Minutes - 05/22/2007 - Police Pension Fund Board� f ,
I'1'l;Ill 10. H.
AGENDA ITEM
Regular Board of Trustees Meeting
of
May 22, 2007
SUBJECT: Police and Firefighters' Pension Fund Actuarial Studies
FROM: Darrell Langlois
BUDGET SOURCE/BUDGET IMPACT: Various Accounts in the Police and Fire
Departments
RECOMMENDED MOTION: I move that 1) The Village Board accept the attached
actuarial reports of the Police Pension Fund and Firefighters' Pension Fund and 2) The
Village Board approve a Village contribution of 18.53% of payroll for police officers and
22.81% for firefighters retroactive to January 1, 2007.
Backjzround/History:
An actuarial study of the Police Pension Fund and Firefighters' Pension Fund is performed
annually in order to monitor the funding progress of the two funds as well as determining the
Village's contribution for the coming year. Since it is in both the Village's interest and the two
pension fund's interest that these studies be performed, 50% of the cost of each study is paid for
by the Village and 50% is paid for by the respective pension fund. The studies presented were
once again performed by Timothy W. Sharpe, Actuary.
The actuarial study process begins with the Finance Department providing the actuary with
participant salary, contribution, and service credit data. From there, the actuary calculates
various scenarios based on prior actuarial assumptions as well as what the impact would be for
various changes in actuarial assumptions. The actuary then attends a meeting with each
respective Pension Board where the preliminary results and various changes in actuarial
assumptions are discussed. Based on the direction given at the meeting, the actuarial studies are
then completed and a funding request is forwarded to the Village Board (ultimately responsible
for funding the pension programs). The following is a brief summary of the two reports:
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Police Pension Fund
As the actuarial report indicates, the Police Pension Fund was 86.2% funded as of December 31,
2006, a decrease of 0.1 % from the funded percentage in 2005. The cause of this minor decrease
in the funded percentage is that the average salary increased by 6.7% during 2006 when for
actuarial purposed 5.25% was assumed. The Fund's approxaimate investment return was 8.97 %,
which is 1.47% above the actuarially assumed rate of 7.50 %. For 2007, the actuary recommends
a Village contribution of 18.53% of payroll, an increase of 0.06% of payroll from 2006.
The recommended Village contribution of 18.53% of payroll for 2007 is slightly below the
18.60% of payroll used in preparation of the 2007 Budget. To date in 2006 the Village has
continued to contribute to the Police Pension Fund at the 2006 rate of 18.59 %. The past practice
has been that the contribution rate is made retroactive to January 1. Accordingly, if the
contribution rate of 18.53% is approved, a retroactive credit of $625.15 will be applied to the
Village's May contribution.
Firefighters' Pension Fund
The actuarial report indicates that the Firefighters' Pension Fund was 78.8% funded as of
December 31, 2006, an increase of 1.7% from the funded percentage in 2005. The cause of the
increase in the funded percentage was due to the Fund's investment return of 9.44% being 1.94%
above the actuarially assumed rate of 7.50 %. For 2007, the actuary recommends a Village
contribution of 22.81 % of payroll, an decrease of 0.87% of payroll from 2006.
The recommended Village contribution of 22.81 % of payroll for 2007 is under the 23.70% of
payroll used in preparation of the 2007 Budget. To date in 2007 the Village has continued to
contribute to the Firefighters' Pension Fund at the 2006 rate of 23.68 %. The past practice has
been that the contribution rate is made retroactive to January 1. Accordingly, if the contribution
rate of 22.81 % is approved, a retroactive credit of $7,618.89 will applied to the Village's May
contribution.
Trend Information
To faciliate additional analysis, attached to this memorandum is trend data on both pension funds
for the last nine years. As you can see, from year to year the actuarial results can vary greatly
The two biggest reasons for the variations have been State - mandated benefit enhancements and
the volatile investment markets. Also, when comparing investment returns between the two
funds it should be noted that in general the Firefighters' Pension Fund has had a greater
percentage of their assets in equity investments when compared to the Police Pension Fund.
