HomeMy WebLinkAboutPacket - 10/10/2023 - Police Pension Board
POLICE PENSION BOARD OF TRUSTEES
Tuesday, October 10, 2023, 9:00 AM
Municipal Center - 333 South Green Street
Public Conference Room
AGENDA
1. Call to Order
2. Roll Call
3. Public Input
4. Presentation of the Actuarial Valuation Report and recommendation to forward levy
request to McHenry City Council
5. Action Items:
a) Motion to approve the Minutes from July 11, 2023
b) Motion to approve the payment of bills
c) Presentation and motion to approve the Treasurer’s Report
d) Approve the 2024 Police Pension Board Schedule
e) Authorize City Treasurer Carolyn Lynch to transfer funds as needed
f) Accept the pension applications of:
• Stevan Barjaktarevic – Hired 8/16/2023
• Justin McCauley – Hired 8/16/2023
g) Approve “proof of life” letter to pensioners
6. Update on Mader disability pension
7. Motion to Adjourn
Police Pension Checks Issued to be approved 10/10/2023Date Check # Vendor Description Amount7/17/2023 7855 ALLIANT INSURANCE SERVICES, INC 7787 RENEWAL FIDUCIARY LIABILITY 5,041.00$ 10/2/2023 7856 IPPFA 2024 MEMBERSHIP DUES 795.00$ 10/2/2023 LAUTERBACH & AMEN, LLP 4/30/23 ACTUARIAL REPORT 5,870.00$ 11,706.00$
McHenry Police Pension Board of Trustees
McHenry Municipal Center
333 Green Street
McHenry, Illinois 60050
Phone: (815) 363-2108
Fax: (815) 363-2119
www.cityofmchenry.org
POLICE PENSION BOARD OF TRUSTEES
2024 MEETING SCHEDULE
9:00 AM
Public Conference Room
333 South Green Street
McHenry, IL 60050
Tuesday, January 9, 2024
Tuesday, April 9, 2024
Tuesday, July 9, 2024
Tuesday, October 8, 2024
___________________________
Monte Johnson, Deputy City Clerk
1
MCHENRY POLICE PENSION FUND
2023 AFFIDAVIT OF CONTINUED ELIGIBILITY
The following affidavit must be fully completed, notarized and returned by first class mail
in the enclosed envelope (and if possible, sent by electronic mail to
mpdpension@cityofmchenry.org) on or before December 1st, 2023 to ensure that your next
direct deposit pension payment will be issued in a timely fashion. The form must be signed
in the presence of a Notary Public and notarized, or it will NOT be accepted upon return.
Name: Phone:
Address: Date of Birth:
Your Last 4 SSN Digits:
E-mail Address (optional to expedite communication):
Your Current Employer: Employer’s Phone No.:
Address: Job Title:
* * *
(Spousal information/verification is a newly issued requirement by the
Illinois Department of Insurance, Public Pension Division, as of 2019)
Spouse’s Name: Spouse’s Date of Birth:
Date of Marriage: Spouse’s Last 4 SSN Digits:
* * *
The undersigned, being first duly sworn on oath, deposes and states I am a member of the
McHenry Police Pension Fund and:
1. I am now receiving a:
☐ Line of Duty Disability Pension
☐ Not on Duty Disability Pension
☐ Heart Attack / Stroke Disability Pension
☐ Occupational Disease Disability Pension
☐ Survivor’s Pension
☐ Retirement Pension
2
2. I am currently:
☐ Married
☐ Widowed
☐ Divorced
☐ Single/never married
3. If you have remarried, what was the date of your remarriage?
4. Do you have dependent children or dependent parents?
5. If yes, please give names, dates of birth, and Social Security Numbers:
***
Please return this form to the following:
City of McHenry Police Pension Board
ATTN: Board President Jeff Foerster
333 South Green Street
McHenry, Illinois 60050
A COPY of this form can be returned via e-mail at [mpdpension@cityofmchenry.org]
The original signed & notarized affidavit MUST be returned by mail
Print Name:
Signature:
Date:
Subscribed and sworn before me this _____ day of ___________________, 20____, by the
above-named person, who is (check one)
__________ personally known to me
__________ Presented the following identification to verify his/her identity:
Identity Type: ______________________ Number: ______________________
(Notary Signature) (Notary Seal)
NOTICE
TO: CITY OF MCHENRY POLICE PENSION FUND
BENEFICIARIES
FROM: CITY OF MCHENRY POLICE PENSION BOARD
RE: 2023 ANNUAL AFFIDAVITS OF CONTINUED ELIGIBILITY
Please be advised the City of McHenry Police Pension Board has implemented a
policy to send out affidavits of continued eligibility to its pension beneficiaries. This
policy was created to ensure the Pension Fund is paying out benefits to the proper
parties, maintaining up to date records as to its beneficiaries and treating all
pensioners with the same regard concerning its record keeping policies and
procedures. This is also a requirement under the Illinois Pension Code & an
Illinois Department of Insurance (the entity responsible for overseeing all
Illinois public pension funds) advisory opinion.
Enclosed please find an annual affidavit for 2023. Please note that due to new
Department of Insurance Regulations additional spousal information is now
required.
As in prior years, please fully fill out, execute and notarize the enclosed document.
The affidavit WILL NOT be accepted if it is missing information or is not notarized.
We are asking all pensioners to have this document returned to the address listed on
the affidavit December 1st, 2023. If possible, please also submit a copy of your
executed affidavit by electronic mail to the e-mail address listed on the affidavit. If
we do not receive an affidavit from you on or before December 8th, 2023 a second
notice will be sent to you by certified mail with a two week return deadline. Your
timely return of the enclosed annual affidavit will ensure the continuance of your
monthly direct deposits.
Your continued patience and consideration are greatly appreciated. Should you have
any questions or need to update the Pension Board as to your mailing address/contact
info, please contact Board President Jeff Foerster
(mpdpension@cityofmchenry.org).
McHenry Police Pension Fund Reporting
For the Contribution Year Ending April 30, 2024 for Funding Purposes
For the Fiscal Year Ending April 30, 2023 for Financial Statement Reporting
Presented by:
Stephanie Bay, Actuarial Consultant
Recommended Contribution & Funded Status
Page 8 in Report
2
Prior Valuation Current Valuation Difference
$28,785
(4.64% Increase)Recommended Contribution^$620,960 $649,745
Actuarial Accrued Liability $57,544,300 $59,502,600
Percent Funded (AVA)104.06%102.84%
Fair Value of Assets (FVA)$56,638,000 $55,718,500
Actuarial Value of Assets (AVA)$59,882,700 $61,192,300
($919,500)
$1,309,600
$1,958,300
(1.22%)
Percent Funded (FVA)98.43%93.64%
EAN Unfunded Actuarial
Accrued Liability/(Surplus)($2,338,400)($1,689,600)$648,800
(4.79%)
Current Funding
Policy is Level %
Pay Contributions
to a 100% Funding
Target Over a Layered
Amortization
Period of 15 Years.
^Under no circumstance should the Recommended Contribution be less than the Alternative
Contribution. As of the current valuation, the Alternative Contribution is $710,366.
Demographic Changes
Page 12-13 in Report
•There were 4 Members who were hired during the year. This increased the
Recommended Contribution by approximately $20,400.
•There was 1 Member who terminated employment during the year. This
increased the Recommended Contribution by approximately $12,200.
•There was 1 retiree who passed away during the year, with an eligible
surviving spouse. Also, there were 2 surviving spouses who passed away
during the prior year. In addition, there were 30 inactive Members who
continued to collect benefits. This decreased the Recommended
Contribution by approximately $107,900.
•Other demographic changes experienced during the year were minimal.
3
Plan Changes
Page 13-14 in Report
•Public Act 102-0811 passed on May 13, 2022 and is effective as of January 1, 2023 for Article 3 Pension Funds. The Act establishes that a surviving spouse of a deceased police retiree may be eligible for a survivor’s pension of up to 15 years of benefit payments if (a) the surviving spouse has attained age 62 and (b) if the police officer was married to the surviving spouse after retirement, and for at least 5 years prior to the officer’s death.
•Previously, there was no survivor’s pension for spouses married after retirement.
•For any current retirees who were married after retirement and have been married for at least 5 years, as well as any surviving spouses currently in receipt of benefits under this provision, we have valued the liability of the benefit granted.
•Late in 2022, the IDOI Public Pension Division issued an unofficial opinion that Tier II disabled Members are entitled to an initial COLA increase on the later of the January 1st after the pensioner turns age 60 or the January 1st after the benefit date anniversary equal to the lesser of 3% of the original benefit or ½ CPI-U. The prior interpretation from the IDOI Public Pension Division was that Tier II disabled members were entitled to an initial COLA increase on the later of the January 1st after the pensioner turns age 60 or the January 1st after the benefit date anniversary equal to 3% of the original monthly benefit for each full year that has passed since the pension began.
•In accordance with the new opinion, we have included a change in liability due to a change in the substantive plan, which includes written provisions as well as administrative interpretations.
4
Reflection of Funding Policy
Page 14 in Report
•The Funding Policy was not changed from the prior valuation.
Consistent with the approach used in the prior valuation, any reduction
in the Recommended Contribution for negative Unfunded Liability
over the Funding Policy amortization target was ignored.
5
Recommended Contribution Reconciliation
Page 15 in Report
6
Actuarial
Liability
Recommended
Contribution
Expected Changes $2,614,500 $18,600
Salary Increases Greater than
Expected $142,900 $27,200
Actuarial Experience ($751,500)($80,900)
$0
Reflection of Funding Policy $0 ($74,700)
($1,500)
Net Increase/(Decrease)$1,958,300 $28,800
Investment Return Less than
Expected $152,300
Plan Changes ($47,600)($12,300)
Contributions Greater than
Expected $0
Recommended Contribution Breakdown
Page 25 in Report
7
Prior Valuation Current Valuation Difference
Recommended Contribution^$620,960 $649,745
$0 $0
$28,785
$0
$28,785
Employer Normal Cost
(with interest)$620,960 $649,745
Amortization of Unfunded
Accrued Liability/(Surplus)
The Recommended
Contribution has
Increased by 4.64%
from the Prior
Valuation.
^Under no circumstance should the Recommended Contribution be less than the Alternative
Contribution. As of the current valuation, the Alternative Contribution is $710,366.
Age and Service Distribution
Page 34 in Report
8
Service Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total
Age
Under 25 0|2 0|1 0|3
25 to 29 0|2 0|4 0|6
30 to 34 0|3 0|2 0|5
35 to 39 0|2 0|3 2|1 2|0 4|6
40 to 44 0|2 2|0 5|0 5|0 12|2
45 to 49 5|0 2|0 7|0
50 to 54 1|0 2|0 1|0 4|0
55 to 59 1|0 1|0 2|0
60 to 64
65 to 69
70 & up
Total 0|4 0|10 0|7 4|1 9|0 13|0 3|0 29|22
5/1/2023 Age and Service Distribution - Tier 1|Tier 2 Active Members
Expected Benefit Payments
Page 9 & 33 in Report
9
Expected Benefit Payments
in 10 Years $4,568,800
Expected Benefit Payments
in 5 Years $3,337,600
Total Active Members 51
Current Valuation
Current Benefit Payments $2,285,600
Total Inactive Members 42
Benefit Payments are
Anticipated to Increase 46% in the
Next 5 Years and
100% in the Next 10
Years.
Change in Fair Value of Assets
Page 17 in Report
10
Return on Investments
Employer Contributions
$56,638,000 Beginning Fair Value of Assets
($24,000)
Ending Fair Value of Assets $55,718,500
Current Valuation
Member Contributions $491,700
$276,300
Change in Fair Value ($919,500)
$622,000
Benefits and Refunds ($2,285,600)
Other Expenses
The Rate of Return
on Investments on a
Fair Value of Assets
Basis for the Fund
was Approximately
0.45% Net of
Administrative
Expense. The
Expected Rate of
Return on
Investments is
7.00%.
Risk Management
Page 11-12 & 22 in Report
•The ratio of benefit payments to the Fair Value of Assets is 4.10%,
compared to an Expected Rate of Return on Investments of 7.00%.
•Based on the number of active Members in the Plan, there is a low
demographic risk.
11
0.25%Current Expected Rate 0.25%
Decrease of Return on Investments Increase
(6.75%)(7.00%)(7.25%)
(11.46%)
$340,718 ($74,470)
Recommended Contribution $990,463 $649,745 $575,275
Dollar Impact
Percentage Impact 52.44%
Alternative Contribution
Page 29 in Report
12
Current Valuation
Alternative Contribution $710,366
Alternative Contribution Funded
Percentage (AVA)102.03%
PUC Unfunded Actuarial
Accrued Liability/(Surplus)($1,217,400)
Alternative
Contribution Funding
Policy is Level % Pay
Contributions to a
90% Funding Target Over the Remaining
17 Years.
Five-Year Employer Contribution History
Page 33 in GASB 67/68 Report
13
Fiscal Year End Employer Contribution Actuarially Determined
Contribution (ADC)% of ADC
4/30/2023 $621,970 $625,600 99.42%
4/30/2022 $655,318 $2,576,006 25.44%
4/30/2021 $2,220,747 $2,231,742 99.51%
4/30/2020 $2,077,704 $2,082,421 99.77%
4/30/2019 $2,017,300 $2,019,703 99.88%
5 - Year Average 84.80%
The Actuarially
Determined Contribution
for the Current Year is the
Recommended
Contribution from the
May 1, 2021 Actuarial
Valuation Completed by
Lauterbach & Amen, LLP.
For the Fiscal Year End April 30, 2021, there was an additional $23,929,568 in Employer Contributions from the
issuance of Pension Obligation Bonds which were treated as one-time contributions; and therefore, are not
included in the determination of the Informal Funding Policy.
GASB Solvency Test
Page 42 in GASB 67/68 Report
14
The Plan’s Projected
Fiduciary Net
Position is
Anticipated to Cover
Projected Benefit
Payments in Full for
the Current
Employees.
Actuarial Certification
•The valuation results summarized in this presentation are from the
May 1, 2023 Actuarial Funding Report & May 1, 2022 GASB 67/68
Report, which have been reviewed by Actuarial Consultants that meet
the Qualification Standards of the American Academy of Actuaries.
•This report is not intended for purposes other than determining the
Recommended Contribution, under the selected Funding Policy, and the
Alternative Contribution.
•This report contains the full description of the data, assumptions, methods, and
provisions used to produce these actuarial results.
•For any rounded figures shown in this presentation, please refer to the
Actuarial Funding Report for more exact figures.
15
Funding Actuarial Valuation
as of May 1, 2023
MCHENRY POLICE
PENSION FUND
For the Contribution Year
May 1, 2023 to April 30, 2024
LAUTERBACH & AMEN, LLPDRAFT
Actuarial Funding Report
MCHENRY POLICE PENSION FUND
Contribution Year Ending: April 30, 2024
Actuarial Valuation Date: May 1, 2023
Data Date: April 30, 2023
Submitted by:
Lauterbach & Amen, LLP
668 N. River Road
Naperville, IL 60563
Phone: 630.393.1483
www.lauterbachamen.com
Contact:
Todd A. Schroeder Partner
September 22, 2023
LAUTERBACH & AMEN, LLP DRAFT
TABLE OF CONTENTS
McHenry Police Pension Fund
Table of Contents
ACTUARIAL CERTIFICATION .............................................................................................................. 5
MANAGEMENT SUMMARY .................................................................................................................. 7
Recommended Contribution ................................................................................................................................................ 8
Funded Status ...................................................................................................................................................................... 8
Management Summary – Comments and Analysis ............................................................................................................. 9
Actuarial Recommended Contribution – Reconciliation ................................................................................................... 15
VALUATION OF FUND ASSETS.......................................................................................................... 16
Fair Value of Assets ........................................................................................................................................................... 17
Fair Value of Assets (Gain)/Loss ....................................................................................................................................... 18
Development of the Actuarial Value of Assets .................................................................................................................. 19
Actuarial Value of Assets (Gain)/Loss .............................................................................................................................. 19
Historical Asset Performance ............................................................................................................................................ 20
RECOMMENDED CONTRIBUTION DETAIL ..................................................................................... 23
Actuarial Accrued Liability ............................................................................................................................................... 24
Funded Status .................................................................................................................................................................... 24
Development of the Employer Normal Cost ...................................................................................................................... 25
Normal Cost as a Percentage of Expected Payroll ............................................................................................................. 25
Recommended Contribution Breakdown ........................................................................................................................... 25
Schedule of Amortization – Unfunded Actuarial Accrued Liability ................................................................................. 26
Actuarial Methods – Recommended Contribution ............................................................................................................ 27
ALTERNATIVE CONTRIBUTION ........................................................................................................ 28
Alternative Contribution .................................................................................................................................................... 29
Funded Status – Alternative Contribution ......................................................................................................................... 29
Actuarial Methods – Alternative Contribution .................................................................................................................. 31
ACTUARIAL VALUATION DATA ....................................................................................................... 32
Active Members................................................................................................................................................................. 33
Inactive Members .............................................................................................................................................................. 33
Summary Of Monthly Benefit Payments ........................................................................................................................... 33
Age and Service Distribution ............................................................................................................................................. 34
ACTUARIAL FUNDING POLICIES ...................................................................................................... 35
Actuarial Cost Method ....................................................................................................................................................... 36
Financing Unfunded Actuarial Accrued Liability.............................................................................................................. 36
Actuarial Value of Assets .................................................................................................................................................. 37
DRAFT
TABLE OF CONTENTS
McHenry Police Pension Fund
Table of Contents
ACTUARIAL ASSUMPTIONS ............................................................................................................... 39
Nature of Actuarial Calculations ....................................................................................................................................... 40
Selection of Actuarial Assumptions................................................................................................................................... 40
Actuarial Assumptions in the Valuation Process ............................................................................................................... 41
Assessment of Risk Exposures .......................................................................................................................................... 42
Limitations of Risk Analysis ............................................................................................................................................. 42
Assessment and Use of Actuarial Models.......................................................................................................................... 43
Actuarial Assumptions Utilized ......................................................................................................................................... 44
LOW-DEFAULT-RISK OBLIGATION MEASURE .............................................................................. 47
Low-Default-Risk Obligation Measure - Purpose ............................................................................................................. 48
Low-Default-Risk Obligation Measure ............................................................................................................................. 48
Low Default Risk Obligation Measure vs Actuarial Liability ........................................................................................... 50
SUMMARY OF PRINCIPAL PLAN PROVISIONS .............................................................................. 51
Establishment of the Fund ................................................................................................................................................. 52
Administration ................................................................................................................................................................... 52
Member Contributions ....................................................................................................................................................... 52
Regular Retirement Pension Benefit .................................................................................................................................. 52
Regular Retirement Pension Benefit - Continued .............................................................................................................. 53
Early Retirement Pension Benefit ...................................................................................................................................... 53
Surviving Spouse Benefit .................................................................................................................................................. 54
Surviving Spouse Benefit - Continued .............................................................................................................................. 55
Termination Benefit – Vested ............................................................................................................................................ 55
Disability Benefit ............................................................................................................................................................... 56
GLOSSARY OF TERMS ......................................................................................................................... 57
Glossary of Terms .............................................................................................................................................................. 58
DRAFT
McHenry Police Pension Fund
Page 5
ACTUARIAL CERTIFICATION
This report documents the results of the Actuarial Valuation for the McHenry Police Pension Fund. The
information was prepared for use by the McHenry Police Pension Fund and the City of McHenry, Illinois
for determining the Recommended Contribution, under the selected Funding Policy, and the Alternative
Contribution for the Contribution Year May 1, 2023 to April 30, 2024. It is not intended or suitable for
other purposes. Determinations for purposes other than the Employer’s Actuarial Recommended
Contribution may be significantly different from the results herein.
The results in this report are based on the demographic data and financial information submitted by the
McHenry Police Pension Fund, and may include results from the prior Actuary. We did not prepare the
Actuarial Valuations for the years prior to May 1, 2017. Those valuations were prepared by the prior
Actuary whose reports have been furnished to us, and our disclosures are based on those reports. An audit
of the prior Actuary’s results was not performed, but high-level reviews were completed for general
reasonableness, as appropriate, based on the purpose of this valuation. The accuracy of the results is
dependent on the precision and completeness of the underlying information.
In addition, the results of the Actuarial Valuation involve certain risks and uncertainty as they are based
on future assumptions, market conditions, and events that may never materialize as assumed. For this
reason, certain assumptions and future results may be materially different than those presented in this
report. See the Management Summary section of this report for a more detailed discussion of the Defined
Benefit Plan Risks, as well as the limitations of this Actuarial Valuation on assessing those risks. We are
not aware of any known events subsequent to the Actuarial Valuation Date, which are not reflected in this
report but should be valued, that may materially impact the results.
The valuation results summarized in this report involve actuarial calculations that require assumptions
about future events. The McHenry Police Pension Fund selected certain assumptions, while others were
the result of guidance and/or judgment from the Plan’s Actuary or Advisors. We believe that the
assumptions used in this valuation are reasonable and appropriate for the purposes for which they have
been used. The selected assumptions represent our best estimate of the anticipated long-term experience
of the Plan, and meet the guidelines set forth in the Actuarial Standards of Practice.
In preparing the results, our Actuaries used commercially available software (ProVal) developed by
Winklevoss Technologies, LLC. This software is widely used for the purpose of performing Actuarial
Valuations. Our Actuaries coded the plan provisions, assumptions, methods, and demographic data
summarized in this report, and reviewed the liability and cost outputs for reasonableness. We are not aware
of any material weaknesses or limitations in the software, and have determined it is appropriate for
performing this valuation.
DRAFT
McHenry Police Pension Fund
Page 6
To the best of our knowledge, all calculations are in accordance with the applicable funding requirements,
and the procedures followed and presentation of results conform to generally accepted actuarial principles
and practices as prescribed by the Actuarial Standards Board. The undersigned consultants of Lauterbach
& Amen, LLP, with actuarial credentials, meet the Qualification Standards of the American Academy of
Actuaries to render this Actuarial Certification. There is no relationship between the McHenry Police
Pension Fund and Lauterbach & Amen, LLP that impairs our objectivity.
Respectfully Submitted,
LAUTERBACH & AMEN, LLP
Todd A. Schroeder, ASA, FCA, EA, MAAA
Robert L. Rietz, Jr., FCA, EA, MAAA
DRAFT
MANAGEMENT SUMMARY
Recommended Contribution
Funded Status
Management Summary – Comments and Analysis
Actuarial Recommended Contribution – Reconciliation
DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 8
RECOMMENDED CONTRIBUTION
^Under no circumstance should the Recommended Contribution be less than the Alternative Contribution.
As of the current valuation, the Alternative Contribution is $710,366.
FUNDED STATUS
Prior Current
Valuation Valuation
Recommended Contribution^$620,960 $649,745
Expected Payroll $4,878,127 $5,299,975
Recommended Contribution as a
Percent of Expected Payroll 12.73%12.26%
The Recommended
Contribution has Increased by
$28,785 from the
Prior Valuation.
Prior Current
Valuation Valuation
Normal Cost $1,056,614 $1,124,703
Fair Value of Assets $56,638,040 $55,718,518
Actuarial Value of Assets $59,882,730 $61,192,288
Actuarial Accrued Liability $57,544,323 $59,502,644
Unfunded Actuarial
Accrued Liability/(Surplus)($2,338,407) ($1,689,644)
Percent Funded
Actuarial Value of Assets 104.06%102.84%
Fair Value of Assets 98.43%93.64%
The Percent
Funded has Decreased by
1.22% on an
Actuarial Value of Assets Basis.DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 9
MANAGEMENT SUMMARY – COMMENTS AND ANALYSIS
Contribution Results
The Recommended Contribution is based on the selected Funding Policy and methods that are outlined in
the Actuarial Funding Policies section of this report.
