1981 Police Pension Fund-Municipal Compliance Report i e
TO: President and Board of Trustees
Village of Buffalo Grove
FROM: Robert Back
President - Buffalo Grove Police Pension Fund
DATE: July 22, 1981
SUBJECT: Annual Report of Condition
Police Pension Fund
Illinois State Statutes Chapter 1081, Article 3 , Policemen' s
Pension Funds - Municipalities 500, 000 and Under, Section
3-143 requires that the Police Pension Fund Board Certify and
submit prior to the adoption of the 1981 property tax levy
a report of fiscal condition. This Report has been prepared
on behalf of the Board of Trustees by the staff liaison,
William H. Brimm. The estimates provide for all local
expenditures and requirements outlined per statutes by the
Illinois Department of Insurance for the period of January 1,
1982 through December 31, 1982.
In that the tax levy for 1981 will be prepared and submitted
to the President and Board of Trustees in August of 1981,
these representations present the condition of the Fund as
required in Section 3-143 . In the Report, the Board shall
certify the following:
1) The assets in custody at the time of report preparation .
2) The estimated receipts during the next succeeding
calendar year from deductions from the salaries of
policemen and from all other sources .
3) The estimated amount required during said calendar year
to : a) pay all pensions and other obligations to be
provided, and b) maintain the reserve fund provided by
Section 3-127 of this Article.
Each of the three items shall be taken individually:
Assets in Custody of Police Pension Fund Board: As of July 22 ,
1981, the Police Pension Fund had the following cash or near
cash assets in it' s portfolio :
Cash-Savings Accounts in either the Bank of Buffalo
Grove or Buffalo Grove National Bank $ 8 ,438 . 36
Balance in Trident Investment Account pending
security purchase 2 , 051 . 62
Securities (at book value) :
. U. S . Treasury Note; Rate 8 . 375%
Due 8-15-2000; Par $100, 000 $ 82 , 368 . 89
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• U.S . Treasury Bond; Rate 8 . 250%
Due 5-18-1988; Par $14, 000 . 00 $ 13 , 500 . 01
U.S . Treasury Bond; Rate 8 . 375%
Due 8-15-2000; Par $174, 000 . 00 164, 484. 91
• U.S . Treasury Note; Rate 7 . 00%
Due 11-15-1981; Par $20, 000 . 00 19, 673 . 91
▪ U.S. Treasury Note; Rate 7 . 00%
Due 8-15-1981; Par $100, 000 . 00 100 , 000 . 00
• U. S. Treasury Bond; Rate 9. 00%
Due 2-15-1994; Par $85, 000 . 00 86, 015 .08
• U.S . Treasury Bond; Rate 8 . 375%
Due 8-15-2008; Par $23, 000 . 00 20, 472 .49
• U.S . Treasury Note; Rate 12. 375%
Due 1-15-1988; Par $35, 000 . 00 34, 833 . 59
• U.S . Treasury Note; Rate 8. 375%
Due 8-15-2000; Par $150, 000. 00 110, 547 . 56
• U.S . Treasury Bond; Rate 8. 375%
Due 8-15-2000; Par $60 , 000 . 00 46, 689 . 88
• U. S . Treasury Bills ; Rate 15 . 200%
Due 7-23-1981; Par $205, 000. 00 204, 480 .67
Total Investments - Book Value $881, 066 . 99
Total Cash : Near Cash Assets $891, 556 . 97
The property taxes receivable since inception of the fund are:
1980 Levy $ 71, 554 . 00 levied; rec ' d $ 13,494 . 36 $58, 059 . 64
1979 Levy $ 63, 825.90 levied; rec 'd $ 65, 247 . 01 (1, 421.11)
1978 prior $288, 310. 03 levied; rec ' d $282, 889. 67 5 , 420 . 36
Property Taxes Due $62, 058 . 89
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All assets for securities are booked at their purchase cost
rather than at par. Due to the large spread between the
discount/premium on those securities purchased versus the
par value, beginning in FY 1980-1981 the variance is to
be amortized annually based on term to maturity of each
security divided into the purchased premium or discount.
Other receivables such as interest or payroll deductions
are not shown in that those are year end fiscal entries.
The investment policy is to maintain as little money in
the savings accounts thereby maximizing yield return .
