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Motion to discuss Long-Term Police and Fire Pension Funding Strategy and Firefighters' Pension Plan Funding Analysis
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Introduction
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The Finance Committee will review the Village's current pension funding approach and the Firefighters' Pension Plan analysis prepared by Stifel to inform long-term pension, property tax levy, budget, and capital financing planning.
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Recommended Action
Receive the presentation and provide feedback and direction to staff regarding the Village's long-term pension funding objectives and the strategies that should be evaluated further. No final change to the pension funding policy, bond issuance, or supplemental pension contribution is being recommended for approval at this meeting.
Prior Board Action
There is no prior Board action associated with this item.
Background
Long-term pension funding is a core financial management priority for the Village. Trustees have previously requested that staff evaluate a more strategic, long-term approach to funding the Village's Police and Fire pension plans. The issue is particularly important because pension contributions are funded primarily through a dedicated property tax levy and therefore directly affect the Village's tax levy strategy, annual operating budget, long-range financial plan, capital improvement plan, and future borrowing capacity.
Illinois law requires municipal police and firefighter pension contributions to be at least sufficient to achieve a 90% funded ratio by 2040. The Village's current actuarially recommended funding approach is designed to amortize the unfunded liability to 100% by 2040. The Stifel analysis attached to this item uses the Village's 2025 draft Firefighters' Pension Plan actuarial report from Lauterbach & Amen and a 6.75% assumed investment return. The analysis has not been reviewed by the actuary and should be viewed as a planning and comparison tool rather than a final actuarial determination.
Based on the draft Firefighters' Pension Plan report, the Plan's actuarial funded ratio is 49.81% as of January 1, 2026, with approximately $74.35 million of unfunded actuarial accrued liability. The actuarially recommended 2026 Village contribution is approximately $7.77 million. The Plan earned a 17.16% investment return in 2025; because actuarial asset values smooth gains and losses over time, a portion of that investment gain is deferred and is expected to be recognized over the next several years, subject to future actuarial experience.
A central issue identified in the analysis is the timing mismatch between the actuarial valuation and the Village's levy cycle. The actuarial report identifying the recommended contribution for a given year is received after the preceding year's property tax levy has already been adopted. In practice, the Village therefore levies the actuarially recommended amount in the next levy cycle. Continuing this timing mismatch will cause a delay in the Village’s achievement of 100% funding until 2041 rather than 2040, as intended, and is estimated to result in significant additional contributions over time, as detailed in the attached presentation.
The attached presentation evaluates a range of illustrative strategies rather than recommending a single approach. The scenarios include: maintaining the status quo; correcting the timing mismatch; limiting annual pension levy growth; using a 'revenue reprogramming' strategy in which certain recurring revenues historically used for capital are redirected to supplemental pension contributions while lower-cost tax-exempt debt is issued for eligible capital projects; and issuing taxable pension funding bonds. Stifel notes that expected savings are not guaranteed and that strategies involving additional debt introduce investment, market, actuarial, and credit risks. Tax-exempt bond proceeds may not be deposited directly into the pension fund under federal tax law.
The discussion is also intended to connect pension funding with the Village's broader fiscal planning. Pension levy requirements will be a significant component of the property tax levy presentations staff is preparing for the coming months and will affect the FY2027 budget and future budgets. Likewise, the level and timing of pension contributions influence the amount of recurring revenue available for capital and the Village's capacity and need to finance capital projects through general obligation debt.
As a general local benchmark, Finance staff conducted an informal survey of municipal colleagues from eight other Illinois communities, in addition to Oak Park. Of the eight peer respondents, three reported a target of 100% funding by 2040; two reported 15-year amortization approaches intended to move toward full funding; two reported following the statutory 90% funded-by-2040 target; and one reported a 100% funding target later than 2040. Among peers reporting a Fire funded ratio, results ranged from 53.0% to 84.52%; reported Police funded ratios ranged from 59.0% to 91.72%. Oak Park reported 49.81% for Fire and 59.78% for Police. Only one peer respondent, Skokie, reported outstanding pension obligation debt, identifying approximately $151 million issued in 2022 for both plans. The survey is informal and self-reported, and actuarial dates, assumptions, and methodologies may differ among communities, so it is intended only as a general benchmark rather than a direct actuarial comparison. Here is some additional summary information, based on survey responses:
|
Community |
Fire Funded |
Police Funded |
Pension Debt |
Credit Rating |
|
Oak Park |
49.81% |
59.78% |
No |
AA (S&P) |
|
Waukegan |
57.0% |
59.0% |
No |
A2 (Moody’s) |
|
Palatine |
71.85% |
74.63% |
No |
AA+ (S&P) |
|
Evanston |
53.0% |
59.0% |
No |
AA (S&P) |
|
Libertyville |
66.0% |
60.4% |
No |
Aaa (Moody’s) |
|
Lincolnshire |
- |
88.3% |
No |
AAA (S&P) |
|
Skokie |
84.52% |
84.28% |
Yes - $151M |
Aa2 / AA (Moody’s/Fitch) |
|
Champaign |
79.73% |
91.72% |
No |
Aaa / AAA (Moody’s/Fitch) |
|
Wilmette |
70.4% |
72.0% |
No |
Aaa (Moody’s) |
The current Stifel analysis focuses on the Firefighters' Pension Plan. Stifel has not yet evaluated the Village's 2025 Police Pension Plan actuarial report, and the Police Plan's future contribution requirements are not incorporated into the scenario analysis unless otherwise stated. Staff intends to apply the same framework to Police once the updated actuarial information is available so that the Finance Committee can consider the Village's pension strategy comprehensively.