Thus, when the equity markets have performed well the Firefighters' Pension Fund has had better
performance, and when the equity markets have performed poorly the Police Pension Fund had
better performance.
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The Village's Funded Percentage
In prior years the Village Board has expressed concern about the Village's funded percentage
being below 100 %, especially considering that as late as 2000 both pension funds were in fact
over 100% funded. As previously mentioned, the two principal causes for the decline (benefit
enhancements and volatile investment markets) are beyond the control of the Village. What
can't be ignored, though, is that these two situations have impacted not just Oak Brook but every
other pension fund in the State. The current funded percentages are considered very good from
an actuarial standpoint and compare quite favorably with other Illinois police and fire pension
funds.
In order to demonstrate this fact, the attached chart was prepared based on data provided by our
actuary from neighboring pension funds he also works for. As you can see, the Police Pension
Fund funded percentage ranks #1 out of the 19 funds selected and is 17.14% above the average.
The Firefighters' Pension Fund ranks 8 out of 15 funds selected, but is still 4.0% above the
average. The reason for the Firefighters' Pension Fund funded percentage being below that of
the Police is due to a higher rate of disability pensions in our Fire Department. In summary, the
Village is doing a very good job managing it pension obligations.
Recommendation:
I recommend that the Village Board accept the actuarial studies of the Police Pension Fund and
Firefighters' Pension Fund and authorize a Village contribution of 18.53% of payroll for Police
and 22.81% of payroll for Firefighters retroactive to January 1, 2007.
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Village of Oak Brook
Pension Fund Trend Information
Trailing 12 Unfunded
Accrued Month Village Liability Total % of
Assset Value Liability % Funded Return Normal Cost Amortization Contribution Payroll
Police Pension Fund
Firefighters' Pension Fund
1/1/2007
21,567,521
27,373,120
788%
944%
305,357
279,272
584,629
2281%
1/1/2007
26,414,388
30,625,818
862%
897%
383,403
202,586
585,989
1853%
1/1/2006
24,752,561
28,683,431
863%
473%
370,090
184,677
554,767
1859%
1/1/2005
24,157,442
27,106,938
891%
804%
358,478
137,643
496,121
1766%
1/1/2004
22, 790, 550
25,499, 316
894%
11 81%
348,213
121,593
469,806
1646%
1/1/2003
20, 521, 085
23, 581, 098
870%
185%
336,064
133,260
469,324
1715%
1/1/2002
20,496,069
21,849,564
938%
143%
298,121
57,603
355,724
1360%
1/1/2001
20,448,157
20,140,332
1015%
596%
262,036
(21,476)
240,560
1149%
1/1/2000
19,542,081
18,564,949
1053%
545%
271,589
(68,172)
203,417
1007%
1/1/1999
18,904,148
17,216,822
1098%
1085%
276,211
(117,720)
158,491
784%
Firefighters' Pension Fund
1/1/2007
21,567,521
27,373,120
788%
944%
305,357
279,272
584,629
2281%
1/1/2006
20,053,194
26,016,602
771%
555%
297,359
280,302
577,661
2368%
1/1/2005
19,395,277
24,131,120
804%
829%
272,616
219,982
492,598
21 43%
1/1/2004
18,254,770
22,439,963
813%
1454%
281,168
189,051
470,219
2180%
1/1/2003
16,240,617
20,878,039
778%
-516%
312,335
201,821
514,156
2313%
1/1/2002
17,487,247
19,819,493
882%
-104%
320,936
99,257
420,193
1960%
1/1/2001
18,050,631
18,772,810
962%
071%
305,115