Estimated Receipts - Calendar 1982 Payroll Deductions , Interest,
and Property Taxes : The calculations in this section of the
condition report are based on several assumptions . There
are too many uncertainties regarding these three aspects of
fund receipt. An analysis of each follows with any assumptions
relative to that section noted:
a) Payroll Deductions : The current rate of deductions is
81% of eligible full time salary base wages plus
longevity attached to seniority. For calendar 1982 the
wage base is calculated as $809, 221. 00 . Assumptions
used were:
1) Employees at the top of scale received a 6% wage
level expansion as of 5-1-82 .
2) Merit increases were calculated at 8% on date
eligible rounded to first date of either current
month or succeeding month for ease of calculation.
3) No new employees are hired or terminated.
4) There are no promotions from current job classifications
of 7-24-81.
With the $809, 221. 00 wage base utilizing the 81% deduction rate ,
salary deductions will total $68, 784 . 00 .
b) Interest Earnings : Interest assumptions consider holding
the current portfolio to maturity. Also, it is assumed
that all cash received will be invested in calendar 1982
as soon as possible to maximize yield return. Finally,
fund growth will be incrementally constant on a monthly
average basis between the three sources - taxes , interest,
and salary deductions.
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Under these assumptions, the investment balance should equal
$970, 387 . 25 at year end 1981 based on an historical monthly
compounded growth of 1. 95% . This balance is reasonable
based on tax receipts outstanding, interest to be received,
and payroll deduction. With this constant growth, the average
calendar 1982 balance will be $1, 096, 926 . 55 ($970, 387 . 25 X
(1 .01951 X 12) + 2) .
Since interest rates have fluctuated drastically in the recent
bond market performance, the assumption is that the fund will
not earn in cash flow less then the current weighted portfolio
yield against par of 10 . 80% . This will generate $118 ,468. 00
in interest on the average 1982 investment balance .
Again, these assumptions contemplate only /purchases without
sale at loss or trades within the Trident Investment Fund with
only capital gains considered. It is felt that any loss in
the fund will be insignificant and immaterial. This overall
yield should be attainable with the current program as
followed by the Police Pension Fund.
c) Property Taxes: The Village will follow the proposed 1981
tax levy from the Illinois Department of Insurance for
1982 collection totaling $101, 055 . 00 . It is anticipated
that based on historical collection effort, greater than
99% of taxes levied will be collected and applied to the
funds proceeds . This would total approximately $100, 000 . 00
net. In addition, it is estimated that approximately
$2, 000 . 00 will accrue from the State Corporate Personal
Property Replacement Tax. There will be some prior years
taxes collected in 1982 but this will be difficult to
estimate .
The total estimated receipts for calendar 1982 are :
. Salary deductions $ 68 , 784. 00
. Interest earnings 118, 468. 00
. Property taxes 100, 000 . 00
. Corporate Personal Property
Replacement Tax 2, 000. 00
Total $289, 252 . 00
Estimated Amount Required in 1982 to Pay Pension & Maintain
Reserves : It is assumed that there will not be any pension
related obligations paid in 1982 . Currently, the roster of
eligible employees does not show anyone who will be eligible
for benefits in 1982 . Also, for obvious reasons, injuries can-
not be estimated. Other costs that could occur would be the
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payment of any separation benefits upon termination. Finally,
a $25 .00 annual cost will be paid to the Department of Insur-
ance plus any investment service charges.
Under the statutes , two component costs must be provided as
part of the tax levy requirements of Section 3-125 of the
Illinois Pension Code (Chapter 1081) . The amount necessary
to provide the normal costs of the payroll base is $85, 847 .
The normal cost equated to 13 . 39% of the salary base for
participants .
The second component is the amount necessary in any given
year to amortize the unfunded accrued liability of the fund.
As of 4-30-80, the unfunded acturial liability totaled
$243,462 and is to be amortized over 39. 6740 years . On
an acturial assumption method, this years requirement is
$15, 208. This is the amount required to satisfy the provisions
of Section 3-127 .
Conclusion: The preparation and submission of this Report
of Condition will satisfy the requirements of Section 3-143 .
This Report shall be presented to the Police Pension Fund
Board for their review and certification.
Res ectively
submitted
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Robert Back, President
Buffalo Grove Police Pension Fund Board