Timing Considerations
This discussion is timely because staff is beginning the next phase of the 2026 property tax levy process, developing the FY2027 budget, and refining the 2027 and long-range capital and borrowing plans. Finance Committee direction on the Village's long-term funding objective and the strategies that warrant further analysis will allow staff to incorporate pension assumptions consistently into those upcoming presentations and financial models. Staff also anticipates returning with updated analysis after the 2025 Police Pension Plan actuarial information is available.
Financial Impact
There is no immediate budget impact associated with this discussion item and no expenditure or borrowing authorization is requested. However, pension funding has significant long-term financial implications. The draft Firefighters' Pension Plan analysis reflects an approximately $74.35 million unfunded actuarial accrued liability and a recommended 2026 Village contribution of approximately $7.77 million. The scenarios presented by Stifel demonstrate materially different contribution patterns, expected costs, property tax levy impacts, and debt profiles. Any future recommendation involving a change in funding policy, supplemental contribution, property tax levy, revenue reprogramming, or debt issuance would be brought back to the Committee with a specific financial impact analysis.
Operations Impact
There is no operating impact associated with this item beyond staff time devoted to long-range financial planning. Finance staff has coordinated with VMO, Stifel, Speer Financial, and the Village's actuary to assemble the analysis. No additional staffing is proposed. Follow-up work will include updating pension projections, integrating assumptions into the tax levy, budget, capital, and debt models, and preparing future Finance Committee and Board materials.
DEI Impact
There is no direct DEI impact associated with this discussion item. Future pension funding decisions may affect property tax affordability and the allocation of fiscal resources among operating services and capital priorities. Those impacts should be considered as specific strategies are refined and before any implementation decision is made.
Community Input
There has been no community input given in relation to this item. The Finance Committee discussion will occur at a public meeting. The municipal pension survey summarized in the Background section was an informal benchmarking survey of municipal colleagues and does not constitute Oak Park community engagement.
Staff Recommendation
Staff recommends that the Finance Committee receive the analysis and provide policy direction on the Village's long-term pension funding strategy before staff advances a specific implementation proposal. At this stage, staff recommends retaining 100% funding by 2040 as the planning benchmark, using the scenarios to understand tradeoffs among taxpayer affordability, total cost, financial risk, and capital financing flexibility, and directing further analysis toward correcting the timing mismatch and evaluating revenue reprogramming alongside the status quo. A pension funding bond should remain an illustrative alternative.
Advantages:
• Maintains a clear long-term funding objective while allowing the Committee to evaluate the tax levy, budget, capital, and debt implications before committing to a specific financing structure.
• Allows staff to address the identified timing mismatch and further evaluate potentially lower-cost strategies while preserving flexibility as updated Police Pension Plan information becomes available.
Disadvantages:
• Does not result in a final pension funding policy or financing decision at the September 3 meeting.
• Additional analysis will be required, and projected outcomes may change with updated actuarial experience, market conditions, or assumptions.
Alternatives
Alternative 1: Continue the current funding approach without further strategic changes at this time.
Advantages:
• Maintains the existing process and avoids an immediate change, supplemental contribution, or change in the Village's capital financing approach.
• Avoids near-term implementation complexity and preserves current cash-flow practices.
Disadvantages:
• Under Stifel's assumptions, the existing timing mismatch is expected to increase long-term pension costs and delay full funding from 2040 to 2041.
• Does not proactively coordinate pension funding with the upcoming tax levy, FY2027 budget, and long-range capital financing decisions.
Alternative 2: Direct staff to advance a specific financing strategy for implementation now, such as revenue reprogramming and fixing the timing mismatch.
Advantages:
• Provides immediate policy direction and may accelerate implementation of a strategy with potential expected cost savings if underlying assumptions are achieved.
• Could create a more defined long-range payment structure for pension and capital planning.
Disadvantages:
• Strategies involving additional debt or supplemental pension contributions introduce investment, market, actuarial, liquidity, and credit risks and may reduce future financial flexibility.
Anticipated Future Actions
Staff anticipates incorporating the updated Police Pension Plan actuarial analysis; refining the pension scenarios based on Finance Committee feedback; coordinating further review with the Village's actuary, municipal advisor, and other appropriate advisors; and integrating the resulting assumptions into the 2026 property tax levy, FY2027 budget, capital improvement plan, long-range financial planning and forecast, and financing plan. Any proposed change in pension funding policy, supplemental contribution, or debt issuance would return for separate consideration and approval by the full Village Board before implementation.
Prepared By: Louis Hall-Makarewicz, Deputy Chief Financial Officer
Reviewed By: Kevin Bueso, Chief Financial Officer
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Stifel Analysis - Pension Plans VOP