30,084
335,199
1776%
1/1/2000
18,203,402
18,051,091
1008%
768%
285,660
(10,626)
275,034
1653%
1/1/1999
17,364,674
15,659,293
1109%
997%
243,227
(118,980)
124,247
873%
Village of Oak Brook
Pension Fund Funding Percentages
Source: Actuary Timothy Sharpe
Police
Fire
Addison
81.50%
Aurora
56.40%
56.10%
Bartlett
87.70%
Bensenville
71.90%
71.40%
Bloomingdale
81.00%
Clarendon Hills
71.10%
81.90%
Glen Ellyn
70.60%
Glendale Heights
54.60%
Hinsdale
81.80%
71.60%
Lemont
60.30%
Lisle
71.20%
Lombard
71.10%
79.70%
Naperville
71.80%
73.90%
Oak Brook
86.20%
78.80%
Roselle
68.00%
80.90%
Schaumburg
71.50%
70.10%
St Charles
66.80%
85.90%
Villa Park
73.00%
81.30%
Warrenville
52.80%
West Chicago
64.00%
Wesmont
59.40%
Wheaton
68.90%
75.90%
Average
69.06%
75.80%
Actuary
VILLAGE OF OAK BROOK
OAK BROOK POLICE PENSION FUND
Actuarial Valuation Report
For the Year
Beginning January 1, 2007
And Ending December 31, 2007
Timothy W. Sharpe, Actuary, Geneva, IL (630) 262 -0600
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TABLE OF CONTENTS
Page
Introduction 3
Summary of Results 4
Actuarial Valuation of Assets 6
Asset Changes During Prior Year 7
Normal Cost 8
Accrued Liability 9
Tax Levy Requirement 10
Summary of Plan Participants 11
Duration 12
Projected Pension Payments 12
Summary of Plan Provisions 13
Actuarial Method 14
Actuarial Assumptions 15
GASB Statements No. 25 & 27 Disclosure 16
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INTRODUCTION
Police -sworn personnel of the Village of Oak Brook are covered by the Police Pension Plan that
is a defined- benefit, single- employer pension plan. The purpose of this report is to disclose the
Tax Levy Requirement and GASB Statements No. 25 & 27 financial information and related
actuarial information for the year beginning January 1, 2007, and ending December 31, 2007.
The valuation results reported herein are based on plan provisions in effect as of January 1, 2007,
the employee data furnished by the Village, the financial data provided by the Fund's trustee and
the actuarial methods and assumptions described later in this report. I hereby certify that this
report is complete and accurate and fairly presents the actuarial position of the Fund as of
December 31, 2006, in accordance with generally accepted actuarial principles and procedures.
In my opinion, the assumptions used are reasonably related to the experience of the Plan and to
reasonable expectations.
Respectfully submitted,
Timothy W. Sharpe, EA, MAAA
Enrolled Actuary No. 05 -4384
Date
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SUMMARY OF RESULTS
There were no changes with respect to Plan Provisions, Actuarial Methods or Actuarial
Assumptions from the prior year.
There were no unexpected changes with respect to the participants included in this actuarial
valuation (1 new member, 0 terminations, 1 retirement, 0 incidents of disability, annual payroll
increase 6.0 %, average salary increased 6.7 %).
There were no unexpected changes with respect to the Fund's investments from the prior year
(annual investment return 8.97 %).
The Village's Tax Levy Requirement has increased from $554,767 last year to $585,989 this year
(5.6 %). The increase in the Tax Levy is due to the increase in salaries and was offset due to the
investment return was greater than expected. The Percent Funded has decreased slightly from
86.3% last year to 86.2% this year.
