7.20 Financing the Cost of IMRF Pensions

The basic pensions paid by IMRF are:

1. Member retirement pensions, and

2. Surviving spouse pensions

Although IMRF pensions are financed by member and employer contributions The employer IMRF contribution rate is computed separately for each employer every year. Employer contributions pay a portion of the cost of retirement pensions, surviving spouse pensions, death benefit coverage, and disability benefits., the larger portion of the cost is borne by the employer A unit of government that joins IMRF.. Member contributions Members who participate in the Regular Plan contribute 4.50% of salary toward a future IMRF pension: 3.75% for the member and 0.75% for a surviving spouse pension. Members who participate in the SLEP plan contribute 7.50% of salary (on and after June 1, 2006) toward a future SLEP pension: 6.75% for the member and 0.75% for a surviving spouse pension. Before June 1, 2006, SLEP members contributed 6.50 percent of salary; 5.75 percent for the member and 0.75 percent for a surviving spouse pension. Members in the ECO plan contribute 7.50 of salary toward a future ECO pension: 6.75% for the member and 0.75% for a surviving spouse pension. are fixed by statute. Currently, the rates applied to earnings are 3.75% for Regular member retirement pensions, plus .75% for surviving spouse pensions, for a total of 4.50%.

The method of determining employer contributions is fixed by statute, and the rates are unique for each employer. Each employer finances the pension costs of its own employees as well as the cost for the $3,000 lump sum death benefit payable upon the death of an IMRF retiree. Employer contribution rates vary because of differences among employee groups, such as average age, average length of service, average salary, and accumulated employer contributions as well as turnover. Because of these differences, it is difficult to compare employer rates unless employee group differences and funding status are also compared.

The biggest factor impacting employer contribution rates and historically the largest contributor to the fund is investment results. For actuarial purposes IMRF currently pays interest based on the current assumed rate of return on its investments after expenses. The Illinois Pension Code mandates that IMRF credit interest on the opening balances of the employee and annuitant reserves. If investment earnings are insufficient to cover the interest credited to employee and annuitant reserves, employer reserves are charged with the shortfall.

On the other hand, if there are excess earnings, opening employer reserve balances may be credited with interest up to the assumed rate of return. Any investment earnings available after crediting the maximum amount to employer reserves are distributed to individual employer reserves as residual investment income.

Learn more about financing the cost of IMRF pension from the topics below:

1. Entry Age Normal Funding

2. Amortization Periods

3. Unfunded Liability

4. Amortization of Overfunded Liability

5. Accelerated Payments

6. Pension Impact Statement

7. Member Retiring with Multiple Employers