“Contribution Risk” is defined by the Actuarial Standards of Practice as the potential for actual future
contributions to deviate from expected future contributions. For example, when actual contributions are
not made in accordance to the Plan’s Funding Policy, or when future experience deviates materially from
assumed. While it is essential for the Actuary and Plan Sponsor to collaborate on implementing a sound
and financially feasible Funding Policy, it is important to note that the Actuary is not required, and is not
in the position to, evaluate the ability or willingness of the Plan Sponsor to make the Recommended
Contribution under the selected Funding Policy.
As a result, while Contribution Risk may be a significant source of risk for the Plan, this Actuarial
Valuation makes no attempt to assess the impact of future contributions falling short of those
recommended under the selected Funding Policy. Notwithstanding the above, see the Actuarial
Recommended Contribution – Reconciliation section of this report for the impact on the current
Recommended Contribution of any contribution shortfalls or excesses from the prior year.
Defined Benefit Plan Risks
Asset Growth:
Pension funding involves preparing Fund assets to pay for benefits when Members retire. During their
working careers, assets grow with contributions and investment earnings; and then, the Pension Fund
distributes assets in retirement. Based on the Plan’s current mix of Members and Funded Status, the Plan
should experience positive asset growth, on average, if the Recommended Contributions are made and
expected investment earnings come in. In the current year, the Fund asset growth was negative by
approximately $919,500.
Asset growth is important in the long-term. Long-term cash flow out of the Pension Fund is primarily
benefit payments, and expenses are a smaller portion. The Plan should monitor the impact of expected
benefit payments on future asset growth. We assess and project all future benefit payments as part of the
determination of liability. The assessment is made on all current Members of the Fund, both active and
inactive. For active Members, the assessment includes the probability that Members terminate or retire
and begin receiving benefits. In the next 5 years, benefit payments are anticipated to increase 45-50%, or
approximately $1,052,100. In the next 10 years, the expected increase in benefit payments is 95-100%, or
approximately $2,283,300. The estimated increase in benefit payments is being compared against the
benefits paid to inactive Members during the fiscal year, excluding any refunds of Member Contributions.
Furthermore, plans with a large number of inactive Members have an increased “Longevity Risk”.
Longevity Risk is the possibility that inactive Members may live longer than projected by the Plan’s
mortality assumption. As shown in the previous paragraph, benefit payments are expected to increase over DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 10
the next 5-year and 10-year horizons. The projected increases assume that current inactive Members pass
away according to the Plan’s mortality assumption. To the extent that current inactive Members live longer
than expected, the future 5-year and 10-year benefit projections may be larger than the amounts disclosed
in the previous paragraph. Higher levels of benefit payments, payable for a longer period of time, may
cause a significant strain on the Plan’s cash flow, future Recommended Contributions, and may lead to
Plan insolvency.
Unfunded Liability:
Unfunded Liability represents the financial shortfall of the Actuarial Value of Assets compared to the
Actuarial Accrued Liability. To the extent that Unfunded Liability exists, the Plan is losing potential
investment earnings due to the financial shortfall. Contributions towards Unfunded Liability pay for the
lost investment earnings, as well as the outstanding unfunded amount. If payments towards Unfunded
Liability are not made, the Unfunded Liability will grow.
In the early 1990s, many Pension Funds in Illinois adopted an increasing payment towards Unfunded
Liability due to a change in legislation. The initial payment decreased, and future payments are anticipated
to increase annually after that. In many situations, payments early on were less than the interest on
Unfunded Liability, which means that Unfunded Liability increased even though contributions were made
at the recommended level.
Actuarial Value of Assets:
The Pension Fund smooths investment returns that vary from expectations over a 5-year period. The
intention over time is that investment returns for purposes of funding recommendations are a combination
of several years. The impact is intended to smooth out the volatility of Recommended Contributions over
time, but not necessarily increase or decrease the level of contributions over the long-term.
When investment returns are smoothed, there are always gains or losses on the Fair Value of Assets that
are going to be deferred for current funding purposes, and recognized in future years. Currently, the
Pension Fund is deferring approximately $5,473,800 in losses on the Fair Value of Assets. These are asset
losses that will be recognized in upcoming periods, independent of the future performance of the Fair
Value of Assets.
Cash Flow Risk:
Assets, liabilities, and Funded Status are good metrics to monitor over time to assess the progress of the
Funding Policy. However, these metrics may provide limited forward-looking insights. Specifically, the
maturity of a Pension Fund can pose certain risks that often cannot be assessed with a point-in-time metric
such as Percent Funded.
For example, two different Pension Funds could have the same Percent Funded, but have completely
different risk profiles. One Fund might mostly cover active Members with little to no Members in pay
status, whereas a second Fund might mostly cover inactive Members with a significant level of annual DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 11
benefit payments. The latter Fund has a greater “Cash Flow Risk”, i.e. a more significant chance that
negative cash flows could lead to a deteriorating, rather than improving, Percent Funded over time.
It is important to note that, in general, positive net cash flows are good, but also need to be sufficient to
cover the growth in the liabilities (i.e. the Normal Cost as well as interest on the Actuarial Accrued
Liability). Typically, when cash flows are assumed to be insufficient to cover the growth in liabilities, the
Percent Funded will decline, while future Recommended Contributions will increase.
Benefit Payment Risk:
Ideally, plans in a sound financial position will have the ratio of annual benefits payments to the Fair
Value of Assets to be less than the Expected Rate of Return on Investments assumption (i.e. 7.00%).
Theoretically, in this case it can be considered that investment returns will fully cover the annual benefit
payments, and therefore, all Employer and Member Contributions made to the Fund will be used to pay
for future benefit accruals and pay down the existing Unfunded Liability. To the extent that the ratio of
the annual benefit payments to the Fair Value of Assets increases to above the Expected Rate of Return
on Investments assumption, the Plan may experience some additional risks, such as the need to keep assets
in more liquid investments, inability to pay down Unfunded Liability, and may lead to Plan insolvency.
As of the Valuation Date, the McHenry Police Pension Fund has a ratio of benefit payments to the Fair
Value of Assets of 4.10%. In this case, the Plan is currently in a sound financial position and has a reduced
amount of Benefit Payment Risk and Cash Flow Risk. It would be expected that adherence to the current
Funding Policy would lead to an increasing Percent Funded.
Fund Assets
The results in this report are based on the assets held in the Pension Fund. Assets consist of funds held for
investment and for benefit payments as of the Actuarial Valuation Date. In addition, assets may be adjusted
for other events representing dollars that are reasonably expected to be paid out from the Pension Fund or
deposited into the Pension Fund after the Actuarial Valuation Date as well.
The current Fund assets are unaudited. As of the date of this report, the audit of
the Fund assets is not complete, not available, or has not been provided.
The current Fund assets are based on the year-end financials as prepared by the
Pension Fund Accountant. The year-end financials represent a full accrual
version of the fiduciary fund as of the end of the Fiscal Year, prepared in
preparation for the audit. The changes to the fund cash balance as of the Fiscal
Year End are non-cash items that can include accrued interest, due/unpaid
expenses, prepaids, and other adjustments.
The Actuarial Value of Assets under the Funding Policy is equal to the Fair Value of Assets, with
unexpected gains and losses smoothed over 5 years. More detail on the Actuarial Value of Assets can be
found in the Actuarial Funding Policies section of this report.
The Fund
Assets Used in
this Report
are
Unaudited. DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 12
Demographic Data
Demographic factors can change from year to year within the Pension Fund. Changes in this category
include hiring new Members, Members retiring or becoming disabled, inactive Members passing away,
and other changes. Demographic changes can cause an actuarial gain (contribution that is less than
expected compared to the prior year) or an actuarial loss (contribution that is greater than expected
compared to the prior year).
Demographic gains and losses occur when the assumptions over the one-year period for Member changes
do not meet our long-term expectation. For example, if no Members become disabled during the year, we
would expect a liability gain. If more Members become disabled than anticipated during the year, we
would expect a liability loss. Generally, we expect short-term fluctuations in demographic experience to
create gains or losses of 1%-3% of the Actuarial Accrued Liability in any given year, but to balance out
in the long-term.
“Demographic Risk” occurs when Plan demographic experience differs significantly from expected.
Similar to Longevity Risk discussed previously, additional risk is created when demographic experience
differs from the assumed rates of disability, retirement, or termination. Under the chosen assumptions,
actuarial gains and/or losses will always occur, as the assumptions will never be exactly realized.
However, the magnitude of the gain and/or loss and its influence on the Recommended Contribution
largely depends on the size of the Plan.
A key Demographic Risk is mortality improvement differing from expected. While the actuarial
assumptions reflect small, continuous improvements in mortality experience and these assumptions are
refined upon the completion of each actuarial experience study, the risk arises because there is a possibility
of a sudden shift in mortality experience. This report reflects the impact of COVID-19 experience that has
been accounted for in the underlying demographic data. This report does not reflect the ongoing impact
of COVID-19, which is likely to influence demographic and economic experience, at least in the short-
term. We will continue to monitor these developments and their impact on the Plan. Actual future
experience will be reflected in each subsequent Actuarial Valuation, as experience emerges.
Based on the number of active Members in the Plan, the Recommended Contribution has a low risk of
having a significant increase due to demographic experience. For example, 1 new disabled Member would
typically generate a substantial increase to the Actuarial Accrued Liability. However, due to the size of
the Plan, there is an appropriate means to absorb demographic losses without causing a significant increase
to the Recommended Contribution.
In the current report, the key demographic changes were as follows:
New Hires: There were 4 Members of the Fund who were hired during the year. When a Member is
admitted to the Pension Fund, the Employer Contribution will increase to reflect the new Member. The
increase in the Recommended Contribution in the current year due to the new Member experience is
approximately $20,400. DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 13
Termination: There was 1 Member of the Fund who terminated employment during the year. The Fund
may be obligated to pay a benefit or a refund of Member Contributions to the Member in the future. The
increase in the Recommended Contribution in the current year due to the termination experience is
approximately $12,200.
Mortality: There was 1 retiree who passed away during the year, with an eligible surviving spouse. Also,
there were 2 surviving spouses who passed away during the prior year. When a retiree passes away, the
Fund liability will decrease as the Pension Fund will no longer make future payments to the retiree. If
there is an eligible surviving spouse, the Fund liability will increase to represent the value of the expected
payments that will be made to the spouse. When a surviving spouse passes away, the Fund liability will
decrease as the Pension Fund will no longer make future payments to the surviving spouse.
As inactive Members age and continue to collect benefits, the Fund liability will also increase. In the
current year, there were 30 inactive Members who maintained their benefit collection status throughout
the year. The net decrease in the Recommended Contribution in the current year due to the mortality
experience is approximately $107,900.
Salary Increases: Salary increases were greater than anticipated in the current year. This caused an
increase in the Recommended Contribution in the current year of approximately $27,200.
Assumption Changes
The assumptions were not changed from the prior valuation.
Plan Changes
Public Act 102-0811 passed on May 13, 2022 and is effective as of January 1, 2023 for Article 3 Pension
Funds. The Act establishes that a surviving spouse of a deceased police retiree may be eligible for a
survivor’s pension of up to 15 years of benefit payments if (a) the surviving spouse has attained age 62
and (b) if the police officer was married to the surviving spouse after retirement, and for at least 5 years
prior to the officer’s death. Previously, there was no survivor’s pension for spouses married after
retirement. In our opinion, under a prudent interpretation of the provisions, we believe the impact to be de
minimis. The legal community has suggested some uncertainty about multiple provisions contained in the
Act, and the IDOI Public Pension Division has not provided an interpretation. The client has not made an
administrative interpretation as to how the provisions of the Act will impact future surviving spouses. Due
to the uncertainty around the interpretation and the expected de minimis impact, we have not valued this
contingency separately for active Members. However, for any current retirees who were married after
retirement and have been married for at least 5 years, as well as any surviving spouses currently in receipt
of benefits under this provision, we have valued the liability of the benefit granted.
Late in 2022, the IDOI Public Pension Division issued an unofficial opinion that Tier II disabled Members
are entitled to an initial COLA increase on the later of the January 1st after the pensioner turns age 60 or
the January 1st after the benefit date anniversary equal to the lesser of 3% of the original benefit or ½ CPI-
U. The prior interpretation from the IDOI Public Pension Division was that Tier II disabled members were DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 14
entitled to an initial COLA increase on the later of the January 1st after the pensioner turns age 60 or the
January 1st after the benefit date anniversary equal to 3% of the original monthly benefit for each full year
that has passed since the pension began. In accordance with the new opinion, we have included a change
in liability due to a change in the substantive plan, which includes written provisions as well as
administrative interpretations. See the Actuarial Recommended Contribution – Reconciliation section of
this report for the impact of this change on the current valuation.
Reflection of Funding Policy
The Funding Policy was not changed from the prior valuation. Consistent with the approach used in the
prior valuation, any reduction in the Recommended Contribution for negative Unfunded Liability over the
Funding Policy amortization target was ignored. See the Actuarial Recommended Contribution –
Reconciliation section of this report for the impact on the current valuation.
Output Smoothing
Contributions are determined annually by allocating dollars over a specified period of time. Procedures
that are used to allocate contributions over a period of time may include asset smoothing, amortization
period, and output smoothing. Each procedure becomes part of the Actuarial Methodology. Output
smoothing involves measuring the impact of a specific result on a contribution and recognizing the result.
The final contribution should maintain a reasonable relationship to the full Actuarially Determined
Contribution.
The current results shown throughout the report reflect the full Actuarially Determined Contribution. DRAFT
MANAGEMENT SUMMARY
McHenry Police Pension Fund
Page 15
ACTUARIAL RECOMMENDED CONTRIBUTION – RECONCILIATION
Actuarial Accrued Liability is expected to increase each year for both interest for the year and as active
Members earn additional service years towards retirement. Similarly, Actuarial Accrued Liability is
expected to decrease when the Fund pays benefits to inactive Members.
Contributions are expected to increase as expected pay increases under the Funding Policy for the Fund.
Other increases or decreases in Actuarial Accrued Liability (key changes noted below) will increase or
decrease the amount of Unfunded Liability in the Plan. To the extent that Unfunded Liability increases or
decreases unexpectedly, the contribution towards Unfunded Liability will also change unexpectedly.
*Impact on the Recommended Contribution due to investment return is on an Actuarial Value of Assets
basis.
^Under no circumstance should the Recommended Contribution be less than the Alternative Contribution.
As of the current valuation, the Alternative Contribution is $710,366.
The Actuarial Experience can be attributable to several factors including, but not limited to, demographic
changes and benefit payment experience compared to expectation. Key demographic changes were
discussed in the Demographic Data section of this report.
Actuarial
Liability
Recommended
Contribution
Prior Valuation 57,544,323$ 620,960$
Expected Changes 2,614,519 18,629
Initial Expected Current Valuation 60,158,842$ 639,589$
Actuarial
Liability
Recommended
Contribution
Salary Increases Greater than Expected 142,924$ 27,237$
Actuarial Experience (751,507) (80,904)
Plan Changes (47,615) (12,329)
Reflection of Funding Policy - (74,654)
Investment Return Less than Expected*- 152,317
Contributions Greater than Expected - (1,511)
Total Increase/(Decrease)(656,198)$ 10,156$
Current Valuation^59,502,644$ 649,745$ DRAFT
VALUATION OF FUND ASSETS
Fair Value of Assets
Fair Value of Assets (Gain)/Loss
Development of the Actuarial Value of Assets
Actuarial Value of Assets (Gain)/Loss
Historical Asset Performance
DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 17
FAIR VALUE OF ASSETS
Statement of Assets
Statement of Changes in Assets
The Rate of Return on Investments shown above has been determined as a percent of the average of the
prior and current Fair Value of Assets on the Statement of Changes in Assets. The Return on Investments
is net of Other Expenses, and has been excluded from the Total Fair Value of Assets at the end of the
Fiscal Year for this calculation.
Cash and Cash Equivalents $1,576,402 $1,162,973
Pooled Investment Accounts 54,863,899 54,550,697
Receivables (Net of Payables)197,739 4,848
Total Fair Value of Assets $56,638,040 $55,718,518
Prior
Valuation
Current
Valuation The Total Fair Value
of Assets has
Decreased by
Approximately
$919,500 from the
Prior Valuation.
Total Fair Value of Assets - Prior Valuation $56,638,040
Plus - Employer Contributions 621,970
Plus - Member Contributions 491,717
Plus - Return on Investments 276,331
Less - Benefit Payments and Refunds (2,285,556)
Less - Other Expenses (23,984)
Total Fair Value of Assets - Current Valuation $55,718,518
The Rate of Return on
Investments on a Fair
Value of Assets Basis
for the Fund was
Approximately 0.45%
Net of Administrative
Expense.DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 18
FAIR VALUE OF ASSETS (GAIN)/LOSS
Current Year (Gain)/Loss on Fair Value of Assets
The (Gain)/Loss on the current Fair Value of Assets has been determined based on the Expected Rate of
Return on Investments as shown in the Actuarial Assumptions section of this report.
Total Fair Value of Assets - Prior Valuation $56,638,040
Employer and Member Contributions 1,113,687
Benefit Payments and Refunds (2,285,556)
Expected Return on Investments 3,923,648
Expected Total Fair Value of Assets - Current Valuation 59,389,819
Actual Total Fair Value of Assets - Current Valuation 55,718,518
Current Fair Value of Assets (Gain)/Loss $3,671,301
Expected Return on Investments $3,923,648
Actual Return on Investments (Net of Expenses)252,347
Current Fair Value of Assets (Gain)/Loss $3,671,301
The Actual Return
on Investments on a
Fair Value of
Assets Basis was
Less than Expected for the Current
Year.DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 19
DEVELOPMENT OF THE ACTUARIAL VALUE OF ASSETS
ACTUARIAL VALUE OF ASSETS (GAIN)/LOSS
The Actuarial Value of Assets incorporates portions of gains and losses over multiple years.
Total Fair Value of Assets - Current Valuation $55,718,518
Adjustment for Prior (Gains)/Losses
FYE 4/30/2023 $3,671,301 2,937,041
FYE 4/30/2022 8,069,483 4,841,690
FYE 4/30/2021 (6,644,051) (2,657,621)
FYE 4/30/2020 1,763,299 352,660
Total Deferred (Gain)/Loss 5,473,770
Initial Actuarial Value of Assets - Current Valuation $61,192,288
Less Contributions for the Current Year and Interest -
Adjustment for the Corridor -
Total Actuarial Value of Assets - Current Valuation $61,192,288
DeferralFull Amount
The Actuarial Value of
Assets is Equal to the Fair Value of Assets
with Unanticipated
(Gains)/Losses Recognized Over 5
Years. The Actuarial
Value of Assets is 109.82% of the Fair
Value of Assets.
Total Actuarial Value of Assets - Prior Valuation $59,882,730
Plus - Employer Contributions 621,970
Plus - Member Contributions 491,717
Plus - Return on Investments 2,505,411
Less - Benefit Payments and Refund (2,285,556)
Less - Other Expenses (23,984)
Total Actuarial Value of Assets - Current Valuation $61,192,288
The Rate of Return on
Investments on an
Actuarial Value of
Assets Basis for the
Fund was
Approximately 4.18%
Net of Administrative
Expense.DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 20
HISTORICAL ASSET PERFORMANCE
The chart below shows the historical Rates of Return on Investments for both Fair Value of Assets and
Actuarial Value of Assets.
The historical Rates of Return on Investments shown above were calculated based on the annual Return
on Investments, as a percentage of the average value of the assets for the year. The historical Rates of
Return on Investments shown above may not reflect the current investment allocation of the Pension Fund.
For purposes of determining the average value of assets for the year, the ending Fair Value of Assets has
been adjusted to net out to the portion related to the Return on Investments themselves. All other cash
flows are included.
For purposes of determining the annual Return on Investments we have adjusted the figures shown on the
preceding pages. The figures shown on the preceding pages are net of Investment Expenses. We have
made an additional adjustment to net out Administrative Expenses. Netting out Administrative Expenses
allows us to capture returns for the year that can be used to make benefit payments as part of the ongoing
actuarial process.
The adjustments we made are for actuarial reporting purposes only. By netting out Administrative
Expenses and capturing Return on Investments that are available to pay benefits, it provides us a
comparison to the Expected Rate of Return on Investments, but does not provide a figure that would be
consistent with the rates of return that are determined by other parties. Therefore, this calculated Return
on Investments should not be used to analyze investment performance of the Fund or the performance of
the investment professionals.
Fair Value
of Assets
Actuarial Value
of Assets
FYE 4/30/2023 0.45%4.18%
FYE 4/30/2022 (6.21%)6.49%
FYE 4/30/2021 23.63%9.54%
FYE 4/30/2020 0.55%4.96%
FYE 4/30/2019 5.63%5.89%
FYE 4/30/2018 9.61%6.19%
FYE 4/30/2017 9.64%5.60%
0.00%0.00%
7-Year Arithmetic Average 6.18%6.12%
7-Year Geometric Average 5.83%6.11%DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 21
Expected Rate of Return on Investments Assumption
The Expected Rate of Return on Investments for this valuation is 7.00%. Lauterbach & Amen, LLP does
not provide investment advice. We look at a variety of factors when reviewing the Expected Rate of Return
on Investments assumption selected by the client. These factors include: historical Rates of Return on
Investments, capital market projections performed by the Consolidated Board’s investment advisors, the
Consolidated Board’s investment policy, capital market forward-looking benchmark expected returns by
independent investment companies, rates used by comparable pension systems, and other factors
identified in the Actuarial Standards of Practice.
Generally speaking, the ideal assumption for Expected Rate of Return on Investments is one that has a
50% chance of being met over the long-term. Recently, we have observed the following factors that impact
Expected Rate of Return on Investments:
• Volatility in the market has been high which drags down long-term geometric returns.
• Similar pension systems are looking to reduce future expectations. We generally see about 95% of
similar pension systems using an Expected Rate of Return on Investments that is between 6.00%
and 7.25%.
• We have reviewed studies conducted by Firms who gather information from multiple investment
advisors who provide models and opinions on capital market returns. Those studies help guide us
to see if the assumption is expected to have a 50% chance of being met over the long-term. Plans
are generally aiming towards 40th to 60th percentile returns, which can help define a range of
reasonableness.
• We have reviewed an index of high-quality fixed income rates that takes into consideration the
pattern of your benefit payments. The purpose of the review is to provide additional disclosure in
Funding Actuarial Valuations for the Low-Default-Risk Obligation Measure. The rates in this
measure are low-risk and are being used as an approximate for risk-free rates. Investment funds
that incorporate diversified investments which build in more risk would be expected to earn a
positive risk premium, over and above the risk-free rates.
DRAFT
VALUATION OF FUND ASSETS
McHenry Police Pension Fund
Page 22
If actual returns going forward come in less than expected, the pension system risks deferring contributions
to the future that should be made today and creating additional contribution volatility. Below is a chart
detailing the impact on the Recommended Contribution by decreasing or increasing the Expected Rate of
Return on Investments by 25 basis points:
Currently, the client has selected an Expected Rate of Return assumption that falls within a reasonable
range. We recommend the client review the Expected Rate of Return on Investments annually to ensure
the selected rate remains within a reasonable range as market conditions change year-to-year.
