q: Why did the District issue taxable bonds to pay off the actuarial unfunded liability?
A: In December 2012, the District used its outstanding credit rating of Aa1 rating from Moody’s Investors Service and low debt ratio coupled with historically low interest rates to refinance the actuarial unfunded liability of its pension funds. The interest rate on the debt certificates was 4.42% which was quite a bit less that the investment earnings assumption; the term was reduced substantially.
This transaction is beneficial to the District because it will result in long-term taxpayer savings and will help manage the impact of funding the District’s pensions in the future.
Q: Does the District offer any other post employment benefits (OPEB) to employees?
A: Yes, the District covers a percentage of retiree health insurance for sworn personnel.
Q: How are retiree health benefits funded?
A: While the funding of pension funds is required and common, the funding of retiree health benefits is not nearly as common. In 2008, the District established an irrevocable trust fund to fund current and future retiree health insurance claims and costs.
The District’s accumulated contributions to the Retiree Health Trust Fund exceed required contributions (as determined by the actuary). Accordingly, the District does not have a net OPEB obligation; instead, the District has a net OPEB asset of $307,742.
Q: Does the Retiree Health Trust Fund Have an actuarial accrued liability?
A: The actuarial accrued liability for retiree health was $20,405,022. In 2012, total assets of the Retiree Health Trust Fund were $7,265,203. The difference is an actuarial unfunded accrued liability of $13,139,819.