In
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SUMMARY OF RESULTS (Continued)
For Year Ending
December 31
2007 2006
Tax Levy Requirement $ 585,989 $ 554,767
Tax Levy as a Percentage of Payroll
18.53%
18.59%
as of
January 1
2007
2006
Village Normal Cost
383,403
370,090
Anticipated Employee Contributions
297,804
281,021
Accrued Liability
301625,818
28,683,431
Actuarial Value of Assets
265414,388
24,752,561
Unfunded Accrued Liability /(Surplus)
4,2111430
3,930,870
Amortization of Unfunded
202,586
184,677
Accrued Liability /(Surplus)
Percent Funded
86.2%
86.3%
Annual Payroll
$ 3062,857 $
2598409
TAX LEVY REQUIREMENT
-5-
® 2007
❑ Zoos
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ACTUARIAL VALUATION OF ASSETS
w
as of
January 1
2007
2006
Cash and Equivalents
$ 437,493 $
357,778
Certificates of Deposit
98,594
98,193
Government Securities
14,070,488
13,869,557
Mutual Funds
1109,969
10,293,243
Interest Receivable
122,479
137,230
Miscellaneous Receivable /(Payable)
4 635
3( ,440)
Actuarial Value of Assets
$ 26,414 388 $
24752,561
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ASSET CHANGES DURING PRIOR YEAR
Trust Balance as of January 1, 2006 $ 2411752,561
Contributions
Village 549,750
Employee 329,926
Total 879,676
Payments
Benefit Payments 1,296,184
Expenses 114,418
Total 1,410,602
Investment Income 2,192,753
Trust Balance as of January 1, 2007 $ 260414,388
Approximate Annual Rate of Return 8.95%
ASSET CHANGES DURING PRIOR YEAR
$30
$25
W $20
C
$15
$10
$5
$0
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® Trust Balance as of January 1, 2006
Contributions
Payments
❑ Investment Income
® Trust Balance as of January 1, 2007
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NORMAL COST
The Normal Cost is the actuarial present value of the portion of the projected benefits that are
expected to accrue during the year based upon the actuarial valuation method and actuarial
assumptions employed in the valuation.
as of
January 1
2007 2006
Total Normal Cost $ 681,207 $ 6519111
Anticipated Employee Contributions 297,804 281,021
Village Normal Cost 383,403 370T090
Normal Cost Payroll $ 3,162,857 $ 2,984,609
Village Normal Cost Rate 12.12% 12.40%
Total Normal Cost Rate 21.54% 21.82%
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® Anticipated Employee Contributions
® Village Normal Cost
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ACCRUED LIABILITY
The Accrued Liability is the actuarial present value of the portion of the projected benefits that
has been accrued as of the valuation date based upon the actuarial valuation method and actuarial
assumptions employed in the valuation. The Unfunded Accrued Liability is the excess of the
Accrued Liability over the Actuarial Value of Assets.
Accrued Liability
Active Employees
Children Annuities
Disability Annuities
Retirement Annuities
Surviving Spouse Annuities
Terminated Vested Annuities
Total Annuities
Total Accrued Liability
Actuarial Value of Assets
Unfunded Accrued Liability /(Surplus)
Percent Funded
as of
January 1
2007 2006
$ 13,675,256 $ 12,393,296
0
1,538,265
15,224,331
187,966
0
16,950,562
30,625,818
26,414,388
$
4021 1 4 $
86.2%
In
® Total Accrued Liability
Actuarial Value of Assets
® Unfunded Accrued Liability /(Surplus)
0
1,509,448
14,589,155
191,532
0
16,290,135
28,683,431
24,752,561
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TAX LEVY REQUIREMENT
The Tax Levy Requirement is determined as the annual contribution necessary to fund the
normal cost, plus the amount to amortize the unfunded accrued liability as a level percentage of
payroll over a forty (40) year period which commenced in 1993.
Village Normal Cost as of Beginning of Year $
Amortization of Unfunded
Accrued Liability /(Surplus)
Tax Levy Requirement as of End of Year
For Year Ending
December 31
2007 2006
383,403 $ 370,090
202,586 184,677
A5,289 55
Annual Payroll $ 3,162,857
Tax Levy Requirement 18.53%
as a Percentage of Payroll
TAX LEVY REQUIREMENT
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® Village Normal Cost
® Amortization of UAL/(S)
$ 2,984,609
18.59%
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SUMMARY OF PLAN PARTICIPANTS
The actuarial valuation of the Plan is based upon the employee data furnished by the Village.