“Investment Risk” is the potential that the actual Return on Investments will be different from what is
expected. The selected Expected Rate of Return on Investments assumption is chosen to be a long-term
assumption, producing a return that, on average, would produce a stable rate of return over a long-term
horizon. Actual investment returns in the short-term may deviate from this long-term assumption due to
current market conditions. Furthermore, establishing the Expected Rate of Return on Investments
assumption may be dependent on the Illinois State Statutes pertaining to the limitations on types of
investments Plan Sponsors may use. If the actual annual rates of return are less than the Expected Rate of
Return on Investments, actuarial losses will be produced, thus increasing the Plan’s Unfunded Liability
and, subsequently, future Recommended Contributions.
“Asset/Liability Mismatch” risk is a similar concept as Investment Risk, as it relates to setting the
Expected Rate of Return on Investments assumption compared to the actual Return on Investments
achieved. The Interest Rate used to discount future Plan liabilities is set equal to the Expected Rate of
Return on Investments. It is expected that the selected Interest Rate be a rate that is reasonably expected
to be achieved over the long-term. To the extent that the selected Interest Rate to value Plan liabilities is
unreasonable, or significantly different than the actual Return on Investments earned over an extended
period of time, additional Interest Rate risk is created. For example, determining Plan liabilities at an
Interest Rate higher than what is expected to be achieved through investment returns results in Unfunded
Liability that is not a true representation of the Plan’s condition and Percent Funded. As a result, the
Actuarial Accrued Liability determined is an amount smaller than the liability that would be produced
with an Interest Rate more indicative of future Expected Rate of Return on Investments. Therefore, the
Recommended Contributions under the established Funding Policy may not be sufficient to appropriately
meet the true pension obligations.
0.25%Current Expected Rate 0.25%
Decrease of Return on Investments Increase
(6.75%)(7.00%)(7.25%)
Recommended Contribution $990,463 $649,745 $575,275
DRAFT
RECOMMENDED CONTRIBUTION DETAIL
Actuarial Accrued Liability
Funded Status
Development of the Employer Normal Cost
Normal Cost as a Percentage of Expected Payroll
Recommended Contribution Breakdown
Schedule of Amortization – Unfunded Actuarial Accrued Liability
Actuarial Methods – Recommended Contribution
DRAFT
RECOMMENDED CONTRIBUTION DETAIL
McHenry Police Pension Fund
Page 24
ACTUARIAL ACCRUED LIABILITY
FUNDED STATUS
Active Members $21,729,782 $23,418,020
Inactive Members
Terminated Members 2,419,974 4,022,336
Retired Members 25,638,914 25,161,705
Disabled Members 5,936,279 5,880,173
Other Beneficiaries 1,819,374 1,020,410
Total Inactive Members 35,814,541 36,084,624
Total Actuarial Accrued Liability $57,544,323 $59,502,644
Prior
Valuation
Current
Valuation
The Total Actuarial
Accrued Liability
has Increased by
Approximately
$1,958,300 from the Prior Valuation.
Total Actuarial Accrued Liability $57,544,323 $59,502,644
Total Actuarial Value of Assets 59,882,730 61,192,288
Unfunded Actuarial Accrued Liability $(2,338,407)$(1,689,644)
Total Fair Value of Assets $56,638,040 $55,718,518
Percent Funded
Actuarial Value of Assets
Fair Value of Assets 98.43%93.64%
Prior
Valuation
Current
Valuation
104.06%102.84%
The Percent Funded
as of the Actuarial
Valuation Date is
Subject to Volatility
on Assets and Liability in the
Short-Term.DRAFT
RECOMMENDED CONTRIBUTION DETAIL
McHenry Police Pension Fund
Page 25
DEVELOPMENT OF THE EMPLOYER NORMAL COST
NORMAL COST AS A PERCENTAGE OF EXPECTED PAYROLL
RECOMMENDED CONTRIBUTION BREAKDOWN
*Employer Normal Cost Contribution includes interest through the end of the Fiscal Year.
^Under no circumstance should the Recommended Contribution be less than the Alternative Contribution.
As of the current valuation, the Alternative Contribution is $710,366.
Total Normal Cost $1,056,614 $1,124,703
Estimated Member Contributions (476,278) (517,465)
Employer Normal Cost $580,336 $607,238
Prior
Valuation
Current
Valuation At a 100%
Funding Level, the Normal Cost
Contribution is
Still Required.
Expected Payroll $4,878,127 $5,299,975
Member Normal Cost Rate
Employer Normal Cost Rate
Total Normal Cost Rate
11.75%11.31%
21.66%21.22%
Prior
Valuation
Current
Valuation
9.910%9.910%
Ideally, the
Employer
Normal Cost
Rate will Remain
Stable.
Employer Normal Cost*$620,960 $649,745
Amortization of Unfunded Accrued
Liability/(Surplus)- -
Recommended Contribution^$620,960 $649,745
Prior
Valuation
Current
Valuation The
Recommended Contribution has
Increased by
4.64% from the
Prior Valuation.DRAFT
RECOMMENDED CONTRIBUTION DETAIL
McHenry Police Pension Fund
Page 26
SCHEDULE OF AMORTIZATION – UNFUNDED ACTUARIAL ACCRUED LIABILITY
Below is the schedule of remaining amortization balances for the Unfunded Liability.
The Actuarial (Gain)/Loss can be attributable to several factors including, but not limited to, demographic
changes, Employer Contribution timing, Member Contribution experience, benefit payment experience,
and salary increase experience compared to expectation.
Due to the current percent funded being over 100%, we have decided to “Fresh Start” the calculation of
the Unfunded Liability by consolidating all of the historical sources of Unfunded Liability into a single
base. In the determination of the Recommended Contribution, we will not recognize any contribution
credits for amortization of a negative Unfunded Liability.
Unfunded Liability Base
Initial
Balance
Date
Established
Current
Balance
Years
Remaining Payment
Unfunded Liability (1,689,644)$ 4/30/2023 (1,689,644)$ 15 -$
Total (1,689,644)$ (1,689,644)$ -$ DRAFT
RECOMMENDED CONTRIBUTION DETAIL
McHenry Police Pension Fund
Page 27
ACTUARIAL METHODS – RECOMMENDED CONTRIBUTION
The above methods constitute a sound Actuarially Determined Contribution under the parameters of
Actuarial Standards of Practice.
The contributions and benefit values of the Pension Fund are calculated by applying actuarial assumptions
to the benefit provisions and demographic data furnished, using the Actuarial Cost Method described. The
Actuarial Cost and Amortization Methods allocate the projected obligations of the Plan over the working
lifetimes of the Plan Members.
The Recommended Contribution amount shown in this report is based on the methods summarized above.
The Actuarial Funding Policies section of this report includes a more detailed description of the Actuarial
Funding Methods being used.
The Actuarial Funding Methods are meant to provide a systematic process for determining contributions
on an annual basis. The methods do not impact the expectation of future benefit payments. The methods
only impact the way contributions are made towards future benefit payments.
Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain
methods are more efficient and more stable on an annual basis.
In the current valuation, the Plan Sponsor has elected to use a 10% corridor in the determination of the
Actuarial Value of Assets for both the Recommended and Alternative Contributions. In the event that the
Actuarial Value of Assets exceeds 110% of the Fair Value of Assets or falls below 90% of the Fair Value
of Assets, the excess gains or losses will be recognized immediately.
Actuarial Valuation Date May 1, 2023
Data Collection Date April 30, 2023
Actuarial Cost Method Entry Age Normal (Level % Pay)
Amortization Method Level % Pay (Closed)
Amortization Target Layered Targeting 100% Funded - See Previous Page
Asset Valuation Method 5-Year Smoothed Fair Value
DRAFT
ALTERNATIVE CONTRIBUTION
Alternative Contribution
Funded Status – Alternative Contribution
Actuarial Methods – Alternative Contribution
DRAFT
ALTERNATIVE CONTRIBUTION
McHenry Police Pension Fund
Page 29
ALTERNATIVE CONTRIBUTION
FUNDED STATUS – ALTERNATIVE CONTRIBUTION
Prior
Valuation
Current
Valuation
Alternative Contribution $671,455 $710,366
Expected Payroll $4,878,127 $5,299,975
Alternative Contribution as a
Percent of Expected Payroll 13.76%13.40%
Prior
Valuation
Current
Valuation
Normal Cost $1,103,806 $1,181,358
Fair Value of Assets $56,638,040 $55,718,518
Actuarial Value of Assets $59,882,730 $61,192,288
Actuarial Accrued Liability $57,848,513 $59,974,840
Unfunded Actuarial
Accrued Liability/(Surplus)($2,034,217) ($1,217,448)
Percent Funded
Actuarial Value of Assets 103.52% 102.03%
Fair Value of Assets 97.91%92.90%DRAFT
ALTERNATIVE CONTRIBUTION
McHenry Police Pension Fund
Page 30
The Alternative Contribution is based on Actuarial Funding Methods and funding parameters outlined in
the Illinois State Statutes for pension funding. The resulting contribution is lower than the Recommended
Contribution for the current year. The Alternative Contribution amount is not recommended because it
represents only a deferral of contributions when compared to the Recommended Contribution method.
Actuarial Funding Methods for pensions are best applied to provide a balance between the long-term goals
of a variety of stakeholders:
1. Members – the Members are interested in benefit security and having the funds available to pay
benefits when retired
2. Employers – cost control and cost stability over the long-term
3. Taxpayers – paying for the services they are receiving from active Members
The Alternative Contribution methods are not intended to provide a better system in any of the above
categories long-term. The parameters are not recommended for a long-term funding strategy.
The funding methods and parameters put into place in the Illinois State Statutes in 2011 were intended to
provide short-term budget relief for Employer Contributions. An Employer using the parameters outlined
in the Illinois State Statutes for current funding should view the contributions as short-term relief. Our
recommendation in this situation is for a Pension Fund and an Employer to work towards a long-term
funding strategy that better achieves the long-term funding goals, over a period that does not exceed 3-5
years.
The Securities and Exchange Commission in 2013 used the phrase “Statutory Underfunding” to describe
situations where contributions appear to be more manageable in the short-term, but set up future
Recommended Contributions that are less likely to be manageable. DRAFT
ALTERNATIVE CONTRIBUTION
McHenry Police Pension Fund
Page 31
ACTUARIAL METHODS – ALTERNATIVE CONTRIBUTION
The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions
to the benefit provisions and demographic data furnished, using the Actuarial Cost Method described. The
Actuarial Cost and Amortization methods allocate the projected obligations of the Plan over the working
lifetimes of the Plan Members.
The Actuarial Funding Methods are meant to provide a systematic process for determining contributions
on an annual basis. The methods do not impact the expectation of future benefit payments. The methods
only impact the way contributions are made towards future benefit payments.
Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain
methods are more efficient and more stable on an annual basis.
The guidelines in the Illinois State Statutes for pension funding are silent on the use of a corridor on the
Fair Value of Assets in determination of the Actuarial Value of Assets. In the current valuation, the Plan
Sponsor has elected to use a 10% corridor in the determination of the Actuarial Value of Assets for both
the Alternative Contribution and the Recommended Contribution. In the event that the Actuarial Value of
Assets exceeds 110% of the Fair Value of Assets or falls below 90% of the Fair Value of Assets, the
excess gains or losses will be recognized immediately.
Actuarial Valuation Date May 1, 2023
Data Collection Date April 30, 2023
Actuarial Cost Method Projected Unit Credit
Amortization Method Level % Pay (Closed)
Amortization Target 90% Funded Over 17 Years
Asset Valuation Method 5-Year Smoothed Fair Value
DRAFT
ACTUARIAL VALUATION DATA
Active Members
Inactive Members
Summary of Monthly Benefit Payments
Age and Service Distribution
DRAFT
ACTUARIAL VALUATION DATA
McHenry Police Pension Fund
Page 33
ACTIVE MEMBERS
INACTIVE MEMBERS
SUMMARY OF MONTHLY BENEFIT PAYMENTS
Prior
Valuation
Current
Valuation
Tier I 30 29
Tier II 18 22
Total Active Members 48 51
Total Payroll $4,806,036 $5,221,650
Prior
Valuation
Current
Valuation
Terminated Members 10 11
Retired Members 22 21
Disabled Members 8 8
Other Beneficiaries 3 2
Total Inactive Members 43 42
Prior
Valuation
Current
Valuation
Retired Members $150,644 $150,611
Disabled Members 33,314 33,657
Other Beneficiaries 17,551 9,015
Total Inactive Members $201,508 $193,283DRAFT
ACTUARIAL VALUATION DATA
McHenry Police Pension Fund
Page 34
AGE AND SERVICE DISTRIBUTION
Service Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total
Age
Under 25 0|2 0|1 0|3
25 to 29 0|2 0|4 0|6
30 to 34 0|3 0|2 0|5
35 to 39 0|2 0|3 2|1 2|0 4|6
40 to 44 0|2 2|0 5|0 5|0 12|2
45 to 49 5|0 2|0 7|0
50 to 54 1|0 2|0 1|0 4|0
55 to 59 1|0 1|0 2|0
60 to 64
65 to 69
70 & up
Total 0|4 0|10 0|7 4|1 9|0 13|0 3|0 29|22
5/1/2023 Age and Service Distribution - Tier 1|Tier 2 Active Members
DRAFT
ACTUARIAL FUNDING POLICIES
Actuarial Cost Method
Financing Unfunded Actuarial Accrued Liability
Actuarial Value of Assets
DRAFT
ACTUARIAL FUNDING POLICIES
McHenry Police Pension Fund
Page 36
ACTUARIAL COST METHOD
The Actuarial Cost Method allocates the projected obligations of the Plan over the working lifetimes of
the Plan Members.
In accordance with the Pension Fund’s Funding Policy, the Actuarial Cost Method for the Recommended
Contribution basis is Entry Age Normal (Level Percent of Pay). The Entry Age Normal Cost Method is a
method under which the Actuarial Present Value of the projected benefits of each individual included in
an Actuarial Valuation is allocated on a level basis over the earnings or service of the individual between
entry age and assumed exit age. The portion of this Actuarial Present Value allocated to a valuation year
is called Normal Cost. The portion of the Actuarial Present Value not provided at an Actuarial Valuation
Date by the Actuarial Present Value of future Normal Costs is called the Actuarial Accrued Liability.
The Entry Age Normal method attempts to create a level cost pattern. In contrast to other Actuarial Cost
Methods which inherently lead to uneven or less predictable cost patterns, the Entry Age Normal method
is generally understood to be less risky in terms of contribution stability from year to year.
The Conference of Consulting Actuaries Public Plans Community produced a “white paper” detailing
Funding Policy model practices for public sector pension plans. Under the Level Cost Actuarial
Methodology (“LCAM”), one of the principal elements to a Funding Policy is the Actuarial Cost Method.
When deciding which Actuarial Cost Method to use, several objectives may be considered, such as the
following:
• Each Member’s benefit should be funded under a reasonable allocation method by the expected
retirement date
• Pay-related benefit costs should reflect anticipated pay at retirement
• The expected cost of each year of service (i.e. Normal Cost) for each active Member should be
reasonably related to the expected cost of that Member’s benefit
• The Member’s Normal Cost should emerge as a level percent of Member compensation
• No gains or losses should occur if all assumptions are met.
Following these criteria, the use of the Entry Age Normal Cost Method (Level Percent of Pay) is a model
practice.
FINANCING UNFUNDED ACTUARIAL ACCRUED LIABILITY
The Unfunded Actuarial Accrued Liability may be amortized over a period either in level dollar amounts
or as a level percentage of payroll.
When amortizing the Unfunded Actuarial Accrued Liability as a level percentage of payroll, additional
risk is incurred since the amortization payments in the early years of the payment period may not be large
enough to cover the interest accrued on the existing Unfunded Liability. As a result, the Unfunded Liability DRAFT
ACTUARIAL FUNDING POLICIES
McHenry Police Pension Fund
Page 37
may increase initially, before the amortization payments grow large enough to cover all interest accruals.
Generally speaking, the Plan Sponsor will be required to contribute a larger total contribution amount over
the course of the funding period under a level percentage of payroll basis as compared to a level dollar
payroll schedule.
The Government Finance Officers Association notes that best practices in public pension finance include
utilizing amortization periods that do not exceed 20 years. Longer amortization periods elevate the risk of
failing to reduce any Unfunded Liability. For example, when the amortization payment in full only covers
interest on the Unfunded Liability, but does not reduce the existing Unfunded Liability, the required
contribution will increase in future years.
A second principal element under the Level Cost Actuarial Methodology described above is to establish
an Amortization Policy that determines the length of time and the structure of the increase or decrease in
contributions required to systematically fund the Unfunded Actuarial Accrued Liability. When deciding
on the Amortization Policy, several objectives may be considered, such as the following:
• Variations in the source of liability changes (i.e. gains or losses, Plan changes, assumption
changes) should be funded over periods consistent with an appropriate balance between the policy
objectives of demographic matching and volatility management
• The cost changes in Unfunded Actuarial Accrued Liability should emerge as a level percentage of
Member compensation
The LCAM model practices for the Amortization Policy include the following:
• Layered fixed period amortization by source
• Level percent of pay amortization
• An amortization period ranging from 15-20 years for experience gains or losses
• An amortization period of 15-25 years for assumption changes
In accordance with the Pension Fund’s Funding Policy for the Recommended Contribution, the Unfunded
Actuarial Accrued Liability is amortized by level percent of payroll contributions to a 100% funding target
over a layered amortization period of 15 years. Any reduction in the Recommended Contribution for
negative Unfunded Liability over the Funding Policy amortization target was ignored. See the Actuarial
Methods – Recommended Contribution section of this report for more detail.
We believe that the amortization period is appropriate for the purpose of this valuation.
ACTUARIAL VALUE OF ASSETS
The Pension Fund is an ongoing plan. The Employer wishes to smooth the effect of volatility in the Fair
Value of Assets on the annual contribution. Therefore, the Actuarial Value of Assets is equal to the Fair
Value of Assets with unanticipated gains/losses recognized over a five-year period. DRAFT
ACTUARIAL FUNDING POLICIES
McHenry Police Pension Fund
Page 38
The Asset Valuation Method is intended to create an Actuarial Value of Assets that remains reasonable in
relation to the Fair Value of Assets over time. The method produces results that can fall either above or
below the Fair Value of Assets. The period of recognition is short.
It is intended that the period of recognition is short enough to keep the Actuarial Value of Assets within a
decent range of the Fair Value of Assets. In the event that the Actuarial Value of Assets exceeds or falls
below a 10% corridor of the Fair Value of Assets, the additional gain or loss will be recognized
immediately.
DRAFT
ACTUARIAL ASSUMPTIONS
Nature of Actuarial Calculations
Selection of Actuarial Assumptions
Actuarial Assumptions in the Valuation Process
Assessment of Risk Exposures
Limitations of Risk Analysis
Assessment and Use of Actuarial Models
Actuarial Assumptions Utilized
DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 40
NATURE OF ACTUARIAL CALCULATIONS
The results documented in this report are estimates based on data that may be imperfect and on
assumptions about future events. Certain Plan Provisions may be approximated or deemed immaterial,
and, therefore, are not valued. Assumptions may be made about demographic data or other factors.
Reasonable efforts were made in this valuation to ensure that significant items in the context of the
Actuarial Accrued Liability or costs are treated appropriately, and not excluded or included
inappropriately.
Actual future experience will differ from the assumptions used in the calculations. As these differences
arise, the expense for accounting purposes will be adjusted in future valuations to reflect such actual
experience.
A range of results different from those presented in this report could be considered reasonable. The
numbers are not rounded, but this is for convenience only and should not imply precision which is not
inherent in actuarial calculations.
SELECTION OF ACTUARIAL ASSUMPTIONS
Actuaries and other service providers provide guidance to their clients in the selection of assumptions
used in the Actuarial Valuation based on their industry-specific training and experience. The Actuaries’
expertise is used in the determination of demographic assumptions as it relates to future expectations of
Plan demographic activity, such as mortality, termination, and retirement rates. The selection of economic
assumptions, such as Expected Rate of Return on Investments or the assumed inflation rate, is more
subjective. Investment advisors and other services providers utilize their expertise and knowledge of
capital markets to model future expectations. Some assumptions may have an influence on other
assumptions. The role of the Actuary in the selection of the economic assumptions is to review available
market information including historical economic information and forward-looking capital market
projections from investment professionals and to assess whether or not sufficient backup exists to deem
the assumption reasonable. The selection of economic assumptions is the responsibility of the client. For
example, the inflation rate (an economic assumption) may directly correlate to the active member salary
increase assumption (a demographic assumption). Once all demographic and economic assumptions have
been determined, the Actuary will create various sets of assumptions which take into account the proposed
assumptions individually and in the aggregate. The client will then make the final decision of which
assumption set to use.
DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 41
ACTUARIAL ASSUMPTIONS IN THE VALUATION PROCESS
The contributions and benefit values of the Pension Fund are calculated by applying actuarial assumptions
to the benefit provisions and demographic data furnished, using the Actuarial Cost Method described in
the Actuarial Funding Policies section of this report.
The principal areas of financial risk which require assumptions about future experience are:
Expected Rate of Return on Investments
Patterns of Pay Increases for Members
Rates of Mortality Among Active and Inactive Members
Rates of Termination Among Active Members
Rates of Disability Among Active Members
Age Patterns of Actual Retirements
Actual experience of the Pension Fund will not coincide exactly with assumed experience. Each valuation
provides a complete recalculation of assumed future experience and takes into account all past differences
between assumed and actual experience. The result is a continual series of adjustments to the computed
Recommended Contribution.
Details behind the selection of the actuarial assumptions can be found in the Actuarial Assumption
Summary document provided to the client upon request. The client has reviewed and approved the
assumptions as a reasonable expectation of the future anticipated experience under the Plan.
DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 42
ASSESSMENT OF RISK EXPOSURES
From time to time it becomes appropriate to modify one or more of the assumptions, to reflect experience
trends (but not random year-to-year fluctuations). In addition, Actuarial Standards of Practice require that
the Actuary minimally perform a qualitative assessment of key financial and demographic risks as part of
the risk assessment process with each annual Actuarial Valuation. The risk assessments we perform
include, but are not limited to, the following:
• Periodic demographic experience studies every 3 to 5 years to confirm the ongoing appropriateness
of actuarial assumptions
• Highlight the impact of demographic experience over the past year, as well as other sources of
change and volatility in the Actuarial Recommended Contribution – Reconciliation section of this
report
• Detail year-over-year changes in contribution levels, assets, liabilities, and Funded Status in the
Recommended Contribution and Funded Status sections in the Management Summary section of
this report
• Review any material changes in the demographic data as summarized in the Actuarial Valuation
Data section of this report
• Provide and discuss the Actuarial Assumption Summary document highlighting the rationale for
each key assumption chosen by the client
• Identify potential Cash Flow Risk by highlighting expected benefit payments over the next 5-year
and 10-year periods in the Asset Growth section in the Management Summary section of this report
• Describe the impact of any assumption, method, or policy change in the Management Summary
section of this report
• Utilize supplemental information, such as the GASB Discount Rate sensitivity disclosures to
understand, for example, what impact an alternative Expected Rate of Return on Investments
assumption might have on the estimation of Actuarial Accrued Liability and Funded Status
• Utilize supplemental information, such as the GASB solvency test, to better understand the Cash
Flow Risk and long-term sustainability of the Plan
LIMITATIONS OF RISK ANALYSIS
Since future experience may never be precisely as assumed, the process of selecting funding methods and
actuarial assumptions may inherently create risk and volatility of results. A more detailed evaluation of
the above risk exposures is beyond the scope and nature of the annual Actuarial Valuation process. For
example, scenario tests, sensitivity tests, stress tests, and/or stochastic modeling for multi-year projections
to assess the impact of alternative assumptions and methods, or modeling future experience different from
the assumptions in these results, are not included in this Actuarial Valuation.
