The pension plan for Lincoln firefighters and police had a $20 million increase in value last year -- from $164.6 million to $184.8 million -- and a more than 16.49 percent net return.
This is the highest return since the 2008 stock market crash, when the plan lost about 31 percent of its value.
But the pension plan for about 1,100 retired and current police and firefighters is still underfunded in the long run, based on the annual actuarial report from Milliman Inc.
Milliman recommends the city double its required contribution for at least the next five years.
That means the city should be putting $9.7 million into the pension plan next year, rather than the mandated $4.8 million. The city has budgeted about $6.38 million for the pension plan next year.
The fund has enough money to pay current retirees, said Doug McDaniel, city human resources director. The annual actuarial report looks at how much the city should be taking in over the next 30 years to make sure future retirees can be paid their monthly benefits.
Police and firefighters are the only city workers who have a defined benefit plan, with guaranteed retirement benefits based on salary.
Other city employees have defined contribution plans, much like 401(k) plans for private businesses, where employees and their employer put money into the plan, which is invested, and the total is available upon retirement.
The police and fire plan’s funded ratio, one measure of its health, dropped from about 72 percent to 66 percent, because the actuarial firm changed the assumptions used to determine the future cost of the plan.
Milliman said people are living longer, investment returns into the future will likely be less than previously assumed, and salary increases will likely not be as high.
These assumptions had not been researched and changed since 2007, so it was time to take another look, McDaniel said.
If the assumptions had remained the same, the actuarial funded ratio would have held steady at 72 percent, McDaniel said.
The ratio represents an $88.3 million gap between the current actuarial value of the plan and what it should have to be fully funded, based on the report.
Generally, funded ratios above 80 percent are considered healthy. Those with lower ratios are not considered at risk if the plan has a mechanism for moving toward the 100 percent target, according to the American Academy of Actuaries.
The police and firefighter plan was more than 100 percent funded before the 2008 stock market collapse. That loss was spread over five years in the actuarial reports using a process called smoothing. The smoothing ended for those losses with last year’s report, based on an Aug. 31, 2013, measurement of assets.
In the years since the stock market crash, the city has contributed slightly more than the actuarial recommendations, intended to eventually bring the plan to 100 percent funded ratio.
Last year employees contributed about $2.6 million, almost 7 percent of their wages. The city contributed $7.86 million.