The information provided for Active participants included:
Name
Sex
Date of Birth
Date of Hire
Compensation
Employee Contributions
The information provided for Inactive participants included:
Name
Sex
Date of Birth
Date of Pension Commencement
Monthly Pension Benefit
Form of Payment
Membership
2007
2007
2006
2006
Current Employees
Vested
27
25
Nonvested
15
17
Total
42
42
Inactive Participants
Annual Benefits
Annual Benefits
Children
0 $
0
0 $
0
Disabled Employees
4
84,776
4
84,776
Retired Employees
24
1,212,410
23
19143,684
Surviving Spouses
1
19,476
1
19,476
Terminated Vesteds
0
0
0
0
Total
22
1 1 2
2$
L247,936
Annual Payroll
$ 3,162,857 $ 259841609
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SUMMARY OF PLAN PARTICIPANTS (Continued)
Age and Service Distribution
Service
0 -4
5 -9
10 -14
15 -19 20 -24 25 -29 30+
Age
7
74,582
8
75,243
20 -24
1
5
70,624
0
25 -29
4
2
30 -34
3
6
1
35 -39
1
3
2
1
40 -44
2
6
45 -49
3 1
50 -54
1
1 3
55 -59
60+
1
Total 2 12 5- EQ -2 3 1
Salary 59,321 68,857 78,084 77,867 87,024 70,814 89,348
Total Salary
1
49,161
6
61,825
10
66,482
7
74,582
8
75,243
4
88,419
5
70,624
0
1
89,348
42 �s
Average Age: 38.2 Average Service: 12.2
DURATION (years) Active Members: 17.0 Retired Members: 9.2 All Members: 12.7
PROJECTED PENSION PAYMENTS
2007 2008 2009 2010 2011
$1,562,385 $1,593,998 $107,181 $1,612,366 $1,767,985
PROJECTED PENSION PAYMENTS
$2,000
$1,500
N
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m
$1,000
0
t
$500
$0
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® 2007
02008
® 2009
❑ 2010
2011
SUMMARY OF PLAN PROVISIONS
The Plan Provisions have not been changed from the prior year.
The Village of Oak Brook Police Pension Fund was created and is administered as prescribed by
"Article 3. Police Pension Fund - Municipalities 500,000 and Under" of the Illinois Pension
Code (Illinois Compiled Statutes, 1992, Chapter 40). A brief summary of the plan provisions is
provided below.
Employees attaining the age of (50) or more with (20) or more years of creditable service are
entitled to receive an annual retirement benefit of (2.5 %) of final salary for each year of service
up to (30) years, to a maximum of (75 %) of such salary.
Employees with at least (8) years but less than (20) years of credited service may retire at or after
age (60) and receive a reduced benefit of (2.5 %) of final salary for each year of service.
Surviving spouses receive the greater of (50 %) of final salary or the employee's retirement
benefit.
Employees disabled in the line of duty receive (65 %) of final salary.
The monthly pension of a covered employee who retired with (20) or more years of service after
January 1, 1977, shall be increased annually, following the first anniversary date of retirement
and be paid upon reaching the age of at least (55) years, by (3 %) of the originally granted
pension. Beginning with increases granted on or after July 1, 1993, the second and subsequent
automatic annual increases shall be calculated as (3 %) of the amount of the pension payable at
the time of the increase.
Employees are required to contribute (9.91 %) of their base salary to the Police Pension Plan. If
an employee leaves covered employment with less than (20) years of service, accumulated
employee contributions may be refunded without accumulated interest.
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LACTUARIAL METHODS
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The Actuarial Methods used for determining the Tax Levy and GASB Statements No. 25 & 27
financial disclosure have not been changed from the prior year. The Actuarial Method employed
for this valuation is as follows:
Entry Age Normal Cost Method
Under the Entry Age Normal Cost Method the Normal Cost for each participant is computed as
the level percentage of pay which, if paid from the earliest age the participant is eligible to enter
the plan until retirement or termination, will accumulate with interest to sufficiently fund all
benefits under the plan. The Normal Cost for the plan is determined as the sum of the Normal
Costs for all active participants.
The Accrued Liability is the theoretical amount that would have accumulated had annual
contributions equal to the Normal Cost been paid. The Unfunded Accrued Liability is the excess
of the Accrued Liability over the plan's assets. Experience gains or losses adjust the Unfunded
Accrued Liability.