The McHenry Police Pension Fund and/or the City of McHenry, Illinois should contact the Actuary if
they desire a more detailed assessment of any of these forward-looking risk exposures.
DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 43
ASSESSMENT AND USE OF ACTUARIAL MODELS
Actuarial Valuations rely upon the use of actuarial modeling software to predict the occurrence of future
events, which include specific demographic and financial potential outcomes. Actuarial assumptions are
established to provide a guideline to use for such modeling.
• The model used in this Actuarial Valuation is intended to determine the Recommended
Contribution, under the selected Funding Policy. The actuarial assumptions used were developed
with this goal in mind.
• There are no known material limitations or inconsistencies among the actuarial assumptions or
methods.
• The output from the model is reasonable based on the individual actuarial assumptions and based
on the actuarial assumptions in the aggregate.
• The actuarial software used to calculate plan liabilities has been purchased from an outside vendor.
We have performed thorough testing of the software, including review of sample participants, to
ensure the intended purpose of the model, the operation of the model, sensitivities and
dependencies, and strengths and limitations of the model are sufficient for this purpose.
• Demographic data and financial information have been provided by client professionals, financial
advisors, and/or auditors, who are known to be experts in their respective fields. We rely on the
fact that the information provided by these experts has been given for the intended purpose of this
Actuarial Valuation.
• Where applicable, certain actuarial assumptions and Funding Policy may be required as prescribed
by law. In such instances, we have followed legal guidance to ensure conformity.
• The Expected Rate of Return on Investments assumption has been chosen using input from several
sources; including, but not limited to: client professionals, financial advisors, auditors, and other
capital market outlooks. We have relied on the information provided, in the aggregate, to settle
on the selected Expected Rate of Return on Investments assumption.
As stated in the Limitations of Risk Analysis section, future experience may never be precisely as assumed.
As a result, the funding methods and actuarial assumptions used in the model may create volatility in the
results when compared year after year. A more detailed evaluation of this volatility is beyond the scope
and nature of the annual Actuarial Valuation process. In such cases, additional scenario tests, sensitivity
tests, stress tests, and/or stochastic modeling for multi-year projections to assess the impact of alternative
assumptions and methods, or modeling future experience different from the assumptions in these results,
may be performed to determine a range of reasonable results.
DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 44
ACTUARIAL ASSUMPTIONS UTILIZED
Individual pay increases include a long-term average increase for
inflation, average annual increases for promotions, and any
additional increases for a step program. Sample rates are as follows:
*Individual pay increases for active Members hired at age 40 or
older are assumed annual increases at the ultimate rate reduced by
50 basis points, without adjustments in early service years.
Expected Rate of Return on Investments 7.00% Net of Administrative Expense
CPI-U 2.25%
Total Payroll Increases 3.00%
Individual Pay Increases*3.75% - 10.02%
Service Rate Service Rate
0 10.02%8 3.75%
1 9.46%9 3.75%
2 8.98%10 3.75%
3 8.55%15 3.75%
4 8.18%20 3.75%
5 7.85%25 3.75%
6 7.55%30 3.75%
7 3.75%35 3.75%DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 45
Retirement Rates 100% of the L&A Assumption Study for Police 2020 Cap Age 65.
Sample rates are as follows:
Termination Rates 100% of the L&A Assumption Study for Police 2020. Sample rates
are as follows:
Disability Rates 100% of the L&A Assumption Study for Police 2020. Sample rates
are as follows:
65% of active Members who become disabled are assumed to be in
the Line of Duty.
Age Rate Age Rate
50 11.00%58 16.25%
51 11.55%59 16.25%
52 12.13%60 16.25%
53 12.73%61 16.25%
54 13.37%62 18.00%
55 14.04%63 20.00%
56 14.74%64 20.00%
57 15.48%65 100.00%
Age Rate A ge Rate
25 8.00%40 2.17%
30 3.40%45 1.56%
35 2.79%50 0.46%
Age Rate A ge Rate
25 0.00%40 0.38%
30 0.06%45 0.53%
35 0.18%50 0.48%DRAFT
ACTUARIAL ASSUMPTIONS
McHenry Police Pension Fund
Page 46
Mortality Rates Active Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010(A) Study. Mortality improvement uses MP-2019
Improvement Rates applied on a fully generational basis.
50% of active Member deaths are assumed to be in the Line of Duty.
Retiree Mortality follows the L&A Assumption Study for Police
2020. These rates are experience weighted with the Sex Distinct
Raw Rates as developed in the PubS-2010(A) Study improved to
2017 using MP-2019 Improvement Rates. These rates are then
improved fully generationally using MP-2019 Improvement Rates.
Disabled Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010 Study for disabled participants. Mortality
improvement uses MP-2019 Improvement Rates applied on a fully
generational basis.
Spouse Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010(A) Study for contingent survivors. For all rates
not provided there (ages 45 and younger) the PubG-2010 Study for
general employees was used. Mortality improvement uses MP-2019
Improvement Rates applied on a fully generational basis.
Marital Assumptions Active Members: 80% of active Members are assumed to be
married. Female spouses are assumed to be 3 years younger than
male spouses.
Retiree and Disabled Members: Actual spousal data was utilized for
retiree and disabled Members.
DRAFT
LOW-DEFAULT-RISK OBLIGATION MEASURE
Low-Default-Risk Obligation Measure – Purpose
Low-Default-Risk Obligation Measure
Low-Default-Risk Obligation Measure vs Actuarial Liability
DRAFT
LOW-DEFAULT-RISK OBLIGATION MEASURE
McHenry Police Pension Fund
Page 48
LOW-DEFAULT-RISK OBLIGATION MEASURE - PURPOSE
The Pension Committee of the Actuarial Standards Board adopted changes to Actuarial Standards of
Practice No. 4 (“ASOP 4”). ASOP 4 is titled “Measuring Pension Obligations and Determining Pension
Plan Costs or Contributions”. The changes were adopted by the Actuarial Standards Board in December
2021 and are effective for reporting and Measurement Dates on or after February 15, 2023.
One change is the requirement for all Funding Actuarial Valuations to include a Low-Default-Risk
Obligation Measure (“LDROM”). In its simplest form, the LDROM is a measure of Actuarial Liability
determined using a low-risk Expected Rate of Return on Investments. The LDROM is not intended to
replace the Actuarial Liability used to determine the Recommended Contribution amount calculated in
this report. The intention is to provide additional information on the Funded Status of the Plan and benefit
security.
The Low-Default-Risk Obligation Measure is shown below as of the Measurement Date. The discussion
that follows provides more information on the assumptions and methods used to determine the LDROM
and some interpretation of the results.
LOW-DEFAULT-RISK OBLIGATION MEASURE
The Obligation not Covered by Current Assets shown above is for illustration of the Low-Default-Risk
Obligation Measure only and is not intended for any other purposes. The amount of Obligation not
Covered by Current Assets should not be used for pension funding or financial statement reporting
purposes. In addition, the Obligation not Covered by Current Assets amount should not be used for any
other assessments related to pension funding, such as assessing Unfunded Liability for the purpose of
issuing Pension Obligation Bonds. Discussion of any of these items should be handled separately.
Low-Default-Risk Obligation Measure $82,623,587
Fair Value of Assets 55,718,518
Obligation not Covered by Current Assets $26,905,069
Current
Valuation The Low-Default-Risk
Obligation Measure is Not Intended to Replace the
Actuarial Liability Used to
Determine the Recommended Contribution.DRAFT
LOW-DEFAULT-RISK OBLIGATION MEASURE
McHenry Police Pension Fund
Page 49
Selection of the Discount Rate
Under Actuarial Standards, a Discount Rate should be selected from a source that develops the rate using
low-default-risk fixed income securities. In addition, the fixed income securities should be reasonably
consistent with the pattern of expected benefit payments from the Fund.
The Low-Default-Risk Obligation Measure has been valued using the FTSE Pension Discount Curve. The
FTSE Pension Discount Curve is determined using rates from corporate bonds that are rated AA (from
the FTSE U.S. Broad Investment Grade Bond Index) and yields from the FTSE Russell’s Treasury model
curve. The result is a set of investment grade zero coupon bond rates with maturities from 6 months to 30
years.
The equivalent single discount rate that would produce the same liability as the FTSE Pension Discount
Curve is 4.77%.
There are other indices constructed that are appropriate for this disclosure as well. They could produce
Discount Rates that are higher or lower than the LDROM shown here. An increase/decrease in the discount
rate of 50 basis points (0.50%) would decrease/increase the LDROM by (7.53%)/8.45%, respectively. In
our opinion, the FTSE Pension Discount Curve meets the requirements of the disclosure of the LDROM.
The curve is constructed using investment grade corporate bonds. In addition, the rates are updated
monthly and the current rates used (as of the Measurement Date of this report) are reflective of current
market conditions. Finally, the use of a yield curve as opposed to a single rate allows the flexibility for
the LDROM to be determined in a manner consistent with the pattern of expected benefit payments.
The Discount Rate is intended for the current Measurement Date only. In order to stay consistent with the
prevailing market conditions, the Discount Rate will be assessed and updated each year at each new
Measurement Date.
Selection of the Actuarial Cost Method
The Standard requires the use of an immediate-gain Actuarial Cost Method. We have elected to use the
Entry Age Normal cost method for measurement of the LDROM. Entry Age Normal is being applied on
a percent of pay basis. The Cost Method is the same method used for the determination of the
Recommended Contribution in this report.
Other immediate-gain Actuarial Cost Methods are available and acceptable for use in the determination
of the LDROM. Other acceptable methods include benefits-based methods and accrued benefit methods.
We selected the Entry Age Normal method due to the fact that benefit liability in this Fund is not typically
settled with one-time payments. For example, the Plan does not pay lump sums (except refunds of Member
Contributions) and is not anticipated to settle liability through the purchase of annuity contracts.
Therefore, the usefulness of a benefits-based method is much more limited in interpretation of this measure
as it relates to benefit security.
DRAFT
LOW-DEFAULT-RISK OBLIGATION MEASURE
McHenry Police Pension Fund
Page 50
Interpretation of the LDROM
The Low-Default-Risk Obligation Measure is higher than the liability used for the Recommended
Contribution determination by $23,120,943.
Actuarial Liability is determined in different ways based on the purpose of the measurement. The Actuarial
Liability for Recommended Contribution purposes is used to develop a contribution amount that, when
combined with other sources of funding (including Member Contributions and expected investment
returns), would pay all future expected benefits. The expected investment returns under this scenario are
based on the current asset allocation and capital market expectations of the Fund. Assets are invested in a
way that involves risk. Actual returns can vary significantly year-to-year above and below expectations.
The trade-off is a risk-premium over the long-term and above low-risk market rates.
The LDROM, by contrast, is developed using low-risk returns available in the market. These returns could
be obtained theoretically with low-risk of deviation from expectation, and lower expectation (i.e. there is
no risk-premium). The LDROM, then, can be thought of as the amount of money that should be set aside
today to appropriately fund and prepare for all future benefit payments, if the assets were invested in
relatively low volatility assets available in the market today.
The expected decrease in the liability for funding purposes as compared to the LDROM can be thought of
as cost savings from investing in riskier assets, with higher long-term return expectations. At the same
time, this difference also represents a risk factor for the Pension Fund as the Fund is reliant on receiving
the expected return on investments, including a risk premium. Contributions, combined with these
investment returns, are required in order to fund future benefit payments.
LOW DEFAULT RISK OBLIGATION MEASURE VS ACTUARIAL LIABILITY
Low-Default-Risk Obligation Measure $82,623,587
Actuarial Accrued Liability (Entry Age Normal)59,502,644
Difference $23,120,943
Current
Valuation The Low-Default-Risk
Obligation Measure is Not Intended to Replace the
Actuarial Liability Used to
Determine the Recommended
Contribution.DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
Establishment of the Fund
Administration
Member Contributions
Regular Retirement Pension Benefit
Early Retirement Pension Benefit
Surviving Spouse Benefit
Termination Benefit – Vested
Disability Benefit
DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
McHenry Police Pension Fund
Page 52
ESTABLISHMENT OF THE FUND
The Police Pension Fund is established and administered as prescribed by “Article 3 – Police Pension
Fund – Municipalities 500,000 and Under” of the Illinois Pension Code.
ADMINISTRATION
The Police Pension Fund is administered by a Board of Trustees whose duties are to manage the Pension
Fund, determine applications for pensions, authorize payment of pensions, establish rules, pay expenses,
and keep records.
MEMBER CONTRIBUTIONS
Members contribute 9.910% of their pensionable salary.
REGULAR RETIREMENT PENSION BENEFIT
Tier I
Eligibility: Age 50 with at least 20 years of creditable service.
Benefit: 50% of final salary for the first 20 years of service, plus an additional 2.5% of final salary for
each year of service beyond 20 years of service, and not to exceed 75% of final salary. “Final salary”
is based on the police officer’s pensionable salary attached to rank held on the last day of service,
unless the pensionable salary was greater at some point within the year prior to the last day of service.
If so, the pensionable salary is averaged over the last 12 months.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 1/12 of
3% of the original monthly benefit for each full month that has passed since the pension began. The
initial increase date will be the later of the first day of the month after the pensioner turns age 55 or the
first day of the month after the benefit date anniversary. Subsequent increases of 3% of the current
monthly benefit will be granted every January 1st thereafter. DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
McHenry Police Pension Fund
Page 53
REGULAR RETIREMENT PENSION BENEFIT - CONTINUED
Tier II
Eligibility: Age 55 with at least 10 years of creditable service.
Benefit: 2.5% of final average salary for each year of service, and not to exceed 75% of final average
salary. “Final average salary” is determined by dividing the total pensionable salary during 48
consecutive months of service within the last 60 months of service in which total pensionable salary
was the highest, by the number of months of service in that period (or by dividing the total pensionable
salary during 96 consecutive months of service within the last 120 months of service in which total
pensionable salary was the highest, by the number of months of service in that period, if greater).
Annual salary for this purpose will not exceed the salary cap, indexed by the lesser of 3% or the CPI-
U for the 12 months ending with the September preceding each November 1st. The salary cap will not
decrease.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st.
EARLY RETIREMENT PENSION BENEFIT
Tier I
None.
Tier II
Eligibility: Age 50 with at least 10 years of creditable service.
Benefit: The regular retirement pension benefit reduced by ½ of 1% for each month that the police
officer’s age is between 50 and 55.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st. DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
McHenry Police Pension Fund
Page 54
SURVIVING SPOUSE BENEFIT
Tier I
Eligibility: Married to an active police officer with at least 8 years of creditable service, a disabled
pensioner at the time of death, or a retired pensioner on the last day of service.
Active Line of Duty Death Benefit: An eligible surviving spouse is entitled to receive 100% of the
police officer’s final pensionable salary attached to rank held on the last day of service.
Non-Duty Death Benefit:
Disabled or Retired Pensioner: An eligible surviving spouse is entitled to receive the pensioner’s
benefit at the time of death.
Active Member with 20+ Years of Service: An eligible surviving spouse is entitled to the police
officer’s eligible benefit at the time of death.
Active Member with 10-20 Years of Service: An eligible surviving spouse is entitled to receive
50% of the police officer’s pensionable salary attached to rank held on the last day of service,
unless the pensionable salary was greater at some point within the year prior to the last day of
service. If so, the pensionable salary is averaged over the last 12 months.
Annual Increase in Benefit: None.
Tier II
Eligibility: Married to an active police officer with at least 8 years of creditable service, a disabled
pensioner at the time of death, or a retired pensioner on the last day of service.
Active Line of Duty Death Benefit: An eligible surviving spouse is entitled to receive 100% of the
police officer’s final pensionable salary attached to rank held on the last day of service.
Non-Duty Death Benefit:
Disabled or Retired Pensioner, Active Member with 20+ Years of Service, and Active Member
with 10-20 Years of service: An eligible surviving spouse is entitled to receive the greater of 66⅔%
of the police officer’s earned pension benefit at the time of death or 54% of the police officer’s
monthly salary at the time of death.
Annual Increase in Benefit: The initial increase date will be the January 1st after the surviving spouse
turns age 60. Subsequent increases will be granted every January 1st thereafter. The initial increase
and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12
months ending with the September preceding each November 1st. DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
McHenry Police Pension Fund
Page 55
SURVIVING SPOUSE BENEFIT - CONTINUED
Public Act 102-0811 passed on May 13, 2022 and is effective as of January 1, 2023 for Article 3 Pension
Funds. The Act establishes that a surviving spouse of a deceased police retiree may be eligible for a
survivor’s pension of up to 15 years of benefit payments if (a) the surviving spouse has attained age 62
and (b) if the police officer was married to the surviving spouse after retirement, and for at least 5 years
prior to the officer’s death. Previously, there was no survivor’s pension for spouses married after
retirement. In our opinion, under a prudent interpretation of the provisions, we believe the impact to be de
minimis. The legal community has suggested some uncertainty about multiple provisions contained in the
Act, and the IDOI Public Pension Division has not provided an interpretation. The client has not made an
administrative interpretation as to how the provisions of the Act will impact future surviving spouses. Due
to the uncertainty around the interpretation and the expected de minimis impact, we have not valued this
contingency separately for active Members. However, for any current retirees who were married after
retirement and have been married for at least 5 years, as well as any surviving spouses currently in receipt
of benefits under this provision, we have valued the liability of the benefit granted.
TERMINATION BENEFIT – VESTED
Tier I
Eligibility: Age 60 with at least 8 but less than 20 years of creditable service.
Benefit: 2.5% of final salary for each year of service. “Final salary” is based on the police officer’s
pensionable salary attached to rank held on the last day of service, unless the pensionable salary was
greater at some point within the year prior to the last day of service. If so, the pensionable salary is
averaged over the last 12 months.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 1/12 of
3% of the original monthly benefit for each full month that has passed since the pension began. The
initial increase date will be the first day of the month after the benefit date anniversary. Subsequent
increases of 3% of the current monthly benefit will be granted every January 1st thereafter.
Tier II
None. DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
McHenry Police Pension Fund
Page 56
DISABILITY BENEFIT
Tier I
Eligibility: Duty or Non-Duty Disability or Occupational Disease Disability with at least 1 day of
creditable service.
Benefit: For a duty disability or an occupational disease disability with at least 5 years of creditable
service, a police officer is entitled to receive the greater of 65% of final salary or the regular retirement
pension benefit at the time of disability. For a non-duty disability, a police officer is entitled to receive
50% of their final salary. “Final salary” is based on the police officer’s pensionable salary attached to
rank held on the last day of service.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 3% of the
original monthly benefit for each full year that has passed since the pension began. The initial increase
date will be the later of the January 1st after following pensioner turns age 60 or the January 1st after
the benefit date anniversary. Subsequent increases of 3% of the original monthly benefit will be granted
every January 1st thereafter.
Tier II
Eligibility: Duty or Non-Duty Disability or Occupational Disease Disability with at least 1 day of
creditable service.
Benefit: For a duty disability or an occupational disease disability with at least 5 years of creditable
service, a police officer is entitled to receive the greater of 65% of final salary or the regular retirement
pension benefit at the time of disability. For a non-duty disability, a police officer is entitled to receive
50% of their final salary. “Final salary” is based on the police officer’s pensionable salary attached to
rank held on the last day of service.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st.
DRAFT
GLOSSARY OF TERMS
Glossary of Terms
DRAFT
GLOSSARY OF TERMS
McHenry Police Pension Fund
Page 58
GLOSSARY OF TERMS
Actuarial Accrued Liability – The Actuarial Present Value of future benefits based on Members’ service
rendered to the Measurement Date using the selected Actuarial Cost Method. It is that portion of the
Actuarial Present Value of Plan benefits and expenses allocated to prior years of employment. It is not
provided for by future Normal Costs.
Actuarial Cost Method – The method used to allocate the projected obligations of the Plan over the
working lifetimes of the Plan Members.
Actuarial Value of Assets – The value of the assets used in the determination of the Unfunded Actuarial
Accrued Liability. The Actuarial Value of Assets is related to the Fair Value of Assets, with adjustments
made to spread unanticipated gains and losses for a given year over a period of several years. Actuarial
Value of Assets is generally equally likely to fall above or below the Fair Value of Assets, and generally
does not experience as much volatility over time as the Fair Value of Assets.
Asset Valuation Method – A valuation method designed to smooth random fluctuations in asset values.
The objective underlying the use of an Asset Valuation Method is to provide for the long-term stability of
Employer Contributions.
Funding Policy – A set of procedures for a Pension Fund that outlines the “best practices” for funding the
pension benefits based on the goals of the Plan Sponsor. A Funding Policy discusses items such as
assumptions, Actuarial Cost Method, assets, and other parameters that will best help the Plan Sponsor
meet their goal of working in the best interest of the Plan Members.
Fair Value of Assets – The value of the cash, bonds, securities, and other assets held in the pension trust
as of the Measurement Date.
Normal Cost – The present value of future benefits earned by Members during the current Fiscal Year. It
is that portion of the Actuarial Present Value of benefits and expenses which is allocated to a valuation
year by the Actuarial Cost Method.
