National Institute on Retirement Security Identifies IMRF as Excellent Example of a Sustainable and Affordable Defined Benefit Pension Plan

OAK BROOK, Ill. – July 6, 2011 – Defined benefit pension plans across the country have come under attack in recent years. Many of the ensuing calls for reform label all defined benefit plans as too generous and unsustainable. A new study from the National Institute on Retirement Security (NIRS) finds this to be inaccurate. Recently, the organization commissioned new research that identifies well-funded defined benefit plans and cites “lessons learned” from these plans that can help to ensure long-term public pension sustainability and affordability.

Authored by Jun Peng, associate professor at the School of Government and Public Policy at the University of Arizona in Tucson, and Ilana Boivie, director of programs at NIRS, the NIRS study, “Lessons from Well-Funded Public Pension Plans,” identifies the Illinois Municipal Retirement Fund (IMRF) as one of six well-funded public pension plans that kept their pension cost at a reasonable level and remained well funded during recent recessions. Peng said the funds’ best individual practices in funding policy, benefit design and economic assumptions resulted in their strong financial condition despite two severe financial downturns during the study period 2000-2009. Pension benefits consist of normal service benefits, as well as related cost of living adjustments (COLAs), early retirement benefits, disability benefits and death benefits.

In addition to IMRF, the other five retirement systems examined include Delaware State Employees Pension Plan, Idaho Public Employee Retirement Fund, New York State Teachers’ Retirement System, North Carolina Teachers & State Employees Retirement System and the Teacher Retirement System of Texas. All had a funded ratio above 80 percent based on the actuarial value of assets at the end of fiscal year 2009.

IMRF Ensures Retirement Security
As the second largest pension system in Illinois, IMRF serves 2,900 municipal employers and 176,000 municipal employees. All pensions are funded by three sources: employer contributions, employee contributions and primarily investment returns. IMRF follows a funding policy that requires local employers to pay their actuarially determined contribution rate. Each pension is pre-funded over the course of an employee’s career, so that when an eligible worker retires, funds are available to cover the full amount of his pension liability.

In his report, Peng described IMRF’s funding ratio as “significantly better than that of the other five (Illinois) state pension systems.” The fund was 100 percent funded at the end of 2007 and was 86.3 percent funded on a market value basis, up from 81.6 percent at the end of 2010.

“Our long-term, prudent and diversified approach to investments helps ensure sustainable retirement incomes for retired local government workers,” said Louis Kosiba, executive director of IMRF. “Being fully funded allows us to provide IMRF member benefits at the lowest possible long-term cost to the taxpayer. Further, this goal also ensures that the cost for providing these benefits is not passed on to future generations.”

The NIRS report identified other lessons from IMRF, including its policy that the funding ratio must be above 100 percent for the employer to use the overfunded amount to reduce the normal cost rate. This helps the contribution rate remain adequate and stable over time. In addition, IMRF’s COLA remains modest at 3 percent. Unlike other retirement systems, this annual percentage increase is based on the monthly payments during an employee’s first year of retirement — and does not compound over time.

“IMRF is a good example of a prudently managed defined benefit plan that is both affordable to taxpayers and provides a secure retirement to public sector retirees,” said Peng. To read more, please download the study.

About IMRF
The Illinois Municipal Retirement Fund (IMRF) was created by the Illinois General Assembly.  Since 1941, IMRF has partnered with local units of government to provide death, disability and retirement benefits for working and retired public employees. Today, IMRF has more than 176,000 active members working for nearly 3,000 different units of government, including school districts, counties, cities and villages, parks and libraries. It has more than 96,000 retirees. Members who retired in 2010 retired with approximately 22 years of service and received an average annual benefit of approximately $17,000. IMRF consistently works toward reaching full funding over the long term, ensuring that it remains financially sound. A full-funding goal guarantees public workers a secure and modest retirement income at the lowest long-term cost to taxpayers.

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