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ACTUARIAL ASSUMPTIONS
The Actuarial Assumptions used for determining the Tax Levy Requirement and GASB
Statements No. 25 & 27 Disclosure Information are the same and have not been changed from
the prior year. The Actuarial Assumptions employed for this valuation are as follows:
Valuation Date January 1, 2007
Asset Valuation Method Market Value
Investment Return 7.50%
Salary Scale 5.25%
Mortality 1984 Unisex Pensioners Mortality Table
Withdrawal Graduated Rates
Disability Graduated Rates
Retirement Graduated Rates (100% by Age 62)
Marital Status 85% Married, Spouse Same Age
Plan Expenses None
Sample Annual Rates Per 100 Participants
Age Mortality Withdrawal Disability Retirement
20 0.13 11.00 0.05
30 0.11 4.16 0.26
40 0.21 1.19 0.71
50 0.56 1.59 20.00
60 1.43 83.33
62 1.59 100.00
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GASB STATEMENTS NO. 25 & 27 DISCLOSURE INFORMATION
The Governmental Accounting Standards Board (GASB) issued Statements No. 25 & 27 that
established generally accepted accounting principles for the annual financial statements for
defined benefit pension plans. The required information is as follows:
Membership in the plan consisted of the following as of:
Retirees and beneficiaries
receiving benefits
Terminated plan members entitled
to but not yet receiving benefits
Active vested plan members
Active nonvested plan members
Total
Number of participating employers
December 31, 2006 December 31, 2005
29 28
SCHEDULE OF FUNDING PROGRESS
0 0
27
25
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UAAL as a
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Actuarial
Actuarial Accrued
Unfunded
Percentage
Actuarial
Value of
Liability (AAL)
AAL
Funded
Covered
of Covered
Valuation
Assets
-Entry Age
(UAAL)
Ratio
Payroll
Payroll
Date
Laj
021
(b-a)
�a/b)
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b -a /c
12/31/04
24,157,442
27,1065938
219495496
89.1%
2,808,631
105.0%
12/31/05
24,752,561
28,683,431
3,930,870
86.3%
2,984,609
131.7%
12/31/06
261414,388
301625,818
49211,430
86.2%
3,162,857
133.2%
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GASB STATEMENTS NO. 25 & 27 DISCLOSURE INFORMATION (Continued)
ANNUAL PENSION COST AND NET PENSION OBLIGATION
Annual required contribution
Interest on net pension obligation
Adjustment to annual required contribution
Annual pension cost
Contributions made
Increase (decrease) in net pension obligation
Net pension obligation beginning of year
Net pension obligation end of year
THREE -YEAR TREND INFORMATION
December 31, 2006 December 31, 2005
549,750
497,650
0
0
0
0
5491750
4975650
549,750
497,650
0
0
0
0
0
Q
Fiscal
Annual
Percentage
Net
Year
Pension
of APC
Pension
Endiny,
Cost (APQ
Contributed
Obli ation
12/31/04
4491652
100.0%
0
12/31/05
497,650
100.0%
0
12/31/06
549,750
100.0%
0
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1
1
1
1
1
1
t
1
1
t
1
1
1
t
t
1
1
1
GASB STATEMENTS NO. 25 & 27 DISCLOSURE INFORMATION (Continued)
FUNDING POLICY AND ANNUAL PENSION COST
Contribution rates:
Village 17.38% 16.67%
Plan members 9.91% Same
Annual pension cost 549,750 497,650
Contributions made 549,750 4971650
Actuarial valuation date 12/31/2006 12/31/2005
Actuarial cost method Entry age Same
Amortization period Level percentage of pay, closed Same
Remaining amortization period 28 years 29 years
Asset valuation method Market Same
Actuarial assumptions:
Investment rate of return* 7.50% Same
Projected salary increases* 5.25% Same
*Includes inflation at 3.00% Same
Cost -of- living adjustments 3.00% per year Same
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