Unfunded Actuarial Accrued Liability – The excess of the Actuarial Accrued Liability over the Actuarial
Value of Assets. The Unfunded Actuarial Accrued Liability is amortized over a period either in level
dollar amounts or as a level percentage of projected payroll. DRAFT
DRAFT
GASB 67/68 Actuarial Valuation
as of May 1, 2022
MCHENRY POLICE
PENSION FUND
For the April 30, 2023
Financial Statement Reporting
LAUTERBACH & AMEN, LLP DRAFT
GASB Statements 67 and 68 Actuarial Disclosures
GASB 67: MCHENRY POLICE PENSION FUND
Fiscal Year Ending: April 30, 2023
Actuarial Valuation Date: May 1, 2022
Data Date: April 30, 2022
Measurement Date: April 30, 2023
GASB 68: CITY OF MCHENRY, ILLINOIS
Fiscal Year Ending: April 30, 2023
Actuarial Valuation Date: May 1, 2022
Data Date: April 30, 2022
Measurement Date: April 30, 2023
Submitted by:
Lauterbach & Amen, LLP
668 N. River Road
Naperville, IL 60563
Phone: 630.393.1483
www.lauterbachamen.com
Contact:
Todd A. Schroeder
Partner
September 22, 2023
LAUTERBACH & AMEN, LLP DRAFT
TABLE OF CONTENTS
McHenry Police Pension Fund
Table of Contents
ACTUARIAL CERTIFICATION .............................................................................................................. 5
PLAN FIDUCIARY NET POSITION ....................................................................................................... 7
Statement of Plan Fiduciary Net Position ............................................................................................................................ 8
Statement of Changes in Plan Fiduciary Net Position ......................................................................................................... 9
ACTUARIAL PENSION LIABILITY INFORMATION ........................................................................ 10
Statement of Total Pension Liability ................................................................................................................................. 11
Statement of Changes in Total Pension Liability ............................................................................................................... 12
Statement of Changes in Net Pension Liability ................................................................................................................. 14
Deferred Outflows and Inflows of Resources .................................................................................................................... 15
Deferred Outflows and Inflows of Resources – Detail ...................................................................................................... 16
Pension Expense Development .......................................................................................................................................... 17
ACTUARIAL ASSUMPTIONS INFORMATION .................................................................................. 18
Statement of Significant Actuarial Assumptions ............................................................................................................... 19
Assumption Changes ......................................................................................................................................................... 19
Actuarial Assumptions (Demographic) ............................................................................................................................. 21
Postemployment Benefit Changes ..................................................................................................................................... 23
Expected Return on Pension Plan Investments .................................................................................................................. 24
Municipal Bond Rate ......................................................................................................................................................... 26
Discount Rate..................................................................................................................................................................... 26
Sensitivity of the Discount Rate ........................................................................................................................................ 27
Assessment and Use of Actuarial Models.......................................................................................................................... 28
PARTICIPANT DATA ............................................................................................................................ 29
Participant Demographic Data & Average Future Working Career .................................................................................. 30
FUNDING POLICY ................................................................................................................................. 31
Components of the Actuarially Determined Contribution ................................................................................................. 32
Formal Funding Policy ...................................................................................................................................................... 32
Informal Funding Policy .................................................................................................................................................... 32
Funding Policy – Other Considerations ............................................................................................................................. 34
SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION ................................................ 35
Schedule of Changes in the Net Pension Liability ............................................................................................................. 36
Schedule of Total Pension Liability and Related Ratios .................................................................................................... 37
Schedule of Contributions ................................................................................................................................................. 38
Notes to Schedule of Contributions ................................................................................................................................... 38
GASB METHODS AND PROCEDURES ............................................................................................... 39
GASB Methods and Procedures ........................................................................................................................................ 40 DRAFT
TABLE OF CONTENTS
McHenry Police Pension Fund
Table of Contents
SUPPLEMENTARY TABLES ................................................................................................................ 41
GASB Projections – Summary and Procedure .................................................................................................................. 42
GASB Projections – Limitations ....................................................................................................................................... 43
Projection of Contributions – Years 1 to 30 ...................................................................................................................... 44
Projection of Contributions – Years 31 to 60 .................................................................................................................... 45
Projection of Contributions – Years 61 to 80 .................................................................................................................... 46
Notes to Projection of Contributions ................................................................................................................................. 46
Projection of the Pension Plan’s Fiduciary Net Position – Years 1 to 30 .......................................................................... 47
Projection of the Pension Plan’s Fiduciary Net Position – Years 31 to 60 ........................................................................ 48
Projection of the Pension Plan’s Fiduciary Net Position – Years 61 to 80 ........................................................................ 49
Notes to Projection of the Pension Plan’s Fiduciary Net Position ..................................................................................... 49
Actuarial Present Value of Projected Benefit Payments – Years 1 to 30........................................................................... 50
Actuarial Present Value of Projected Benefit Payments – Years 31 to 60 ......................................................................... 51
Actuarial Present Value of Projected Benefit Payments – Years 61 to 80 ......................................................................... 52
Notes to the Actuarial Present Value of Projected Benefit Payments ................................................................................ 52
SUMMARY OF PRINCIPAL PLAN PROVISIONS .............................................................................. 53
Establishment of the Fund ................................................................................................................................................. 54
Administration ................................................................................................................................................................... 54
Member Contributions ....................................................................................................................................................... 54
Regular Retirement Pension Benefit .................................................................................................................................. 54
Regular Retirement Pension Benefit - Continued .............................................................................................................. 55
Early Retirement Pension Benefit ...................................................................................................................................... 55
Surviving Spouse Benefit .................................................................................................................................................. 56
Benefits Not Valued .......................................................................................................................................................... 57
Termination Benefit – Vested ............................................................................................................................................ 57
Disability Benefit ............................................................................................................................................................... 58
DRAFT
McHenry Police Pension Fund
Page 5
ACTUARIAL CERTIFICATION
This certification provides supplemental information as required by the Governmental Accounting
Standards Board. The enclosed schedules were prepared by the undersigned to assist in the preparation of
the Annual Financial Report. The assumptions and methods used in the preparation of this report meet the
parameters set for the disclosures presented in the financial section as required by the Governmental
Accounting Standards Board. Additional information is provided solely to assist the auditors in the
preparation of the required footnote disclosures.
The results in this report are based on the demographic data and financial information submitted by the
McHenry Police Pension Fund, and may include results from the prior Actuary. We did not prepare the
Actuarial Valuations for the years prior to May 1, 2017. If applicable, those valuations were prepared by
the prior Actuary whose reports have been furnished to us, and our disclosures are based on those reports.
An audit of the prior Actuary’s results was not performed, but high-level reviews were completed for
general reasonableness, as appropriate, based on the purpose of this valuation. The accuracy of the results
is dependent on the precision and completeness of the underlying information.
The valuation results summarized in this report involve actuarial calculations that require assumptions
about future events. The McHenry Police Pension Fund selected certain assumptions, while others were
the result of guidance and/or judgment from the Plan’s Actuary or Advisors. We believe that the
assumptions used in this valuation are reasonable and appropriate for the purposes for which they have
been used.
In preparing the results, our Actuaries used commercially available software (ProVal) developed by
Winklevoss Technologies, LLC. This software is widely used for the purpose of performing Actuarial
Valuations. Our Actuaries coded the plan provisions, assumptions, methods, and demographic data
summarized in this report, and reviewed the liability and cost outputs for reasonableness. We are not aware
of any material weaknesses or limitations in the software, and have determined it is appropriate for
performing this valuation.
DRAFT
McHenry Police Pension Fund
Page 6
To the best of our knowledge, all calculations are in accordance with the applicable accounting
requirements, and the procedures followed and presentation of results conform to generally accepted
actuarial principles and practices. The undersigned consultants of Lauterbach & Amen, LLP, with
actuarial credentials, meet the Qualification Standards of the American Academy of Actuaries to render
this Actuarial Certification. There is no relationship between the McHenry Police Pension Fund or the
City of McHenry, Illinois and Lauterbach & Amen, LLP that impairs our objectivity.
Respectfully Submitted,
LAUTERBACH & AMEN, LLP
Todd A. Schroeder, ASA, FCA, EA, MAAA Robert L. Rietz, Jr., FCA, EA, MAAA
DRAFT
PLAN FIDUCIARY NET POSITION
Statement of Plan Fiduciary Net Position
Statement of Changes in Plan Fiduciary Net Position
DRAFT
McHenry Police Pension Fund
Page 8
STATEMENT OF PLAN FIDUCIARY NET POSITION
The Plan Fiduciary Net Position shown above is intended to be in accordance with GAAP and the
Governmental Accounting Standards Board. The Fair Value of Investments has been provided by the
reporting entity, and the results are being audited by an independent auditor. The level of the assets has
been reviewed for reasonableness, but we make no representation as to the accuracy of the measurement
of the Fair Value of Investments. The Statement of Plan Fiduciary Net Position for 2023 is based on Fiscal
Year End financials, which are preliminary and tentative – subject to change as of the preparation of this
report.
Assets
Cash and Cash Equivalents $1,576,402 $1,162,973
Total Cash 1,576,402 1,162,973
Receivables:
Investment Income - Accrued Interest 195,205 -
Other 2,534 6,112
Total Receivables 197,739 6,112
Investments:
Pooled Investment Accounts 54,863,899 54,550,697
Total Investments 54,863,899 54,550,697
Total Assets 56,638,040 55,719,782
Liabilities
Payables:
Expenses Due/Unpaid - 60
Other - 1,204
Total Liabilities - 1,264
Plan Fiduciary Net Position $56,638,040 $55,718,518
4/30/20234/30/2022
DRAFT
McHenry Police Pension Fund
Page 9
STATEMENT OF CHANGES IN PLAN FIDUCIARY NET POSITION
The changes in Plan Fiduciary Net Position shown above are intended to be in accordance with GAAP
and the Governmental Accounting Standards Board. The Plan activity has been provided by the reporting
entity, and the results are being audited by an independent auditor. The cash flows have been reviewed
for reasonableness, but we make no representation as to the accuracy of the measurement of the Fair Value
of Investments. The Statement of Changes in Plan Fiduciary Net Position for 2023 is based on Fiscal Year
End financials, which are preliminary and tentative – subject to change as of the preparation of this report.
Additions
Contributions
Employer $621,970
Members 491,717
Total Contributions 1,113,687
Investment Income
Net Appreciation in Fair Value of Investments (988,665)
Interest and Dividends 1,367,091
Less Investment Expense (102,095)
Net Investment Income 276,331
Total Additions 1,390,018
Deductions
Benefit Payments and Refunds of Member Contributions 2,285,556
Administrative Expense 23,984
Total Deductions 2,309,540
Net Increase in Net Position (919,522)
Plan Fiduciary Net Position
Beginning of Year 56,638,040
End of Year $55,718,518
4/30/2023
DRAFT
ACTUARIAL PENSION LIABILITY INFORMATION
Statement of Total Pension Liability
Statement of Changes in Total Pension Liability
Statement of Changes in Net Pension Liability
Deferred Outflows and Inflows of Resources
Deferred Outflows and Inflows of Resources – Detail
Pension Expense Development
DRAFT
McHenry Police Pension Fund
Page 11
STATEMENT OF TOTAL PENSION LIABILITY
The Total Pension Liability (“TPL”) shown above is dependent on several factors such as Plan Provisions
and actuarial assumptions used in this report. In addition, the calculation of the TPL may be dependent on
the Plan Fiduciary Net Position shown in the prior section of this report. Changes in the Plan Fiduciary
Net Position due to any factor, including adjustments on final audit, could change the TPL. The
dependence of the TPL on the Plan Fiduciary Net Position is due to the role of the Plan Fiduciary Net
Position (and the Plan’s Projected Fiduciary Net Position) on the determination of the Discount Rate used
for the TPL.
The TPL has been determined for GASB 67/68 reporting purposes only. The resulting TPL is intended to
be used in the financial statement reporting of the Plan and/or Employer. The resulting liability is not
intended to be a representation of the Plan liability for other purposes, including but not limited to,
determination of cash funding requirements and recommendations. The TPL is based on data as of the
Actuarial Valuation - Data Date shown in this report. The TPL has been determined as of the Actuarial
Valuation Date and based on the assumptions used in this report, and adjusted to the Measurement Date
as needed.
Active Members $22,961,223 $24,312,434
Inactive Members
Terminated Members 2,298,240 2,587,596
Retired Members 25,493,556 25,579,315
Disabled Members 4,568,086 5,856,954
Other Beneficiaries 1,785,961 1,730,943
Total Inactive Members 34,145,843 35,754,808
Total Pension Liability $57,107,066 $60,067,242
4/30/2022 4/30/2023
DRAFT
McHenry Police Pension Fund
Page 12
STATEMENT OF CHANGES IN TOTAL PENSION LIABILITY
The Plan Fiduciary Net Position was detailed in the prior section of this report. The Employer’s Net
Pension Liability is the excess of the Total Pension Liability over the Plan Fiduciary Net Position.
Total Pension Liability may be dependent on the Plan Fiduciary Net Position. Changes in the Plan
Fiduciary Net Position could change the determination of the Total Pension Liability. Any changes in the
Plan Fiduciary Net Position, including adjustments on final audit, can have an impact on the Employer’s
Net Pension Liability that extends beyond the dollar-for-dollar change in the Plan Fiduciary Net Position.
Covered-Employee Payroll is based on the Covered-Employee Payroll for the Plan Members during the
Fiscal Year.
Changes in Total Pension Liability
Service Cost $1,133,068
Interest 3,939,393
Changes of Benefit Terms*(53,189)
Differences Between Expected and Actual Experience 226,460
Change in Assumptions -
Benefit Payments and Refunds (2,285,556)
Net Change in Total Pension Liability 2,960,176
Total Pension Liability - Beginning 57,107,066
Total Pension Liability - Ending (a)$60,067,242
Plan Fiduciary Net Position - Ending (b)$55,718,518
Employer's Net Pension Liability - Ending (a) - (b)$4,348,724
Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 92.76%
Covered-Employee Payroll $4,959,035
Employer's Net Pension Liability as a Percentage of Covered-Employee Payroll 87.69%
4/30/2023
DRAFT
McHenry Police Pension Fund
Page 13
A key demographic risk is mortality improvement differing from expected. While the actuarial
assumptions reflect small, continuous improvements in mortality experience and these assumptions are
refined upon the completion of each actuarial experience study, the risk arises because there is a possibility
of a sudden shift in mortality experience. This report reflects the impact of COVID-19 experience that has
been accounted for in the underlying demographic data. This report does not reflect the ongoing impact
of COVID-19, which is likely to influence demographic and economic experience, at least in the short-
term. We will continue to monitor these developments and their impact on the Plan. Actual future
experience will be reflected in each subsequent Actuarial Valuation, as experience emerges.
Public Act 102-0811 passed on May 13, 2022 and is effective as of January 1, 2023 for Article 3 Pension
Funds. The Act establishes that a surviving spouse of a deceased police retiree may be eligible for a
survivor’s pension of up to 15 years of benefit payments if (a) the surviving spouse has attained age 62
and (b) if the police officer was married to the surviving spouse after retirement, and for at least 5 years
prior to the officer’s death. Previously, there was no survivor’s pension for spouses married after
retirement. In our opinion, under a prudent interpretation of the provisions, we believe the impact to be de
minimis. The legal community has suggested some uncertainty about multiple provisions contained in the
Act, and the IDOI Public Pension Division has not provided an interpretation. The client has not made an
administrative interpretation as to how the provisions of the Act will impact future surviving spouses. Due
to the uncertainty around the interpretation and the expected de minimis impact, we have not valued this
contingency separately. If a spouse is granted a pension by the Board under this provision, we will value
the liability of the benefit granted, and revisit valuing the contingency of the benefit being granted in the
future.
*Late in 2022, the IDOI Public Pension Division issued an unofficial opinion that Tier II disabled
Members are entitled to an initial COLA increase on the later of the January 1st after the pensioner turns
age 60 or the January 1st after the benefit date anniversary equal to the lesser of 3% of the original benefit
or ½ CPI-U. The prior interpretation from the IDOI Public Pension Division was that Tier II disabled
members were entitled to an initial COLA increase on the later of the January 1st after the pensioner turns
age 60 or the January 1st after the benefit date anniversary equal to 3% of the original monthly benefit for
each full year that has passed since the pension began. In accordance with the new opinion, we have
included a change in liability due to a change in the substantive plan, which includes written provisions
as well as administrative interpretations. The impact of this change has been quantified as Changes of
Benefit Terms in the current valuation.
DRAFT
McHenry Police Pension Fund
Page 14
STATEMENT OF CHANGES IN NET PENSION LIABILITY
The table below illustrates the changes in Net Pension Liability (“NPL”) from the prior Measurement Date
to the current Measurement Date. Under Statement 68, the difference between the NPL from the prior
Measurement Date to the current Measurement Date should be recognized as a component of Pension
Expense, unless permitted to be recognized as a Deferred Outflow or Inflow of Resources.
The changes in Total Pension Liability shown above are described in the Statement of Changes in Total
Pension Liability section of this report. The Plan Fiduciary Net Position was detailed in the prior section
of this report. The Employer’s Net Pension Liability is the excess of the Total Pension Liability over the
Plan Fiduciary Net Position.
Increase (Decrease)
Total Pension P lan Fiduciary Net Pension
Liability Net Position Liability
(a)(b)(a) - (b)
Balances Beginning at 5/1/2022 57,107,066$ 56,638,040$ 469,026$
Changes for the Year:
Service Cost 1,133,068 - 1,133,068
Interest 3,939,393 - 3,939,393
Actuarial Experience 226,460 - 226,460
Change in Assumptions - - -
Changes of Benefit Terms (53,189) - (53,189)
Contributions - Employer - 621,970 (621,970)
Contributions - Members - 491,717 (491,717)
Contributions - Other - - -
Net Investment Income - 276,331 (276,331)
Benefit Payments and Refunds (2,285,556) (2,285,556) -
Administrative Expense - (23,984) 23,984
Net Changes 2,960,176$ (919,522)$ 3,879,698$
Balances Ending at 4/30/2023 60,067,242$ 55,718,518$ 4,348,724$ DRAFT
McHenry Police Pension Fund
Page 15
DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES
The table below shows the cumulative amounts to be shown as Deferred Outflows and Inflows of
Resources. Changes in Total Pension Liability related to the differences between expected and actual
experience, or changes in assumptions regarding future events, are recognized in Pension Expense over
the average future working career of all Members (active and inactive) in the Pension Plan. The net
difference in projected and actual earnings on Pension Plan investments over the measurement period are
recognized over a 5-year period. Amounts not yet recognized are summarized below:
*Contributions Subsequent to the Measurement Date may be recognized as a reduction to the Net Pension
Liability. The amount is not known as of the date of this report. Subsequent to the Measurement Date, the
following amounts will be recognized in Pension Expense in the upcoming years:
Deferred Outflows Deferred Inflows Total Deferred
of Resources of Resources Amounts
Differences Between Expected and Actual Experience 774,332$ (1,537,535)$ (763,203)$
Change in Assumptions 561,750 (246,050) 315,700
Net Difference Between Projected and Actual
Earnings on Pension Plan Investments 8,064,841 (2,671,282) 5,393,559
Contributions Subsequent to the Measurement Date*- - -
Total 9,400,923$ (4,454,867)$ 4,946,056$
Year Ended
April 30:
2024 1,061,653$
2025 818,545
2026 2,361,839
2027 743,479
2028 (43,010)
Thereafter 3,550$ DRAFT
McHenry Police Pension Fund
Page 16
DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES – DETAIL
The table below shows the annual detail amounts that have been summarized on the prior page. Under
Statement 68, the level of detail shown on the prior page is sufficient for financial statement reporting.
The detail shown below is primarily for tracking purposes.
Each detail amount shown above was established as of the Fiscal Year End shown and the full amount
deferred has been determined as of that time. Any events that occur in subsequent Fiscal Years do not
have an impact on the prior Fiscal Year. The bases are established independently each year.
4/30/2023 4/30/2023
Date Initial Initial Remaining Expense Deferred
Pension Expense Source Established Period Balance Period Recognized Balance
Asset Loss 4/30/2023 5.00 $3,646,477 5.00 $729,296 $2,917,181
Actuarial Loss 4/30/2023 6.81 226,460 6.81 33,255 193,205
Asset Loss 4/30/2022 5.00 8,026,240 4.00 1,605,248 4,815,744
Actuarial Gain 4/30/2022 7.10 (1,660,449) 6.10 (233,867) (1,192,715)
Asset Gain 4/30/2021 5.00 (6,678,208) 3.00 (1,335,642) (2,671,282)
Actuarial Gain 4/30/2021 7.14 (143,993) 5.14 (20,168) (83,489)
Asset Loss 4/30/2020 5.00 1,659,588 2.00 331,918 331,916
Change in Assumptions Loss 4/30/2020 8.70 1,039,838 5.70 119,522 561,750
Actuarial Loss 4/30/2020 8.70 953,997 5.70 109,655 515,377
Asset Loss 4/30/2019 5.00 332,641 1.00 66,525 -
Actuarial Loss 4/30/2019 8.29 165,685 4.29 19,987 65,750
Actuarial Gain 4/30/2018 8.70 (13,601) 3.70 (1,564) (4,217)
Change in Assumptions Gain 4/30/2017 8.70 (1,259,209) 2.70 (144,737) (246,050)
Actuarial Gain 4/30/2017 8.70 (1,315,850) 2.70 (151,248) (257,114)
Total $4,979,616 $1,128,180 $4,946,056 DRAFT
McHenry Police Pension Fund
Page 17
PENSION EXPENSE DEVELOPMENT
The table below displays the Pension Expense development for the current year. The Pension Expense
includes items that change the Net Pension Liability from one year to the next, netted out for amounts that
are deferred under GASB pronouncement, plus any amounts that are being recognized that were deferred
previously.
See below for the Pension Expense development:
Pension Expense/(Income) Under GASB 68
Service Cost $1,133,068
Interest 3,939,393
Changes of Benefit Terms (53,189)
Contributions - Members (491,717)
Contributions - Other -
Expected Investment Income (3,922,808)
Administrative Expense 23,984
Other Changes -
Initial Pension Expense/(Income)$628,731
Recognition of Outflow/(Inflow) of Resources Due to Liabilities (269,165)
Recognition of Outflow/(Inflow) of Resources Due to Assets 1,397,345
Total Pension Expense/(Income)$1,756,911
4/30/2023
DRAFT
ACTUARIAL ASSUMPTIONS INFORMATION
Statement of Significant Actuarial Assumptions
Assumption Changes
Actuarial Assumptions (Demographic)
Postemployment Benefit Changes
Expected Return on Pension Plan Investments
Municipal Bond Rate
Discount Rate
Sensitivity of the Discount Rate
Assessment and Use of Actuarial Models
DRAFT
McHenry Police Pension Fund
Page 19
STATEMENT OF SIGNIFICANT ACTUARIAL ASSUMPTIONS
See the Actuarial Assumptions (Demographic) section of this report for further details on Demographic
Assumptions.
The Actuarial Assumptions (Economic) rates shown above are assumed to be annual rates, compounded
on an annual basis. For more information on the selection of the actuarial assumptions, please see the
Actuarial Assumption Summary document prepared for the Plan, available upon request.
ASSUMPTION CHANGES
The assumptions were changed from the prior year.
The High-Quality 20 Year Tax-Exempt General Obligation (“G.O.”) Bond Rate assumption was changed
from 3.21% to 3.53% for the current year. The underlying index used is The Bond Buyer 20-Bond G.O.
Index as discussed in more detail later in this section. The choice of Index is unchanged from the prior
year. The rate has been updated to the current Fiscal Year End based on changes in market conditions as
reflected in the Index. The change was made to reflect our understanding of the requirements of GASB
under Statement 67 and Statement 68.
The Discount Rate used in the determination of the Total Pension Liability remained constant at 7.00%.
The Discount Rate is impacted by a couple of metrics. Any change in the underlying High-Quality 20
Year Tax Exempt G.O. Bond Rate will impact the blended Discount Rate.
The assumption changes stated above were made to better reflect the future anticipated experience of the
Plan.
Actuarial Assumptions (Economic)
Discount Rate Used for the Total Pension Liability 7.00%
Expected Rate of Return on Investments 7.00%
High-Quality 20 Year Tax-Exempt G.O. Bond Rate 3.53%
Projected Individual Pay Increases 3.75% - 10.02%
Projected Total Payroll Increases 3.00%
Consumer Price Index (Urban)2.25%
Inflation Rate 2.25%DRAFT
McHenry Police Pension Fund
Page 20
In addition, there are changes that can be made that impact the projection of the Plan Fiduciary Net
Position. For example, changes in the Formal or Informal Funding Policy can impact the Discount Rate.
Actual changes in the Plan Fiduciary Net Position from one year to the next can impact the projections as
well. DRAFT
McHenry Police Pension Fund
Page 21
ACTUARIAL ASSUMPTIONS (DEMOGRAPHIC)
Projected Individual Pay
Increases* Projected individual pay increases include a long-term average
increase for inflation, average annual increases for promotions, and
any additional increases for a step program. Sample rates are as
follows:
*Projected individual pay increases for active Members hired at age
40 or older are assumed annual increases at the ultimate rate reduced
by 50 basis points, without adjustments in early service years.
Retirement Rates 100% of the L&A Assumption Study for Police 2020 Cap Age 65.
