7.10 Financing Pensions: General

There are three principal methods of financing pension costs:

1. Full Funding

2. Partial Funding, and

3. Pay-As-You-Go

A plan is referred to as actuarially fully funded when the assets set aside at any given time, including future earnings from these assets, are deemed adequate to meet all future pension payments for service credit Service credit is a member's total time under IMRF, stated in years and fractions. Service is credited monthly while a member is working, receiving IMRF disability benefits or while he or she is on IMRF's Benefit Protection Leave. A member earns one month of service credit for each month he or she: (1) works in a qualified position and makes a member contribution. (2) worked in a qualified position prior to his or her employer joining IMRF. (3) receives an IMRF disability benefit. (4) is on an IMRF Benefit Protection Leave (limited to 12 months). (5) purchases a month of past service credit. A member cannot earn more than one month of service credit for any given calendar month. earned to that given time.

At the opposite extreme is the pay-as-you-go method in which no advance contributions are made, and pension payments are met when they become payable. Partial funding, as the term implies, falls in between full funding and pay-as-you-go.

In general, funding methods relate to the basis of determining the amounts and timing of contributions to a pension fund for the purpose of meeting pension benefit payments when they become due. IMRF finances pension costs under the full funding method.