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Illinois Police and Fire Pension Consolidation Update Investment Disclosures Post-Asset Transfer and Updates on the Actuarial Process

Posted October 7, 2022 in TARC updates

Background

On December 18, 2019, Illinois Governor JB Pritzker signed into law Public Act 101-0610, which provided for the mandatory consolidation of the investment assets of the State’s public safety pension funds into two consolidated investment funds – one for police pension funds (Article 3 Funds) and one for firefighter pension funds (Article 4 Funds), effective January 1, 2020. Each newly created consolidated investment fund is governed by an independent and autonomous nine-member Board of Trustees, who have been charged with overseeing the investment directives of the newly formed investment funds. The consolidation of these assets into two state-wide investment funds has created the need for all local police and firefighter pension funds to transfer their asset holdings to the two newly created investment funds. The Illinois Firefighters Pension Investment Fund (IFPIF) has hired Northern Trust as the custodian for the consolidated assets and the Illinois Police Officers’ Pension Investment Fund (IPOPIF) has hired State Street as the custodian for the consolidated assets. Once the local fund has transferred assets to IFPIF and/or IPOPIF, the local pension fund will be receiving month-end investment statements from these two custodians, as applicable.

The Technical Accounting Review Committee (TARC) of the Illinois Government Finance Officer’s Association (IGFOA) has developed a list of investment disclosure related considerations to discuss with your pension fund and/or employer auditors. The committee has also provided an outline of actuarial related services that the two consolidated funds will be providing, as well as a list of the actuarial services that they will not be providing once you have transferred your funds’ assets.

Investment Disclosure Considerations

The below list provides some items to consider with your auditors related to investment disclosures post-asset transfer:

  • After the asset transfer, monies in IFPIF and IPOPIF will be reported on the statement of net position (i.e balance sheet) in a single line item under investments, such as “Investment Held in the Illinois Firefighters Pension Investment Fund.”
  • Investments in IFPIF and IPOPIF will be measured at the Net Asset Value (NAV) under GASB Statement No. 72, similar to other investment pools such as IMET Core Fund. Therefore, required investment disclosures should be similar to those required for other investment pools and typically include a general description or summary of the investment pool.
  • Likely, the local fund will continue to have some deposit/cash accounts maintained locally by the fund. All current investment disclosures related to deposits should continue to be disclosed in the notes to the financial statements, along with any local fund investment policy statements for deposits, such as policies related to custodial credit risk for deposits.
  • IFPIF and IPOPIF both provide investment information, target allocations, and investment policies available on their websites: www.ifpif.org and www.ipopif.org. Reference should likely be made to these websites to obtain this information if it is not included in the pension plan or employer basic financial statements.
  • The money-weighted rate of return will still have to be disclosed annually in the notes to the financial statements and in the Required Supplementary Information (RSI). In the year of the asset transfer, this calculation may not be able to be provided by the local fund’s current investment professional(s) and may need to be calculated manually by the local fund and/or employer. In the future, IFPIF and IPOPIF will both provide this required disclosure information on their respective websites. This information will need to be reviewed to make sure it is provided based on the fiscal year of the individual pension fund.

Actuary Considerations

IFPIF and IPOPIF are both responsible for providing the local funds with the actuarially determined contribution requirement under the State of Illinois’ funding requirements, or the “State Minimum Contribution” (the same information that IDOI currently provides on an annual basis). IFPIF and IPOPIF have not officially communicated when these reports will be available to the local funds.  The assumptions their actuaries will use will be generic and applied to each fund.

  • Many local funds and employers do NOT fund their pensions based on the State Minimum Contribution, which is calculated using the Projected Unit Credit (PUC) actuarial method, using generic assumptions and assumes a 90% funded target. For those local funds and employers that utilize other funding methodologies to determine the employer annual contribution amounts, you will need to continue to utilize the services of a private actuary to calculate these recommended contribution amounts.

IFPIF and IPOPIF will NOT provide the required disclosures and Required Supplementary Information (RSI) required under GASB Statement No. 67 for the funds themselves and GASB No. 68 for employers. These GASB-required disclosures will continue to need to be obtained from your independent private actuary.