Actuarial Valuation Report as of July 1, 2000
Section 2 - Comments and Analysis

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Presented in Section 3 of this report is a schedule outlining the formal actuarial valuation results as of July 1, 1999, relative to the City of Champaign Police Pension Fund. This report was based on the set of actuarial methods and assumptions as indicated in Section 5 of this report. In addition, this 1999 valuation report determines the minimum annual contribution requirements on behalf of the City of Champaign (the Plan Sponsor) for the 1999-2000 Plan Year (ending June 30,2000). These requirements affect the City's tax levy for 2000, which are subsequently "collected" in calendar 2001 with a deposit into the Pension Fund about August, 2001.

The valuation results pertaining to the 1999 Plan Year are analyzed and discussed in the following paragraphs.

Plan History The following table provides a brief glimpse of the Plan's rate of return on assets and salary increase experience over the last ten actuarial valuations performed by Watson Wyatt:


Plan Year Ending Rate of Return on Plan Assets Salary Scale Increase


6/30/1990 8.5% 4.7%

6/30/1991 8.1% 0.8%

6/30/1992 7.5% 8.0%

6/30/1993 5.0% 3.3%

6/30/1994 6.5% 7.5%

6/30/1995 7.7% 5.5%

6/30/1996 5.1% 5.7%

6/30/1997 6.7% 5.3%

6/30/1998 8.4% 6.3%

6/30/1999 7.3% 6.5%

The table shows that the Plan's assets have earned at about the rate of 7.1 % per annum over the past ten plan years. This is comparable to our assumed rate of 7.25% per annum. We believe this interest rate continues to be appropriate for this Plan. The salary scale increase has averaged 5.3% over the last ten years. We will continue to review both of these assumptions to determine if a change is appropriate.
Changes in the Annual Contribution Magnitude The dollar amount for the plans annual minimum required contribution is approximately 13.4% lower than the level for the prior 1998 plan year. As a percentage of payroll, the contribution requirement is less than last year (i.e., decreasing from 41.5% to 34.3%). The important factors producing this change are summarized as follows:

1. Minimum Annual Contribution Requirement for prior plan year $2,145,919

2. Actual Asset Performance (including change to market related value of assets) ($22,175)

3. Increase in Normal Cost and Amortization Amount due to anticipated pay increases $66,521

4. Changes in Assumptions (i.e., salary scale, interest rate mortality) 0

5. Other Sources ("net effect" of new retirements, deaths, salary increase greater than expected, new entrants, the City of Champaign's policy of amortizing the unfunded ability faster than is required, etc.) (331.900)

6. Minimum Annual Contribution Requirement for current plan year (sum of items 1 through 5) $1.858.365
Comments on Actuarial Value of Assets Comments on Government accounting standards mandate the use of market value of assets or market related value of assets for accounting purposes. The Pension Fund used market-related value of assets for both government accounting and funding purposes. This market-related value of assets will realize gains and losses due to return on plan assets over a four-year period. Hence, only a portion of this year's investment gain (see Section 3, Schedule B for details) is included in the current year actuarial value of assets. The remainder of the gain will be incorporated into Pension Fund assets over the next three years. The purpose of this technique is to minimize contribution volatility due to fluctuations in the market value of assets.
GASB Statements No. 25 and 27 GASB Statement No.25 is applicable to fiscal years beginning after June 15, 1997. It was adopted by the City of Champaign Police Pension Officers' Fund in the 1996 report. GASB Statement 27 is applicable to fiscal years beginning after June 15,1997. It was adopted by the City of Champaign Police Pension Fund in last year's report. A transition pension liability (asset) has been developed under Statement No.27 equal to the cumulative difference between the actuarially determined funding requirement and the actual amount contributed for fiscal years 1987 to the date GASB 27 is adopted. As of the adoption date, all outstanding pension liabilities (assets) are adjusted to equal the transition NPO. Section 4 of this report provides further details and explanations on these regulations.
Comments on Illinois State Police Pension Fund On August 6,1999, Chapter 40 Act 5 Article 3 of the Illinois Compiled Statutes was amended to increase the minimum pension payable to an annuitant. This change was retroactive to 1/1/1999. The new minimum pertains to officers with 20 years of service, disability payments, and surviving spouse payments.

Effective January 1, 1999 - $600 per month
Effective January 1, 2000 - $800 per month
Effective January 1, 2001 - $1,000 per month

Since this law change was made after the July 1, 1999 effective date, the City of Champaign has elected not to recognize this change until the July 1, 2000 actuarial valuation. Had the City elected to recognize the change in this valuation cycle, the change in this valuation cycle, the change in the contributions would be negligible. The primary reason for this is that the majority of pensioners already exceed the new $12,000 minimum. Very few participants will be affected by this law change.
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