Hinsdale complaint filed against actuary
Updated: January 28, 2013 1:58AM
HINSDALE — The Hinsdale Police and Fire Pension boards filed a complaint Oct. 31 against Timothy Sharpe, following a document La Grange Trustee Jim Palermo filed in June with the Actuarial Board of Counseling and Discipline, based in Washington, D.C., which oversees the profession.
The Hinsdale complaint said Sharpe didn’t comply with actuarial standards of practice and violated the professional code of conduct by using the 1980-91 Life Table, prepared by the Center for Disease Control, instead of two standard pensioner mortality tables.
The Life Table is both outdated and inaccurate with the mortality rate of retirees higher than the two other tables based on actual pensioner experience, the complaint said. The Life Table also doesn’t separate mortality rates for men and women.
Palermo’s complaint also was critical of Sharpe’s mortality assumptions and said he made statements to the Village Board, which were “frequently erroneous and incomplete regarding standard actuarial practices” and would mislead the board, according to a report presented Nov. 12 in La Grange.
Palermo declined to discuss the complaint, citing the governing board’s regulations concerning confidentiality. Several board members were critical of Palermo’s action, and the police and fire pension boards have opted not to hire another actuary, citing the $5,000 cost.
Sharpe said he is confident the mortality table he uses is correct and his process is transparent, but anyone who disagrees is entitled to file a complaint.
“I’m 100 percent certain the table I’m using is the right table,” he said. “As an actuary for 30 years, I have access to hundreds of mortality tables.”
The Hinsdale complaint shows a 0.6 percentage difference between Sharpe’s table and the one preferred by the fire pension board for 62-year-old men. That translates to a difference of six in every 1,000 men applied to a pool of only about 40 retired and active firefighters, he said.
The difference in assumptions comes into play more after age 100, although most retired police and firefighters live to the age of 75, Sharpe said. Beginning with a 40 percent mortality rate, Sharpe said his table assumes more people die each year after age 100 than the other table, which lists a 50 percent chance of survival to age 120.
With cost-of-living increases for retirees living longer, the calculation can differ by up to $300,000 for each table, he said.
“My table is conservative and well-thought out,” Sharpe said. “I look at this every year, the actual vs. the assumed mortality rates, and I still overestimated how long these people live.”
William Zahalka, a retired police officer and Hinsdale police pension board member, said assumptions by another actuarial firm, Foster & Foster, resulted in a tax levy request of $966,977 a year ago. Village officials backed Sharpe’s calculation instead for $672,267. The village later added another $100,000 to help fund the police pension, Zahalka said.
“We’re not trying to grab an exorbitant amount of funds. We’re just trying to fulfill our responsibilities,” he said.