Evanston Review

City to borrow $8 million for pension paydown

Wednesday, August 11, 2010

The city of Evanston plans to borrow $8 million to pay off some pension obligations arising from the early retirement incentives that spurred a larger-than-expected wave of departures in 2007 and 2008.

Nearly 60 city employees, including about 40 senior staff members, elected to retire after then-City Manager Julia Carroll proposed the early retirement program in 2007.

The incentives were designed to save the city money over several years, because veterans would be replaced with people at lower salaries and some positions would not be filled. Carroll herself announced retirement just days before the one-year window expired.

Employees were allowed to purchase up to five years of additional service credit, boosting their lifetime pension benefits.

City staff contend the lump sum payoff will save about $1.5 million in interest payments over the next nine years, because the city will be paying about 3.5 percent in interest on the taxable bonds. That's a lower rate than the Illinois Municipal Retirement Fund factors in to its calculations when figuring how much the city should contribute annually.

Assistant City Manager Marty Lyons noted the bond issue does not carry the same risk as police and fire pension bonds, which the city once considered to provide an infusion of funding. That idea was dismissed as too risky, because the pension funds could earn less in a market downturn than the city was paying in interest for the borrowing.

"Unlike police or fire pension bonds, this issuance is not based on a potentially volatile arbitrage calculation," noted Lyons.

IMRF allows employers adopting the Early Retirement Incentive program to pay off the resulting pension liability over a period of 10 years. The pension system has the authority to enforce payment schedules among its 2,900 local employers.