Sample rates are as follows:
Service Rate Service Rate
0 10.02%8 3.75%
1 9.46%9 3.75%
2 8.98%10 3.75%
3 8.55%15 3.75%
4 8.18%20 3.75%
5 7.85%25 3.75%
6 7.55%30 3.75%
7 3.75%35 3.75%
Age Rate A ge Rate
50 11.00% 58 16.25%
51 11.55% 59 16.25%
52 12.13% 60 16.25%
53 12.73% 61 16.25%
54 13.37% 62 18.00%
55 14.04% 63 20.00%
56 14.74% 64 20.00%
57 15.48% 65 100.00%DRAFT
McHenry Police Pension Fund
Page 22
Termination Rates 100% of the L&A Assumption Study for Police 2020. Sample rates
are as follows:
Disability Rates 100% of the L&A Assumption Study for Police 2020. Sample rates
are as follows:
65% of active Members who become disabled are assumed to be in
the Line of Duty.
Mortality Rates Active Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010(A) Study. Mortality improvement uses MP-2019
Improvement Rates applied on a fully generational basis.
50% of active Member deaths are assumed to be in the Line of Duty.
Retiree Mortality follows the L&A Assumption Study for Police
2020. These rates are experience weighted with the Sex Distinct
Raw Rates as developed in the PubS-2010(A) Study improved to
2017 using MP-2019 Improvement Rates. These rates are then
improved fully generationally using MP-2019 Improvement Rates.
Disabled Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010 Study for disabled participants. Mortality
improvement uses MP-2019 Improvement Rates applied on a fully
generational basis.
Age Rate Age Rate
25 8.00% 40 2.17%
30 3.40% 45 1.56%
35 2.79% 50 0.46%
Age Rate Age Rate
25 0.00% 40 0.38%
30 0.06% 45 0.53%
35 0.18% 50 0.48%DRAFT
McHenry Police Pension Fund
Page 23
Mortality Rates (Continued) Spouse Mortality follows the Sex Distinct Raw Rates as developed
in the PubS-2010(A) Study for contingent survivors. For all rates
not provided there (ages 45 and younger) the PubG-2010 Study for
general employees was used. Mortality improvement uses MP-2019
Improvement Rates applied on a fully generational basis.
Marital Assumptions Active Members: 80% of active Members are assumed to be
married. Female spouses are assumed to be 3 years younger than
male spouses.
Retiree and Disabled Members: Actual spousal data was utilized for
retiree and disabled Members.
POSTEMPLOYMENT BENEFIT CHANGES
Eligibility for postemployment benefit increases is determined based on the Illinois Pension Code. Tier I
Police retirees are provided with an annual increase of 3.00% of the current retirement benefits by statute
when eligible. Tier II Police retirees are provided postemployment benefit increases based on the lesser
of 3.00% of the original retirement benefits or one-half of the Consumer Price Index (Urban) for the prior
September.
The CPI-U for September 1992 was 141.30. The CPI-U for September 2022 was 296.81. The average
increase in the CPI-U for September 1992 through September 2022 was 2.52% (on a compounded basis). DRAFT
McHenry Police Pension Fund
Page 24
EXPECTED RETURN ON PENSION PLAN INVESTMENTS
The Long-Term Expected Rate of Return is intended to represent the best estimate of future real rates of
return and is shown for each of the major asset classes in the investment policy.
The target asset allocations shown below are representative expectations as disclosed in the Illinois Police
Officers’ Pension Investment Fund Actuarial Experience Study, dated March 4, 2022, for plan funding
purposes. The table below illustrates the best estimate of Long-Term Expected Rates of Return developed
for each of the major asset classes, adjusted for expected inflation, as disclosed in the Horizon Actuarial
Services Survey of Capital Market Assumptions 2021 Edition, dated August 2021.
There are multiple approaches seen to providing these rates. Typically, the information is either based on
capital market projections, or historical rates seen for the asset classes. We do not provide an opinion on
the reasonableness of the returns provided nor the reasonableness of the approach used in the
determination of the rates provided. The information provided is shown below for convenience.
The rates provided in the table below are based on a geometric average. The Investment Policy Statement
will provide more detail regarding the Fund’s policies on asset allocation targets and acceptable ranges.
Long-Term Expected Long-Term Long-Term Expected Target
Asset Class Rate of Return Inflation Expectation Real Rate of Return A llocation
US Large 6.65%2.50%4.15%23.00%
US Small 7.04%2.50%4.54%5.00%
International Developed 7.14%2.50%4.64%18.00%
International Developed Small 2.25%2.50%-0.25%5.00%
Emerging Markets 7.81%2.50%5.31%7.00%
Private Equity (Direct)9.65%2.50%7.15%7.00%
Bank Loans 4.98%2.50%2.48%3.00%
High Yield Corp. Credit 4.98%2.50%2.48%3.00%
Emerging Market Debt 5.32%2.50%2.82%3.00%
Private Credit 6.87%2.50%4.37%5.00%
US TIPS 2.38%2.50%-0.12%3.00%
Real Estate/Infrastructure 6.50%2.50%4.00%8.00%
Cash 2.23%2.50%-0.27%1.00%
Short-Term Gov't/Credit 3.23%2.50%0.73%3.00%
US Treasury 1.90%2.50%-0.60%3.00%
Core Plus Fixed Income 3.23%2.50%0.73%3.00%DRAFT
McHenry Police Pension Fund
Page 25
Long-Term Expected Real Rates of Return under GASB are expected to reflect the period of time that
begins when a Plan Member begins to provide service to the employer and ends at the point when all
benefits to the Plan Member have been paid. The rates provided above are intended to estimate those
figures.
The Long-Term Inflation Expectation is 2.50% and is included in the Long-Term Expected Rates of
Return. The Long-Term Inflation Expectation is from the same source as the Long-Term Expected Real
Rates of Return, and is not necessarily reflective of the inflation measures used for other purposes in the
report.
Geometric rates of return are equal to arithmetic rates of return when the annual returns exhibit no
volatility over time. When arithmetic returns are volatile on a year-to-year basis, the actual realized
geometric returns over time will be lower. Higher volatility results in a greater difference.
For additional discussion regarding the Expected Return on Pension Plan Investments, please reference
the Actuarial Funding Report. There are additional disclosures regarding reasonableness and market
observations included in that report. DRAFT
McHenry Police Pension Fund
Page 26
MUNICIPAL BOND RATE
The Municipal Bond Rate assumption is based on the Bond Buyer 20-Bond G.O. Index. The rate shown
earlier in this section of the report is the April 27, 2023 rate. The 20-Bond G.O. Index is based on an
average of certain general obligation municipal bonds maturing in 20 years and having an average rating
equivalent of Moody's Aa2 and Standard & Poor's AA.
The indices represent theoretical yields rather than actual price or yield quotations. Municipal bond traders
are asked to estimate what a current-coupon bond for each issuer in the indices would yield if the bond
was sold at par value. The indices are simple averages of the average estimated yields of the bonds.
DISCOUNT RATE
The Discount Rate used in the determination of the Total Pension Liability is based on a combination of
the Expected Rate of Return on Plan Investments and the Municipal Bond Rate.
Cash flow projections were used to determine the extent to which the Plan’s Projected Fiduciary Net
Position will be able to cover Projected Benefit Payments. To the extent that Projected Benefit Payments
are covered by the Plan’s Projected Fiduciary Net Position, the Expected Rate of Return on Plan
Investments is used to determine the portion of the Net Pension Liability associated with those payments.
To the extent that Projected Benefit Payments are not covered by the Plan’s Projected Fiduciary Net
Position, the Municipal Bond Rate is used to determine the portion of the Net Pension Liability associated
with those payments.
Projected benefit payments are determined during the actuarial process based on the assumptions. More
details on the assumptions are earlier in this section of the report. The expected contributions are based on
the Funding Policy of the Plan. The Funding Policy is discussed in more detail in the Funding Policy
section of this report. DRAFT
McHenry Police Pension Fund
Page 27
SENSITIVITY OF THE DISCOUNT RATE
The Employer’s Net Pension Liability has been determined using the Discount Rate listed earlier in this
section of the report. Below is a table illustrating the sensitivity of the Employer’s Net Pension Liability
to the Discount Rate assumption.
The sensitivity of the Employer’s Net Pension Liability to the Discount Rate is based primarily on two
factors:
1. The duration of the Plan’s Projected Benefit Payments. Younger Plans with benefit payments
further in the future will be more sensitive to changes in the Discount Rate.
2. The Percent Funded of the Plan (ratio of the Plan Fiduciary Net Position to the Total Pension
Liability). The higher the Percent Funded, the higher the sensitivity to the Discount Rate.
1%Current 1%
Decrease Discount Rate Increase
(6.00%)(7.00%)(8.00%)
Employer's Net Pension Liability $13,292,510 $4,348,724 ($2,927,901)DRAFT
McHenry Police Pension Fund
Page 28
ASSESSMENT AND USE OF ACTUARIAL MODELS
Actuarial Valuations rely upon the use of actuarial modeling software to predict the occurrence of future
events, which include specific demographic and financial potential outcomes. Actuarial assumptions are
established to provide a guideline to use for such modeling.
• The model used in this Actuarial Valuation is intended to determine the Recommended
Contribution, under the selected Funding Policy, to assist in the preparation of the Annual
Financial Report. The actuarial assumptions used were developed with this goal in mind.
• There are no known material limitations or inconsistencies among the actuarial assumptions or
methods.
• The output from the model is reasonable based on the individual actuarial assumptions and based
on the actuarial assumptions in the aggregate.
• The actuarial software used to calculate plan liabilities has been purchased from an outside vendor.
We have performed thorough testing of the software, including review of sample participants, to
ensure the intended purpose of the model, the operation of the model, sensitivities and
dependencies, and strengths and limitations of the model are sufficient for this purpose.
• Demographic data and financial information have been provided by client professionals, financial
advisors, and/or auditors, who are known to be experts in their respective fields. We rely on the
fact that the information provided by these experts has been given for the intended purpose of this
Actuarial Valuation.
• Where applicable, certain actuarial assumptions and Funding Policy may be required as prescribed
by law. In such instances, we have followed legal guidance to ensure conformity.
• The Expected Rate of Return on Investments assumption has been chosen using input from several
sources; including, but not limited to: client professionals, financial advisors, auditors, and other
capital market outlooks. We have relied on the information provided, in the aggregate, to settle
on the selected Expected Rate of Return on Investments assumption.
DRAFT
PARTICIPANT DATA
Participant Demographic Data & Average Future Working Career
DRAFT
McHenry Police Pension Fund
Page 30
PARTICIPANT DEMOGRAPHIC DATA & AVERAGE FUTURE WORKING CAREER
The chart below summarizes the Member count, payroll, and average future working career as of:
Member counts shown above are as of the Actuarial Valuation Date for the two most recent Fiscal Years.
Payroll of Active Plan Members is the pensionable salary for active Plan Members as of the Actuarial
Valuation – Data Date. For the Fiscal Year Ending April 30, 2023, a beginning of year Actuarial Valuation
Date was used along with a rollforward of liabilities to the end of the Fiscal Year based on assumptions
and standard rollforward techniques.
The average future working career is measured as of the Actuarial Valuation Date and is based on the
demographic assumptions used in the preparation of this report.
Actuarial Valuation - Data Date 4/30/2021 4/30/2022
Fiscal Year End for Reporting (FYE 4/30/2022) (FYE 4/30/2023)
Inactive Plan Members or Beneficiaries Currently Receiving Benefits 32 33
Inactive Plan Members Entitled to But Not Yet Receiving Benefits 9 10
Active Plan Members 48 48
Total 89 91
P ayroll of Active Plan Members 4,684,080$ 4,806,036$
Average Future Working Career (In Years)
Active Plan Members 13.17 12.90
Inactive Plan Members 0.00 0.00
Total 7.10 6.81
DRAFT
FUNDING POLICY
Components of the Actuarially Determined Contribution
Formal Funding Policy
Informal Funding Policy
Funding Policy – Other Considerations
DRAFT
McHenry Police Pension Fund
Page 32
COMPONENTS OF THE ACTUARIALLY DETERMINED CONTRIBUTION
The Actuarially Determined Contribution (“ADC”) includes the determination of the Normal Cost
Contribution for active Plan Members, as well as a provision for the payment towards Unfunded Liability.
The actuarial funding method used in the determination of the Normal Cost and the Actuarial Accrued
Liability is the Entry Age Normal Cost Method (level percent of pay). The method allocates Normal Cost
Contributions by Members over the working career of the Member as a level percent of pay.
Unfunded Liability is the excess of the Actuarial Accrued Liability over the Actuarial Value of Assets.
The Actuarially Determined Contribution includes a payment towards Unfunded Liability existing at the
Actuarial Valuation Date. The payment towards Unfunded Liability is set up as a level percent of payroll
payment that is expected to increase during the payment period. The current Employer Contributions are
being compared to the Actuarially Determined Contribution as developed in the May 1, 2021 Actuarial
Valuation. The equivalent single amortization period as of that valuation is 15 years. The period of
repayment as of that valuation is based on a layered amortization with new sources of Unfunded Liability
paid off over 15 years.
The Actuarial Value of Assets smooths gains and losses on the Fair Value of Assets over a 5-year period.
Under no circumstances will the Actuarially Determined Contribution be less than the amount determined
as the Statutory Minimum Contribution under Illinois State Statutes.
FORMAL FUNDING POLICY
There is no Formal Funding Policy that exists between the Pension Board and the City at this time.
INFORMAL FUNDING POLICY
In determining the most appropriate Informal Funding Policy, GASB provides the following guidance in
the Statement:
Application of professional judgment should consider the most recent five-year contribution history
of the employers and nonemployer contributing entities as a key indicator of future contributions from
those sources and should reflect all other known events and conditions.… the amount of projected
cash flows for contributions from employers and nonemployer contributing entities should be limited
to an average of contributions from those sources over the most recent five-year period and may be
modified based on consideration of subsequent events. For this purpose, the basis for the average (for
example, percentage of covered payroll contributed or percentage of Actuarially Determined
Contributions made) should be a matter of professional judgment. DRAFT
McHenry Police Pension Fund
Page 33
In our review of the Informal Funding Policy, the following factors are considered and described herein:
1. Five-Year Contribution History of the Employer (with a focus on the average contributions from
those sources)
2. Other Known Events and Conditions
3. Consideration of Subsequent Events
Five-Year Contribution History of the Employer
Employer Contributions (under the Informal Funding Policy) should be limited to the average over the
most recent five years. In determining the basis for the average, we reviewed three possibilities: (a) the
average dollar contribution; (b) the average percent of pensionable pay; and (c) the average percent of the
Actuarially Determined Contribution. Please see the table below for a summary of these values:
When compared to the other policies reviewed, history suggests that a contribution as a percent of the
Actuarially Determined Contribution is the least volatile, and as a result, the most stable contribution
method under an Informal Funding Policy.
Other Known Events and Conditions
GASB has a provision for consideration of any other known events or conditions in the most recent five-
year history in applying judgement for the Informal Funding Policy. For the Fiscal Year End April 30,
2021, there was an additional $23,929,568 in Employer Contributions from the issuance of Pension
Obligation Bonds which were treated as one-time contributions; and therefore, are not included in the
determination of the Informal Funding Policy.
Consideration of Subsequent Events
GASB has a provision for modification based on consideration of subsequent events in the development
of the Informal Funding Policy. There are no subsequent events that have been considered in the
development of the Informal Funding Policy.
Fiscal Most Covered-
Year Employer Applicable % of Employee % of
End Contributions ADC ADC Payroll Payroll
4/30/2023 $621,970 $625,600 99.42% $4,959,035 12.54%
4/30/2022 $655,318 $2,576,006 25.44% $4,717,332 13.89%
4/30/2021 $2,220,747 $2,231,742 99.51% $4,686,805 47.38%
4/30/2020 $2,077,704 $2,082,421 99.77% $4,444,767 46.74%
4/30/2019 $2,017,300 $2,019,703 99.88% $4,224,124 47.76%DRAFT
McHenry Police Pension Fund
Page 34
Informal Funding Policy – Selected
The Informal Funding Policy that has been determined for future contributions is 84.80% of the
Actuarially Determined Contribution. This represents the full future contributions expected to be made.
FUNDING POLICY – OTHER CONSIDERATIONS
Under GASB, the future contribution amount is not intended to include dollars contributed on behalf of
future employees. Contributions are only intended to cover contributions towards the Normal Cost of
current employees as of the Actuarial Valuation Date as well as payment of Unfunded Liability on behalf
of the current employees. Contributions under the Funding Policy have been adjusted as necessary to
exclude dollars that would be anticipated to be contributed on behalf of future employees hired after the
Actuarial Valuation Date.
The contribution level may not pay off the Unfunded Liability during the active working career of current
employees. In that case, contributions will persist beyond the working career of current employees. To the
extent that a portion of the above total contribution is anticipated to pay contributions for the Normal Cost
of future employees, the amount has been netted out. The remaining amount is anticipated to be paid
towards the Unfunded Liability existing for current employees.
The Actuarially Determined Contribution is determined annually based on the parameters previously
discussed. The funding methods and procedures are assumed to continue into the future. If applicable, the
tax levy in the next December is assumed to be the Actuarially Determined Contribution. Funding is
assumed to go into the Plan during the next full Fiscal Year.
DRAFT
SCHEDULES OF REQUIRED SUPPLEMENTARY
INFORMATION
Schedule of Changes in the Net Pension Liability
Schedule of Total Pension Liability and Related Ratios
Schedule of Contributions
Notes to Schedule of Contributions
DRAFT
McHenry Police Pension Fund
Page 36
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY
The current year information was developed in the completion of this report.
4/30/2023 4/30/2022 4/30/2021 4/30/2020 4/30/2019 4/30/2018 4/30/2017 4/30/2016 4/30/2015 4/30/2014
Total Pension Liability
Service Cost 1,133,068$ 1,104,977$ 1,106,282$ 1,020,016$ 964,573$ 969,843$ 906,395$ 948,282$ 876,654$ -$
Interest 3,939,393 3,739,492 3,687,359 3,400,174 3,244,523 3,100,186 3,130,927 2,940,204 2,804,198 -
Changes of Benefit Terms (53,189) - - 267,927 - - - - - -
Differences Between Expected and Actual Experience 226,460 (1,660,449) (143,993) 953,997 165,685 (13,601) (1,315,850) (531,862) (300,710) -
Change in Assumptions - - - 1,039,838 - - (1,259,209) 4,137,023 391,028 -
Benefit Payments and Refunds (2,285,556) (2,428,688) (2,441,100) (2,225,355) (2,077,032) (1,911,914) (1,890,931) (2,046,745) (1,868,756) -
Net Change in Total Pension Liability 2,960,176$ 755,332$ 2,208,548$ 4,456,597$ 2,297,749$ 2,144,514$ (428,668)$ 5,446,902$ 1,902,414$ -$
Total Pension Liability - Beginning 57,107,066 56,351,734 54,143,186 49,686,589 47,388,840 45,244,326 45,672,994 40,226,092 38,323,678 -
Total Pension Liability - Ending (a)60,067,242$ 57,107,066$ 56,351,734$ 54,143,186$ 49,686,589$ 47,388,840$ 45,244,326$ 45,672,994$ 40,226,092$ -$
Plan Fiduciary Net Position
Contributions - Employer 621,970$ 655,318$ 26,150,315$ 2,077,704$ 2,017,300$ 1,868,798$ 1,521,914$ 1,386,205$ 1,295,101$ -$
Contributions - Members 491,717 467,800 469,279 500,202 427,378 409,415 397,515 513,111 381,363 -
Contributions - Other - 27,092 435,068 - 1,221 - - - - -
Net Investment Income 276,331 (3,752,680) 9,474,446 249,998 1,454,043 2,225,784 2,041,694 (228,847) 1,101,915 -
Benefit Payments and Refunds (2,285,556) (2,428,688) (2,441,100) (2,225,355) (2,077,032) (1,911,914) (1,890,931) (2,046,745) (1,868,756) -
Administrative Expense (23,984) (41,781) (33,003) (100,204) (17,813) (18,717) (41,163) (29,539) (36,845) -
Net Change in Plan Fiduciary Net Position (919,522)$ (5,072,939)$ 34,055,005$ 502,345$ 1,805,097$ 2,573,366$ 2,029,028$ (405,815)$ 872,778$ -$
Plan Fiduciary Net Position - Beginning 56,638,040 61,710,979 27,655,974 27,153,629 25,348,532 22,775,166 20,746,138 21,151,953 20,279,175 -
Plan Fiduciary Net Position - Ending (b)55,718,518$ 56,638,040$ 61,710,979$ 27,655,974$ 27,153,629$ 25,348,532$ 22,775,166$ 20,746,138$ 21,151,953$ -$
Employer's Net Pension Liability - Ending (a) - (b)4,348,724$ 469,026$ (5,359,245)$ 26,487,212$ 22,532,960$ 22,040,308$ 22,469,160$ 24,926,856$ 19,074,139$ -$ DRAFT
McHenry Police Pension Fund
Page 37
SCHEDULE OF TOTAL PENSION LIABILITY AND RELATED RATIOS
Covered-Employee Payroll shown above for the current year is based on the Covered-Employee Payroll for the Plan Members during the Fiscal Year.
4/30/2023 4/30/2022 4/30/2021 4/30/2020 4/30/2019 4/30/2018 4/30/2017 4/30/2016 4/30/2015 4/30/2014
Total Pension Liability - Ending (a)60,067,242$ 57,107,066$ 56,351,734$ 54,143,186$ 49,686,589$ 47,388,840$ 45,244,326$ 45,672,994$ 40,226,092$ -$
Plan Fiduciary Net Position - Ending (b)55,718,518$ 56,638,040$ 61,710,979$ 27,655,974$ 27,153,629$ 25,348,532$ 22,775,166$ 20,746,138$ 21,151,953$ -$
Employer's Net Pension Liability - Ending (a) - (b)4,348,724$ 469,026$ (5,359,245)$ 26,487,212$ 22,532,960$ 22,040,308$ 22,469,160$ 24,926,856$ 19,074,139$ -$
Plan Fiduciary Net Position as a Percentage of the
Total Pension Liability 92.76%99.18% 109.51%51.08%54.65%53.49%50.34%45.42%52.58%
Covered-Employee Payroll 4,959,035$ 4,717,332$ 4,686,805$ 4,444,767$ 4,224,124$ 4,204,784$ 4,082,315$ 3,880,748$ 3,791,467$ -$
Employer's Net Pension Liability as a Percentage of
Covered-Employee Payroll 87.69%9.94% (114.35%) 595.92% 533.44% 524.17% 550.40% 642.32% 503.08%DRAFT
McHenry Police Pension Fund
Page 38
SCHEDULE OF CONTRIBUTIONS
NOTES TO SCHEDULE OF CONTRIBUTIONS
The Actuarially Determined Contribution shown above for the current year is the Recommended Contribution from the May 1, 2021 Actuarial Valuation completed by
Lauterbach & Amen, LLP for the December 2021 tax levy, if applicable. The methods and assumptions shown below are based on the same Actuarial Valuation. For more
detail on the age-based and service-based rates disclosed below, please see the Actuarial Valuation.
