7.21 E. Under Funding Adjustment

The employer’s portion of retirement benefits consist of the normal retirement contributions and the amortization of the <overfunded> unfunded liability.

The <overfunded> underfunded liability contribution is the percent of payroll necessary to fund the difference between the actuarial liabilities and the actuarial value of member and employer assets over an established amortization period One of the pieces of information an actuary uses to calculate an IMRF employer contribution rate. Generally, each IMRF employer (unit of government) has an unfunded liability due to "prior service" of employees when the employer joined IMRF and due to benefit increases. (Prior service refers to the years and months an employee worked for a unit of government before that unit joined IMRF-assuming the position the employee held qualified for IMRF). The unfunded liability is the estimated cost of retirement benefits earned to date that have not been funded. That is to say, the employer has no assets with IMRF to pay those benefits. A portion of the unfunded liability must be paid each year; the portion is determined by the employer's structure. For most employers, the unfunded liability is amortized over a 25-year period in 2007. Participating instrumentalities (employers without taxing authority) amortize their unfunded liabilities over a five-year period.. (Please refer to 7.20 B. Amortization Periods and 7.20 D. Amortization of Overfunded Liability.)

If an employer is overfunded, this component will be a credit to the retirement rate.

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