4/30/2023 4/30/2022 4/30/2021 4/30/2020 4/30/2019 4/30/2018 4/30/2017 4/30/2016 4/30/2015 4/30/2014
Actuarially Determined Contribution 625,600$ 2,576,006$ 2,231,742$ 2,082,421$ 2,019,703$ 1,874,219$ 1,524,244$ 1,387,374$ 1,295,577$ -$
Contributions in Relation to the Actuarially
Determined Contribution 621,970 655,318 26,150,315 2,077,704 2,017,300 1,868,798 1,521,914 1,386,205 1,295,101
0
Contribution Deficiency/(Excess)3,630$ 1,920,688$ (23,918,573)$ 4,717$ 2,403$ 5,421$ 2,330$ 1,169$ 476$ -$
Covered-Employee Payroll 4,959,035$ 4,717,332$ 4,686,805$ 4,444,767$ 4,224,124$ 4,204,784$ 4,082,315$ 3,880,748$ 3,791,467$ -$
Contributions as a Percentage of
Covered-Employee Payroll 12.54% 13.89% 557.96% 46.74% 47.76% 44.44% 37.28% 35.72% 34.16%
Actuarial Cost Method Entry Age Normal
A mortization Method Level % Pay (Closed)
Equivalent Single Amortization Period 100% Funded Over 15 Years (Layered)
Asset Valuation Method 5-Year Smoothed Fair Value
Inflation (CPI-U)2.25%
Total Payroll Increases 3.00%
Individual Pay Increases 3.75% - 10.02%
Expected Rate of Return on Investments 7.00%
Mortality Rates Pub-2010 Adjusted for Plan Status, Demographics, and Illinois Public Pension Data, as Described
Retirement Rates 100% of L&A 2020 Illinois Police Retirement Rates Capped at Age 65
Termination Rates 100% of L&A 2020 Illinois Police Termination Rates
Disability Rates 100% of L&A 2020 Illinois Police Disability RatesDRAFT
GASB METHODS AND PROCEDURES
GASB Methods and Procedures
DRAFT
McHenry Police Pension Fund
Page 40
GASB METHODS AND PROCEDURES
Statement 67 Statement 68
Pe nsion Plan Financials Employer Financials
Fiscal Year End for Reporting April 30, 2023 April 30, 2023
Measurement Date April 30, 2023 April 30, 2023
Actuarial Valuation Date May 1, 2022 May 1, 2022
Actuarial Valuation - Data Date April 30, 2022 April 30, 2022
Asset Valuation Method Fair Value Fair Value
Actuarial Cost Method Entry Age Normal (Level %) Entry Age Normal (Level %)
Methodology Used in the Determination of Deferred Outflows and Inflows of Resources
Amortization Method Straight Line Straight Line
Amortization Period
Actuarial Experience 6.81 Years 6.81 Years
Change in Assumptions 6.81 Years 6.81 Years
Asset Experience 5.00 Years 5.00 YearsDRAFT
SUPPLEMENTARY TABLES
GASB Projections – Summary and Procedure
GASB Projections – Limitations
Projection of Contributions
Notes to Projection of Contributions
Projection of the Pension Plan’s Fiduciary Net Position
Notes to Projection of the Pension Plan’s Fiduciary Net Position
Actuarial Present Value of Projected Benefit Payments
Notes to Actuarial Present Value of Projected Benefit Payments
DRAFT
McHenry Police Pension Fund
Page 42
GASB PROJECTIONS – SUMMARY AND PROCEDURE
GASB requires a solvency test to use in the determination of the Discount Rate each year. The Plan
Fiduciary Net Position is projected forward. To the extent that the Plan Fiduciary Net Position is
anticipated to be greater than $0, Projected Benefit Payments are discounted based on the Expected Rate
of Return on Plan Investments.
If the Plan Fiduciary Net Position is anticipated to reach $0 prior to the payment of Projected Benefit
Payments for employees who are in the Plan as of the Actuarial Valuation Date, then the remaining
Projected Benefit Payments are discounted using the High-Quality Municipal Bond Rate, as described in
the Actuarial Assumptions Information section of this report. The chart below is a high-level summary of
the projections:
The Plan’s Projected Fiduciary Net Position is anticipated to cover Projected Benefit Payments in full for
the current employees. DRAFT
McHenry Police Pension Fund
Page 43
GASB PROJECTIONS – LIMITATIONS
Projections of any type require assumptions about future events. The projections required for GASB
reporting are deterministic in nature. That means that values are projected forward under one set of
assumptions which can be thought of as the average result. Actual results could vary, and projections of
one deterministic assumption set do not necessarily provide a framework for making risk management or
Funding Policy decisions. Projections that deal with risk management are outside the scope of this report.
In addition, GASB requirements create results that are specific only to financial statement reporting, and
should not be used or interpreted for other purposes. For example, GASB cash flow projections do not
entail the total expected cash flows of the Plan, but rather a subset of cash flows specific to employees
who are in the Plan as of the Actuarial Valuation Date. While the likely expectation may be that future
employees are hired to replace the current employees, cash flows attributable to their benefits are not
considered. Under GASB, when the Plan Fiduciary Net Position reaches $0, that represents the Plan
Fiduciary Net Position for the assets attributable to the current employees.
Also, GASB mandates certain assumptions that are made in the projection process. Most notably,
Projected Contributions under an Informal Funding Policy. In proposing an Informal Funding Policy,
GASB suggests a focus be placed on the average contributions over the past 5 years. Projected
Contributions in this section may be based on the five-year average, unless a Formal Funding Policy is in
place.
Contributions reflecting an Informal Funding Policy are applied under GASB, whether or not the projected
results dictate a need for more or less contributions. This would not be the case with other uses for
projections. Any events that are taken into account (past or future) in the Informal Funding Policy are
discussed in the Funding Policy section of this report.
Projections further into the future are more sensitive to assumption changes. For projections that run out
close to 80 years, a small change in an assumption may have a dramatic impact on the projections. If the
solvency of the Plan as determined by GASB remains constant, then dramatic changes in the projection
results may not necessarily lead to big changes in the determination of the Total Pension Liability.
We recommend the projections are not used for any other purposes, other than providing information for
purposes of the financial statement report.
The following pages provide the detail behind the chart shown on the prior page. DRAFT
McHenry Police Pension Fund
Page 44
PROJECTION OF CONTRIBUTIONS – YEARS 1 TO 30
Column d – Contributions from current employees to the Plan (employees in the Plan as of the Actuarial Valuation Date).
Column e – Employer Contributions to the Plan excluding contributions for employees hired after the Actuarial Valuation Date.
Column f – Contributions from future employees to the extent that contributions are assumed to be greater than their Normal
Cost.
Projected Pensionable Payroll Projected Contributions
Employer Contributions
P ayroll for Payroll for Total Contributions Contributions Related to
Current Future Employee from Current for Current Payroll of Future Total
Employees Employees Payroll Employees Employees Employees Contributions
Year (a)(b)(c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (g) = (d) + (e) + (f)
1 4,806,036$ -$ 4,806,036$ 491,717$ 621,970$ -$ 1,113,687$
2 4,877,537 72,680 4,950,217 483,364 569,422 - 1,052,786
3 4,938,968 159,756 5,098,724 489,452 1,161,795 - 1,651,247
4 4,946,659 305,026 5,251,685 490,214 1,184,347 - 1,674,561
5 4,923,710 485,526 5,409,236 487,940 1,199,566 - 1,687,506
6 4,887,825 683,688 5,571,513 484,383 1,211,040 - 1,695,423
7 4,846,474 892,185 5,738,658 480,286 1,221,320 - 1,701,606
8 4,784,854 1,125,964 5,910,818 474,179 1,231,592 - 1,705,771
9 4,668,102 1,420,040 6,088,143 462,609 1,239,684 - 1,702,293
10 4,513,888 1,756,899 6,270,787 447,326 1,240,848 - 1,688,174
11 4,361,441 2,097,470 6,458,911 432,219 1,236,988 - 1,669,207
12 4,138,468 2,514,210 6,652,678 410,122 1,225,740 - 1,635,862
13 3,959,105 2,893,153 6,852,258 392,347 497,608 - 889,955
14 3,794,691 3,263,135 7,057,826 376,054 471,386 - 847,440
15 3,544,901 3,724,660 7,269,561 351,300 448,931 - 800,231
16 3,315,486 4,172,161 7,487,647 328,565 413,905 - 742,470
17 3,094,187 4,618,090 7,712,277 306,634 381,800 - 688,434
18 2,812,770 5,130,875 7,943,645 278,746 356,213 - 634,959
19 2,598,781 5,583,174 8,181,955 257,539 313,844 - 571,383
20 2,371,305 6,056,108 8,427,413 234,996 286,849 - 521,845
21 2,169,634 6,510,602 8,680,236 215,011 255,854 - 470,865
22 1,963,034 6,977,609 8,940,643 194,537 235,010 - 429,547
23 1,709,092 7,499,770 9,208,862 169,371 215,162 - 384,533
24 1,540,921 7,944,206 9,485,128 152,705 176,927 - 329,632
25 1,364,862 8,404,820 9,769,682 135,258 161,052 - 296,310
26 1,232,712 8,830,060 10,062,772 122,162 137,449 - 259,611
27 1,052,080 9,312,575 10,364,655 104,261 127,971 - 232,232
28 915,307 9,760,288 10,675,595 90,707 102,273 - 192,980
29 765,072 10,230,790 10,995,863 75,819 91,157 - 166,976
30 610,482 10,715,256 11,325,739 60,499 78,616 - 139,115 DRAFT
McHenry Police Pension Fund
Page 45
PROJECTION OF CONTRIBUTIONS – YEARS 31 TO 60
Column d – Contributions from current employees to the Plan (employees in the Plan as of the Actuarial Valuation Date).
Column e – Employer Contributions to the Plan excluding contributions for employees hired after the Actuarial Valuation Date.
Column f – Contributions from future employees to the extent that contributions are assumed to be greater than their Normal
Cost.
Projected Pensionable Payroll Projected Contributions
Employer Contributions
P ayroll for Payroll for Total Contributions Contributions Related to
Current Future Employee from Current for Current Payroll of Future Total
Employees Employees Payroll Employees Employees Employees Contributions
Year (a)(b)(c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (g) = (d) + (e) + (f)
31 526,134$ 11,139,377$ 11,665,511$ 52,140$ 55,463$ -$ 107,603$
32 414,992 11,600,484 12,015,476 41,126 52,435 - 93,561
33 343,524 12,032,416 12,375,940 34,043 39,104 - 73,147
34 279,533 12,467,686 12,747,219 27,702 32,785 - 60,487
35 213,343 12,916,293 13,129,635 21,142 28,328 - 49,470
36 179,577 13,343,947 13,523,524 17,796 19,382 - 37,178
37 139,555 13,789,675 13,929,230 13,830 17,838 - 31,668
38 107,413 14,239,694 14,347,107 10,645 14,004 - 24,649
39 89,573 14,687,947 14,777,520 8,877 9,759 - 18,636
40 73,130 15,147,716 15,220,846 7,247 8,138 - 15,385
41 48,740 15,628,731 15,677,471 4,830 7,979 - 12,809
42 21,118 16,126,677 16,147,795 2,093 6,809 - 8,902
43 - 16,632,229 16,632,229 - 4,158 - 4,158
44 - 17,131,196 17,131,196 - - - -
45 - 17,645,132 17,645,132 - - - -
46 - 18,174,486 18,174,486 - - - -
47 - 18,719,720 18,719,720 - - - -
48 - 19,281,312 19,281,312 - - - -
49 - 19,859,751 19,859,751 - - - -
50 - 20,455,544 20,455,544 - - - -
51 - 21,069,210 21,069,210 - - - -
52 - 21,701,286 21,701,286 - - - -
53 - 22,352,325 22,352,325 - - - -
54 - 23,022,895 23,022,895 - - - -
55 - 23,713,582 23,713,582 - - - -
56 - 24,424,989 24,424,989 - - - -
57 - 25,157,739 25,157,739 - - - -
58 - 25,912,471 25,912,471 - - - -
59 - 26,689,845 26,689,845 - - - -
60 - 27,490,540 27,490,540 - - - - DRAFT
McHenry Police Pension Fund
Page 46
PROJECTION OF CONTRIBUTIONS – YEARS 61 TO 80
NOTES TO PROJECTION OF CONTRIBUTIONS
Total Employee Payroll is projected to increase annually at the Projected Total Payroll Increases rate shown in the Actuarial
Assumptions Information section of this report. Payroll for current employees (employees in the Plan as of the Actuarial
Valuation Date) are projected on an employee-by-employee basis, using the Projected Individual Pay Increases and probability
of remaining an employee in the future.
Employer Contributions are related to current employees in the Plan as of the Actuarial Valuation Date. To the extent that
Projected Contributions under the Funding Policy are made to cover the Normal Cost of benefit payments for future employees,
those contributions are excluded for purposes of these projections and this report.
Contributions are based on the Funding Policy as described in the Funding Policy section of this report. The contributions do
not factor in changes in the Funding Policy based on an assumed Employer decision; if, the projections were to play out in this
fashion. The only future events that are considered were outlined in the Funding Policy section of this report. Contributions
from future employees have not been included. It is assumed that contributions made by future employees will not exceed the
Normal Cost of their participation in the Plan. In addition, Employer Contributions on behalf of future employees have not
been included per the GASB parameters.
Projected Pensionable Payroll Projected Contributions
Employer Contributions
Payroll for Payroll for Total Contributions Contributions Related to
Current Future Employee from Current for Current Payroll of Future Total
Employees Employees Payroll Employees Employees Employees Contributions
Year (a)(b)(c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (g) = (d) + (e) + (f)
61 -$ 28,315,257$ 28,315,257$ -$ -$ -$ -$
62 - 29,164,714 29,164,714 - - - -
63 - 30,039,656 30,039,656 - - - -
64 - 30,940,845 30,940,845 - - - -
65 - 31,869,071 31,869,071 - - - -
66 - 32,825,143 32,825,143 - - - -
67 - 33,809,897 33,809,897 - - - -
68 - 34,824,194 34,824,194 - - - -
69 - 35,868,920 35,868,920 - - - -
70 - 36,944,988 36,944,988 - - - -
71 - 38,053,337 38,053,337 - - - -
72 - 39,194,937 39,194,937 - - - -
73 - 40,370,785 40,370,785 - - - -
74 - 41,581,909 41,581,909 - - - -
75 - 42,829,366 42,829,366 - - - -
76 - 44,114,247 44,114,247 - - - -
77 - 45,437,675 45,437,675 - - - -
78 - 46,800,805 46,800,805 - - - -
79 - 48,204,829 48,204,829 - - - -
80 - 49,650,974 49,650,974 - - - - DRAFT
McHenry Police Pension Fund
Page 47
PROJECTION OF THE PENSION PLAN’S FIDUCIARY NET POSITION – YEARS 1 TO 30
Column b – Contributions on behalf of current employees in the Plan as of the Actuarial Valuation Date.
Column d – Based on the average Administrative Expense in recent years, and projected to increase in the future.
Column e – Based on the Expected Rate of Return on Plan Investments, and does not factor in allocation changes.
Projected Projected
Beginning Projected Projected Projected Projected Ending
Fiduciary Net Total Benefit Administrative Investment Fiduciary Net
Position Contributions Payments Expense Earnings Position
Year (a)(b)(c)(d)(e)(f) = (a)+(b)-(c)-(d)+(e)
1 56,638,040$ 1,113,687$ 2,285,556$ 23,984$ 276,331$ 55,718,518$
2 55,718,518 1,052,786 2,544,018 23,728 3,847,273 58,050,830
3 58,050,830 1,651,247 2,683,320 23,522 4,026,612 61,021,848
4 61,021,848 1,674,561 2,892,338 24,051 4,228,065 64,008,085
5 64,008,085 1,687,506 3,038,997 24,593 4,432,403 67,064,405
6 67,064,405 1,695,423 3,248,890 25,146 4,639,257 70,125,049
7 70,125,049 1,701,605 3,419,430 25,712 4,847,730 73,229,243
8 73,229,243 1,705,771 3,614,600 26,290 5,058,318 76,352,441
9 76,352,441 1,702,293 3,874,650 26,882 5,267,698 79,420,900
10 79,420,900 1,688,174 4,108,881 27,487 5,473,776 82,446,483
11 82,446,483 1,669,206 4,380,030 28,105 5,675,391 85,382,945
12 85,382,945 1,635,863 4,618,049 28,737 5,871,424 88,243,445
13 88,243,445 889,956 4,833,127 29,384 6,038,002 90,308,892
14 90,308,892 847,439 5,099,668 30,045 6,171,743 92,198,361
15 92,198,361 800,230 5,344,898 30,721 6,293,747 93,916,719
16 93,916,719 742,469 5,594,706 31,412 6,403,243 95,436,313
17 95,436,313 688,434 5,878,021 32,119 6,497,782 96,712,389
18 96,712,389 634,959 6,119,788 32,842 6,576,749 97,771,467
19 97,771,467 571,383 6,357,525 33,581 6,640,312 98,592,056
20 98,592,056 521,846 6,555,080 34,336 6,689,079 99,213,565
21 99,213,565 470,864 6,812,419 35,109 6,721,766 99,558,668
22 99,558,668 429,547 7,030,422 35,899 6,736,820 99,658,713
23 99,658,713 384,533 7,196,641 36,707 6,736,401 99,546,299
24 99,546,299 329,632 7,388,361 37,532 6,719,872 99,169,910
25 99,169,910 296,310 7,507,632 38,377 6,688,154 98,608,365
26 98,608,365 259,611 7,666,671 39,240 6,641,965 97,804,030
27 97,804,030 232,232 7,774,760 40,123 6,580,889 96,802,268
28 96,802,268 192,980 7,884,157 40,235 6,505,559 95,576,415
29 95,576,415 166,975 8,003,113 39,775 6,414,692 94,115,195
30 94,115,195 139,115 8,053,558 39,219 6,309,685 92,471,217 DRAFT
McHenry Police Pension Fund
Page 48
PROJECTION OF THE PENSION PLAN’S FIDUCIARY NET POSITION – YEARS 31 TO 60
Column b – Contributions on behalf of current employees in the Plan as of the Actuarial Valuation Date.
Column d – Based on the average Administrative Expense in recent years, and projected to increase in the future.
Column e – Based on the Expected Rate of Return on Plan Investments, and does not factor in allocation changes.
Projected Projected
Beginning Projected Projected Projected Projected Ending
Fiduciary Net Total Benefit Administrative Investment Fiduciary Net
Position Contributions Payments Expense Earnings Position
Year (a)(b)(c)(d)(e)(f) = (a)+(b)-(c)-(d)+(e)
31 92,471,217$ 107,603$ 8,126,804$ 38,577$ 6,190,963$ 90,604,402$
32 90,604,402 93,560 8,158,195 37,851 6,058,721 88,560,637
33 88,560,637 73,147 8,170,140 37,043 5,914,553 86,341,155
34 86,341,155 60,487 8,172,771 36,162 5,758,685 83,951,394
35 83,951,394 49,470 8,148,916 35,209 5,591,885 81,408,623
36 81,408,623 37,178 8,123,936 34,189 5,414,371 78,702,048
37 78,702,048 31,668 8,083,616 33,103 5,226,167 75,843,163
38 75,843,163 24,649 8,000,763 31,953 5,028,739 72,863,835
39 72,863,835 18,635 7,900,507 30,746 4,823,527 69,774,745
40 69,774,745 15,385 7,787,441 29,491 4,611,178 66,584,375
41 66,584,375 12,809 7,657,258 28,193 4,392,364 63,304,097
42 63,304,097 8,901 7,502,345 26,855 4,168,076 59,951,876
43 59,951,876 4,158 7,312,135 25,484 3,939,960 56,558,375
44 56,558,375 - 7,101,576 24,089 3,709,688 53,142,398
45 53,142,398 - 6,871,241 22,681 3,478,681 49,727,157
46 49,727,157 - 6,622,024 21,269 3,248,386 46,332,250
47 46,332,250 - 6,355,133 19,861 3,020,133 42,977,389
48 42,977,389 - 6,071,746 18,465 2,795,260 39,682,438
49 39,682,438 - 5,773,535 17,090 2,575,099 36,466,911
50 36,466,911 - 5,462,648 15,744 2,360,940 33,349,459
51 33,349,459 - 5,141,577 14,435 2,154,002 30,347,450
52 30,347,450 - 4,813,220 13,170 1,955,398 27,476,458
53 27,476,458 - 4,480,236 11,955 1,766,125 24,750,392
54 24,750,392 - 4,145,661 10,798 1,587,051 22,180,984
55 22,180,984 - 3,812,764 9,703 1,418,883 19,777,400
56 19,777,400 - 3,484,877 8,675 1,262,144 17,545,992
57 17,545,992 - 3,165,249 7,717 1,117,166 15,490,192
58 15,490,192 - 2,856,944 6,830 984,081 13,610,500
59 13,610,500 - 2,562,806 6,017 862,826 11,904,503
60 11,904,503 - 2,284,938 5,275 753,158 10,367,447 DRAFT
McHenry Police Pension Fund
Page 49
PROJECTION OF THE PENSION PLAN’S FIDUCIARY NET POSITION – YEARS 61 TO 80
NOTES TO PROJECTION OF THE PENSION PLAN’S FIDUCIARY NET POSITION
Projected Total Contributions are Employee and Employer Contributions projected to be made under the Funding Policy on
behalf of current employees in the Plan as of the Actuarial Valuation Date. The amounts shown are detailed earlier in this
section.
Projected Benefit Payments shown represents current employees as of the Actuarial Valuation Date. The Plan will pay benefits
in the future on behalf of employees hired after the Actuarial Valuation Date, but those benefit payments are not projected for
this purpose.
Projected Investment Earnings are based on the Expected Rate of Return on Plan Investments. Administrative Expense are
typically not charged on a per employee basis. Administrative Expenses shown are not projected to distinguish between current
and future employees.
The Projected Fiduciary Net Position represents assets held or projected to be held on behalf of current employees in the Plan
as of the Actuarial Valuation Date. The Plan will hold assets in the future on behalf of employees hired after the Actuarial
Valuation Date, but those assets are not projected for this purpose.
Projected Projected
Beginning Projected Projected Projected Projected Ending
Fiduciary Net Total Benefit Administrative Investment Fiduciary Net
Position Contributions Payments Expense Earnings Position
Year (a)(b)(c)(d)(e)(f) = (a)+(b)-(c)-(d)+(e)
61 10,367,447$ -$ 2,025,259$ 4,605$ 654,676$ 8,992,259$
62 8,992,259 - 1,785,116 4,003 566,839 7,769,979
63 7,769,979 - 1,565,244 3,466 488,994 6,690,264
64 6,690,264 - 1,366,002 2,990 420,404 5,741,676
65 5,741,676 - 1,187,095 2,570 360,279 4,912,290
66 4,912,290 - 1,027,724 2,203 307,813 4,190,176
67 4,190,176 - 886,824 1,882 262,208 3,563,678
68 3,563,678 - 763,011 1,603 222,696 3,021,760
69 3,021,760 - 654,697 1,362 188,561 2,554,262
70 2,554,262 - 560,296 1,153 159,148 2,151,960
71 2,151,960 - 478,228 973 133,865 1,806,625
72 1,806,625 - 406,892 818 112,194 1,511,108
73 1,511,108 - 344,740 686 93,688 1,259,369
74 1,259,369 - 290,486 573 77,969 1,046,279
75 1,046,279 - 243,125 477 64,713 867,390
76 867,390 - 201,800 396 53,640 718,835
77 718,835 - 165,809 328 44,504 597,201
78 597,201 - 134,605 272 37,083 499,408
79 499,408 - 107,785 227 31,178 422,575
80 422,575 - 85,008 191 26,598 363,975 DRAFT
McHenry Police Pension Fund
Page 50
ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT PAYMENTS – YEARS 1 TO 30
The Projected Fiduciary Net Position and Benefit Payments are based on current employees in the Plan as of the Actuarial
Valuation Date. The development of the Projected Fiduciary Net Position is shown in more detail earlier in this section.
Projected Benefit Payments Actuarial Present Values of Projected Benefit Payments
Present Value Present Value Present Value of
Projected "Funded" "Unfunded"of "Funded" of "Unfunded"Benefit Payments
Beginning Projected Portion of Portion of Benefit Benefit Using the Single
Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate
Year Position Payments Payments Payments (7.00%) (3.53%)(7.00%)
1 56,638,040$ 2,285,556$ 2,285,556$ -$ 2,209,530$ -$ 2,209,530$
2 55,718,518 2,544,018 2,544,018 - 2,298,500 - 2,298,500
3 58,050,830 2,683,320 2,683,320 - 2,265,755 - 2,265,755
4 61,021,848 2,892,338 2,892,338 - 2,282,474 - 2,282,474
5 64,008,085 3,038,997 3,038,997 - 2,241,317 - 2,241,317
6 67,064,405 3,248,890 3,248,890 - 2,239,361 - 2,239,361
7 70,125,049 3,419,430 3,419,430 - 2,202,719 - 2,202,719
8 73,229,243 3,614,600 3,614,600 - 2,176,115 - 2,176,115
9 76,352,441 3,874,650 3,874,650 - 2,180,069 - 2,180,069
10 79,420,900 4,108,881 4,108,881 - 2,160,616 - 2,160,616
11 82,446,483 4,380,030 4,380,030 - 2,152,521 - 2,152,521
12 85,382,945 4,618,049 4,618,049 - 2,121,022 - 2,121,022
13 88,243,445 4,833,127 4,833,127 - 2,074,584 - 2,074,584
14 90,308,892 5,099,668 5,099,668 - 2,045,789 - 2,045,789
15 92,198,361 5,344,898 5,344,898 - 2,003,893 - 2,003,893
16 93,916,719 5,594,706 5,594,706 - 1,960,328 - 1,960,328
17 95,436,313 5,878,021 5,878,021 - 1,924,858 - 1,924,858
18 96,712,389 6,119,788 6,119,788 - 1,872,924 - 1,872,924
19 97,771,467 6,357,525 6,357,525 - 1,818,395 - 1,818,395
20 98,592,056 6,555,080 6,555,080 - 1,752,243 - 1,752,243
21 99,213,565 6,812,419 6,812,419 - 1,701,899 - 1,701,899
22 99,558,668 7,030,422 7,030,422 - 1,641,459 - 1,641,459
23 99,658,713 7,196,641 7,196,641 - 1,570,344 - 1,570,344
24 99,546,299 7,388,361 7,388,361 - 1,506,709 - 1,506,709
25 99,169,910 7,507,632 7,507,632 - 1,430,871 - 1,430,871
26 98,608,365 7,666,671 7,666,671 - 1,365,590 - 1,365,590
27 97,804,030 7,774,760 7,774,760 - 1,294,246 - 1,294,246
28 96,802,268 7,884,157 7,884,157 - 1,226,596 - 1,226,596
29 95,576,415 8,003,113 8,003,113 - 1,163,647 - 1,163,647
30 94,115,195 8,053,558 8,053,558 - 1,094,376 - 1,094,376 DRAFT
McHenry Police Pension Fund
Page 51
ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT PAYMENTS – YEARS 31 TO 60
The Projected Fiduciary Net Position and Benefit Payments are based on current employees in the Plan as of the Actuarial
Valuation Date. The development of the Projected Fiduciary Net Position is shown in more detail earlier in this section.
Projected Benefit Payments Actuarial Present Values of Projected Benefit Payments
Present Value Present Value Present Value of
Projected "Funded" "Unfunded"of "Funded" of "Unfunded"Benefit Payments
Beginning Projected Portion of Portion of Benefit Benefit Using the Single
Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate
Year Position Payments Payments Payments (7.00%) (3.53%)(7.00%)
31 92,471,217$ 8,126,804$ 8,126,804$ -$ 1,032,083$ -$ 1,032,083$
32 90,604,402 8,158,195 8,158,195 - 968,289 - 968,289
33 88,560,637 8,170,140 8,170,140 - 906,268 - 906,268
34 86,341,155 8,172,771 8,172,771 - 847,252 - 847,252
35 83,951,394 8,148,916 8,148,916 - 789,513 - 789,513
36 81,408,623 8,123,936 8,123,936 - 735,601 - 735,601
37 78,702,048 8,083,616 8,083,616 - 684,066 - 684,066
38 75,843,163 8,000,763 8,000,763 - 632,761 - 632,761
39 72,863,835 7,900,507 7,900,507 - 583,955 - 583,955
40 69,774,745 7,787,441 7,787,441 - 537,942 - 537,942
41 66,584,375 7,657,258 7,657,258 - 494,345 - 494,345
42 63,304,097 7,502,345 7,502,345 - 452,658 - 452,658
43 59,951,876 7,312,135 7,312,135 - 412,319 - 412,319
44 56,558,375 7,101,576 7,101,576 - 374,249 - 374,249
45 53,142,398 6,871,241 6,871,241 - 338,421 - 338,421
46 49,727,157 6,622,024 6,622,024 - 304,810 - 304,810
47 46,332,250 6,355,133 6,355,133 - 273,388 - 273,388
48 42,977,389 6,071,746 6,071,746 - 244,109 - 244,109
49 39,682,438 5,773,535 5,773,535 - 216,934 - 216,934
50 36,466,911 5,462,648 5,462,648 - 191,825 - 191,825
51 33,349,459 5,141,577 5,141,577 - 168,739 - 168,739
52 30,347,450 4,813,220 4,813,220 - 147,629 - 147,629
53 27,476,458 4,480,236 4,480,236 - 128,426 - 128,426
54 24,750,392 4,145,661 4,145,661 - 111,061 - 111,061
55 22,180,984 3,812,764 3,812,764 - 95,461 - 95,461
56 19,777,400 3,484,877 3,484,877 - 81,543 - 81,543
57 17,545,992 3,165,249 3,165,249 - 69,219 - 69,219
58 15,490,192 2,856,944 2,856,944 - 58,389 - 58,389
59 13,610,500 2,562,806 2,562,806 - 48,951 - 48,951
60 11,904,503 2,284,938 2,284,938 - 40,789 - 40,789 DRAFT
McHenry Police Pension Fund
Page 52
ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT PAYMENTS – YEARS 61 TO 80
NOTES TO THE ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT PAYMENTS
The Projected Fiduciary Net Position and Benefit Payments are based on current employees in the Plan as of the Actuarial
Valuation Date. The development of the Projected Fiduciary Net Position is shown in more detail earlier in this section.
The Funded and Unfunded Portion of Benefit Payments are split based on the time that the Projected Fiduciary Net Position is
to reach $0 (based on assets for current employees).
The Present Value (“PV”) of the Funded and Unfunded Portion of Benefit Payments are determined separately. The PV of the
Funded Portion of Benefit Payments uses the Expected Rate of Return on Plan Investments. The PV of the Unfunded Portion
of Benefit Payments are determined using the High-Quality Municipal Bond Rate as of the Measurement Date, as described in
the Actuarial Assumptions Information section of this report.
The Discount Rate used for GASB purposes is the rate such that when applied to the Total Projected Benefit Payments results
in a Present Value that equals the sum of the Present Value of the Funded and Unfunded Portion of Benefit Payments. The
Discount Rate is rounded to four decimal places; therefore, the resulting Present Value comparisons may show a slight
difference due to rounding.
Projected Benefit Payments Actuarial Present Values of Projected Benefit Payments
Present Value Present Value Present Value of
Projected "Funded" "Unfunded"of "Funded" of "Unfunded"Benefit Payments
Beginning Projected Portion of Portion of Benefit Benefit Using the Single
Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate
Year Position Payments Payments Payments (7.00%) (3.53%)(7.00%)
61 10,367,447$ 2,025,259$ 2,025,259$ -$ 33,788$ -$ 33,788$
62 8,992,259 1,785,116 1,785,116 - 27,833 - 27,833
63 7,769,979 1,565,244 1,565,244 - 22,808 - 22,808
64 6,690,264 1,366,002 1,366,002 - 18,603 - 18,603
65 5,741,676 1,187,095 1,187,095 - 15,109 - 15,109
66 4,912,290 1,027,724 1,027,724 - 12,225 - 12,225
67 4,190,176 886,824 886,824 - 9,859 - 9,859
68 3,563,678 763,011 763,011 - 7,927 - 7,927
69 3,021,760 654,697 654,697 - 6,357 - 6,357
70 2,554,262 560,296 560,296 - 5,084 - 5,084
71 2,151,960 478,228 478,228 - 4,056 - 4,056
72 1,806,625 406,892 406,892 - 3,225 - 3,225
73 1,511,108 344,740 344,740 - 2,554 - 2,554
74 1,259,369 290,486 290,486 - 2,011 - 2,011
75 1,046,279 243,125 243,125 - 1,573 - 1,573
76 867,390 201,800 201,800 - 1,220 - 1,220
77 718,835 165,809 165,809 - 937 - 937
78 597,201 134,605 134,605 - 711 - 711
79 499,408 107,785 107,785 - 532 - 532
80 422,575 85,008 85,008 - 392 - 392 DRAFT
SUMMARY OF PRINCIPAL PLAN PROVISIONS
Establishment of the Fund
Administration
Member Contributions
Regular Retirement Pension Benefit
Early Retirement Pension Benefit
Surviving Spouse Benefit
Benefits Not Valued
Termination Benefit – Vested
Disability Benefit
DRAFT
McHenry Police Pension Fund
Page 54
ESTABLISHMENT OF THE FUND
The Police Pension Fund is established and administered as prescribed by “Article 3 – Police Pension
Fund – Municipalities 500,000 and Under” of the Illinois Pension Code.
ADMINISTRATION
The Police Pension Fund is administered by a Board of Trustees whose duties are to manage the Pension
Fund, determine applications for pensions, authorize payment of pensions, establish rules, pay expenses,
and keep records.
MEMBER CONTRIBUTIONS
Members contribute 9.910% of their pensionable salary.
REGULAR RETIREMENT PENSION BENEFIT
Tier I
Eligibility: Age 50 with at least 20 years of creditable service.
Benefit: 50% of final salary for the first 20 years of service, plus an additional 2.5% of final salary for
each year of service beyond 20 years of service, and not to exceed 75% of final salary. “Final salary”
is based on the police officer’s pensionable salary attached to rank held on the last day of service,
unless the pensionable salary was greater at some point within the year prior to the last day of service.
If so, the pensionable salary is averaged over the last 12 months.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 1/12 of
3% of the original monthly benefit for each full month that has passed since the pension began. The
initial increase date will be the later of the first day of the month after the pensioner turns age 55 or the
first day of the month after the benefit date anniversary. Subsequent increases of 3% of the current
monthly benefit will be granted every January 1st thereafter. DRAFT
McHenry Police Pension Fund
Page 55
REGULAR RETIREMENT PENSION BENEFIT - CONTINUED
Tier II
Eligibility: Age 55 with at least 10 years of creditable service.
Benefit: 2.5% of final average salary for each year of service, and not to exceed 75% of final average
salary. “Final average salary” is determined by dividing the total pensionable salary during 48
consecutive months of service within the last 60 months of service in which total pensionable salary
was the highest, by the number of months of service in that period (or by dividing the total pensionable
salary during 96 consecutive months of service within the last 120 months of service in which total
pensionable salary was the highest, by the number of months of service in that period, if greater).
Annual salary for this purpose will not exceed the salary cap, indexed by the lesser of 3% or the CPI-
U for the 12 months ending with the September preceding each November 1st. The salary cap will not
decrease.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st.
EARLY RETIREMENT PENSION BENEFIT
Tier I
None.
Tier II
Eligibility: Age 50 with at least 10 years of creditable service.
Benefit: The regular retirement pension benefit reduced by ½ of 1% for each month that the police
officer’s age is between 50 and 55.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st. DRAFT
McHenry Police Pension Fund
Page 56
SURVIVING SPOUSE BENEFIT
Tier I
Eligibility: Married to an active police officer with at least 8 years of creditable service, a disabled
pensioner at the time of death, or a retired pensioner on the last day of service.
Active Line of Duty Death Benefit: An eligible surviving spouse is entitled to receive 100% of the
police officer’s final pensionable salary attached to rank held on the last day of service.
Non-Duty Death Benefit:
Disabled or Retired Pensioner: An eligible surviving spouse is entitled to receive the pensioner’s
benefit at the time of death.
Active Member with 20+ Years of Service: An eligible surviving spouse is entitled to the police
officer’s eligible benefit at the time of death.
Active Member with 10-20 Years of Service: An eligible surviving spouse is entitled to receive
50% of the police officer’s pensionable salary attached to rank held on the last day of service,
unless the pensionable salary was greater at some point within the year prior to the last day of
service. If so, the pensionable salary is averaged over the last 12 months.
Annual Increase in Benefit: None.
Tier II
Eligibility: Married to an active police officer with at least 8 years of creditable service, a disabled
pensioner at the time of death, or a retired pensioner on the last day of service.
Active Line of Duty Death Benefit: An eligible surviving spouse is entitled to receive 100% of the
police officer’s final pensionable salary attached to rank held on the last day of service.
Non-Duty Death Benefit:
Disabled or Retired Pensioner, Active Member with 20+ Years of Service, and Active Member
with 10-20 Years of service: An eligible surviving spouse is entitled to receive the greater of 66⅔%
of the police officer’s earned pension benefit at the time of death or 54% of the police officer’s
monthly salary at the time of death.
Annual Increase in Benefit: The initial increase date will be the January 1st after the surviving spouse
turns age 60. Subsequent increases will be granted every January 1st thereafter. The initial increase
and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12
months ending with the September preceding each November 1st. DRAFT
McHenry Police Pension Fund
Page 57
BENEFITS NOT VALUED
Public Act 102-0811 passed on May 13, 2022 and is effective as of January 1, 2023 for Article 3 Pension
Funds. The Act establishes that a surviving spouse of a deceased police retiree may be eligible for a
survivor’s pension of up to 15 years of benefit payments if (a) the surviving spouse has attained age 62
and (b) if the police officer was married to the surviving spouse after retirement, and for at least 5 years
prior to the officer’s death. Previously, there was no survivor’s pension for spouses married after
retirement. In our opinion, under a prudent interpretation of the provisions, we believe the impact to be de
minimis. The legal community has suggested some uncertainty about multiple provisions contained in the
Act, and the IDOI Public Pension Division has not provided an interpretation. The client has not made an
administrative interpretation as to how the provisions of the Act will impact future surviving spouses. Due
to the uncertainty around the interpretation and the expected de minimis impact, we have not valued this
contingency separately. If a spouse is granted a pension by the Board under this provision, we will value
the liability of the benefit granted, and revisit valuing the contingency of the benefit being granted in the
future.
TERMINATION BENEFIT – VESTED
Tier I
Eligibility: Age 60 with at least 8 but less than 20 years of creditable service.
Benefit: 2.5% of final salary for each year of service. “Final salary” is based on the police officer’s
pensionable salary attached to rank held on the last day of service, unless the pensionable salary was
greater at some point within the year prior to the last day of service. If so, the pensionable salary is
averaged over the last 12 months.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 1/12 of
3% of the original monthly benefit for each full month that has passed since the pension began. The
initial increase date will be the first day of the month after the benefit date anniversary. Subsequent
increases of 3% of the current monthly benefit will be granted every January 1st thereafter.
Tier II
None. DRAFT
McHenry Police Pension Fund
Page 58
DISABILITY BENEFIT
Tier I
Eligibility: Duty or Non-Duty Disability or Occupational Disease Disability with at least 1 day of
creditable service.
Benefit: For a duty disability or an occupational disease disability with at least 5 years of creditable
service, a police officer is entitled to receive the greater of 65% of final salary or the regular retirement
pension benefit at the time of disability. For a non-duty disability, a police officer is entitled to receive
50% of their final salary. “Final salary” is based on the police officer’s pensionable salary attached to
rank held on the last day of service.
Annual Increase in Benefit: A police officer is entitled to receive an initial increase equal to 3% of the
original monthly benefit for each full year that has passed since the pension began. The initial increase
date will be the later of the January 1st after the pensioner turns age 60 or the January 1st after the
benefit date anniversary. Subsequent increases of 3% of the original monthly benefit will be granted
every January 1st thereafter.
Tier II
Eligibility: Duty or Non-Duty Disability or Occupational Disease Disability with at least 1 day of
creditable service.
Benefit: For a duty disability or an occupational disease disability with at least 5 years of creditable
service, a police officer is entitled to receive the greater of 65% of final salary or the regular retirement
pension benefit at the time of disability. For a non-duty disability, a police officer is entitled to receive
50% of their final salary. “Final salary” is based on the police officer’s pensionable salary attached to
rank held on the last day of service.
Annual Increase in Benefit: The initial increase date will be the later of the January 1st after the
pensioner turns age 60 or the January 1st after the benefit date anniversary. Subsequent increases will
be granted every January 1st thereafter. The initial increase and subsequent increases will be the lesser
of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding
each November 1st.
DRAFT
DRAFT
Police Pension Board of Trustees
Meeting Minutes
July 11, 2023
Call to Order
The regular meeting of the City of McHenry Police Pension Board of Trustees was called to order at 9:00
a.m. at McHenry City Hall, 333 S Green St, McHenry, IL.
Roll call:
Members present: President Jeffery Foerster, Sergeant Nick Clesen, , Jim Schmidt, Thomas Settles,
Officer Robert Beaudoin. Others present: Monte Johnson, Carolyn Lynch
Public Input:
No members of the public were present to offer comments.
Call for Nominations to Approve Election of Board Officers
Officer Beaudoin nominated Jeff Foerster for President. A motion was made by Thomas Settles and
seconded by Sergeant Clesen to close nominations for President. Voice Vote: 5-ayes: Foerster, Clesen,
Beaudoin, Settles, Schmidt. Motion carried. A motion was made by Sergeant Clesen and seconded by
Officer Beaudoin to have the Secretary cast one unanimous ballot for Jeff Foerster for President. Voice
Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Sergeant Clesen nominated Officer Beaudoin for Vice President. A motion was made by Sergeant Clesen
and seconded by Thomas Settles to close nominations for Vice President. Voice Vote: 5-ayes: Foerster,
Clesen, Beaudoin, Settles, Schmidt. Motion carried. A motion was made by Jim Schmidt and seconded by
Thomas Settles to have the Secretary cast one unanimous ballot for Robert Beaudoin for Vice President.
Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Officer Beaudoin nominated Sergeant Nick Clesen for Secretary. A motion was made by Officer
Beaudoin and seconded by Jim Schmidt to close nominations for Secretary. Voice Vote: 5-ayes:
Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried. A motion was made by Jim Schmidt and
seconded by Thomas Settles to have the Secretary cast one unanimous ballot for Sergeant Clesen for
Secretary. Voice Vote: Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Thomas Settles nominated Jim Schmidt for Assistant Secretary. A motion was made by Sergeant Clesen
and seconded by Thomas Settles to close nominations for Assistant Secretary. Voice Vote: Voice Vote:
5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried. A motion was made by Sergeant
Clesen and seconded by Officer Beaudoin to have the Secretary cast one unanimous ballot for Jim
Schmidt as Assistant Secretary. Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt.
Motion carried.
Approve the April 11, 2023 Regular Meeting Minutes
A motion was made by Thomas Settles and seconded by Jim Schmidt to approve minutes from April 11,
2023. Roll Call Vote: Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Semi-Annual Review of Executive Session Minutes and if necessary, motion to approve, release,
and/or maintain the confidentiality of any minutes based on advice from legal counsel as presented
Deputy City Clerk Monte Johnson explained that there were no executive session minutes that have not
yet been released, so there are no executive session minutes to review or release.
Approve the renewal of the Fiduciary Liability Policy
Thomas Settles suggested that all trustees should be named in the policy, as that should be common
practice. President Foerster called the representative from the insurance company, and they told us that
this is not done and there is wording to cover all trustees for when the come and go from the board. The
consultant told us that he would forward the question on and get a definitive answer moving forward. A
motion was made by Sergeant Clesen and seconded by Jim Schmidt to approve the renewal of the
Fiduciary Liability Policy as presented. Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt.
Motion carried.
Approve the Payment of Bills
Finance Director Carolyn Lynch read the three bills that need to be paid. A payment for a disability
doctor appointment, our Board attorney, and the bill for the fiduciary renewal. A motion was made by
Sergeant Clesen and seconded by Tom Settles to approve the bills as presented. Voice Vote: 5-ayes:
Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Approve Police Pension Board Administrative Rules
Sergeant Clesen asked how it will work with staggering terms. President Foerster explained that the
Board can vote on how it will handle that prior to the next elections. We could offer the top vote getter
the 2-year term and the 2nd place finisher the 1-year term. Or we could have them specify when they run
who will run for a 2-year or 1-year term. A motion was made by Tom Settles and seconded by Jim
Schmidt to approve the Police Pension Board Administrative Rules as presented. Voice Vote: 5-ayes:
Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Extend the disability for Justin Debolt and Sean Klechak
Both Mr. Debolt and Mr. Klechak received doctor’s notes that they are still disabled. A motion was made
by Tom Settles and seconded by Sergeant Clesen to extend the disability for Justin Debolt and Sean
Klechak. Roll Call Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Approve a three-year agreement with Lauterbach & Amen for Actuarial Services
A motion was made by Officer Beaudoin and seconded by Sergeant Clesen to approve the three-year
agreement for actuarial services with Lauterbach & Amen as presented. Voice Vote: 5-ayes: Foerster,
Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Approve a Resolution Appointing Pension Fund Authorized Agents
Sergeant Clesen explained that they are required every so often to log in to keep the username active.
As City Treasurer, Carolyn Lynch is the person who actually handles the transfer of funds. Officer
Beaudoin nominated Sergeant Clesen and Jeff Foerster as authorized agents. A motion was made by
Officer Beaudoin and seconded by Tom Settles to approve a resolution appointing Nick Clesen and Jeff
Foerster Pension Fund Authorized Agents. Roll Call Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles,
Schmidt. Motion carried.
Approve the Policy on Annual Affidavits of Continued Eligibility
President Foerster suggested we send out the affidavit in November so that the would be received and
accounted for in time for the February approval. He also explained that he has requested a City email
address for the President of the Pension Board so that his personal account is no longer used. A motion
was made by Sergeant Clesen and seconded by Jim Schmidt to approve the Policy on Annual Affidavits
of Continued Eligibility as presented. Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt.
Motion carried.
Approve the pension application of Matthew Meyers, Trevor Pederson, and Alex Lopez
A motion was made by Jim Schmidt and seconded by Officer Beaudoin to approve the pension
applications of Matthew Meyers, Trevor Pederson, and Alex Lopez. Voice Vote: 5-ayes: Foerster,
Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Approve the retirement of Larry Popp
A motion was made by Tom Settles and seconded by Sergeant Clesen to approve the retirement of Larry
Popp. Voice Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
Discuss Pension Board Training
Deputy Clerk Monte Johnson explained that to receive the credits for the pension board training, they
may simply click on the link provided by the Deputy Clerk, and pick whatever combination of classes get
them to the required 8 or 16 hours.
Motion to Adjourn
A motion was made by Thomas Settles and seconded by Sergeant Clesen to adjourn at 9:43 a.m. Voice
Vote: 5-ayes: Foerster, Clesen, Beaudoin, Settles, Schmidt. Motion carried.
______________________________
Monte Johnson, Recording Secretary