View the recording of the August 18 presentation by IMRF Executive Director Louis Kosiba and CFO Mark Nannini aimed at the special needs of small employers served by the fund.
IMRF presented the webinar "What Small Employers (and their Boards) Need To Know About IMRF," on Tuesday, August 18, 2015. Louis Kosiba, Executive Director, and Mark Nannini, Chief Financial Officer, offered detailed information why employer contribution rates for small employers are volatile, provided practical insights, and offered a series of tips to help employers avoid traps for the unwary. Over 300 participants registered for the webinar, representing diverse employers from across the state. This is the first program IMRF has conducted focusing on the issue and concerns of small employers.
Review this resource page to download the presentation's slides, view the Small Employers webinar video, and review the questions and answers submitted during the presentation.
- "This was an excellent program! I hope you continue to use webinars to educate your employers and their employees."
- "I thought Louis and Mark did a nice job explaining the more complicated topics by giving easy examples to follow."
- "IMRF does an outstanding job of presenting all pertinent AA information. Thank you."
Question & Answer Session
Q. Park District: Will an employee retiring in 2016 affect the 2018 rates?
A. Louis W. Kosiba: Yes. We collect data for a given calendar year. In this example, an employee retires in 2016; that data would go to the actuary in the winter of 2017. The actuaries will use that data to calculate your 2018 rates. The Preliminary Rate Notice would be sent in April 2017 and then the Final Rate Notice is sent in November 2017. Another way of explaining this: people retiring this year would not affect your Employer Contribution Rates until 2017.
Q. Village: Please confirm/remind [attendees] that Tier 1 vs. Tier 2 is based on the employee, not the employer. Once a Tier 1 employee, always as a Tier 1 employee even if they are a new hire for the employer.
A. Mark Nannini: That is correct, even if the employee is a new hire for a different employer.
Q. Township Government: An employee who is now drawing an IMRF pension due to retirement wants to return to work at the same place of employment, but in a different position. It is not an IMRF position because it does not meet the 600 hour standard. Will this affect the employee’s current IMRF benefit? Is there a particular money amount/limit or is it just the hours?
A. Louis W. Kosiba: So long as the employee works less hours than your employer’s hourly standard (or the hourly standard for that employee) his or her benefit is not affected. IMRF counts hours.
Q. Park District: With [investment] earnings less than 7.5% in 2014, did the employer’s rate increase for 2015 or will that be reflected in the 2016 rate?
A. Mark Nannini: Again, we’re talking about the two-year lag and 2014 will affect the 2016 rates.
Louis W. Kosiba: As part of our Employer Rate Meetings, we discussed this point and the average rate in 2015 is 11.69%. This will increase to 11.73%. Because we did not meet our assumptions, there was actually a minor effect on rates. The biggest effect for rates in 2016 was adopting the new mortality tables.
Q. Village: If the final three months’ payouts exceed the 125% basis, will we still withhold the employee’s 4.5% on all earnings?
A. Louis W. Kosiba: Yes, you submit the wage report, the contributions, and employer contributions. At the time, we don’t know that will be a part of the final rate of earnings calculations. You submit contributions on everything. Effectively what will happen is the employee will contribute a bit more to fund his or her pension.
Q. Village: Would you consider offering Authorized Agent seminars via webinars instead of the AA traveling to a location?
A. Louis W. Kosiba: I think this is quite viable. We need to be more accessible. I think this is an excellent idea and I will pass it along to the meeting planning staff.
Q. Township: If I plan to retire in two years, should I do the VAC (Voluntary Additional Contributions)?
A. Mark Nannini: That is a personal decision. You may want to speak to a financial planner to determine the best avenue to pursue. We always encourage you to participate in IMRF but you’d want to look at your own personal situation with whoever advises you in financial circumstances.
Q. Township: An employee has worked for many years in a non-qualifying IMRF position and is now hired for a qualifying position. Would that employee be considered Tier 1 or Tier 2 since he worked for the employer prior to 2007?
A. Louis W. Kosiba: He is in Tier 2. You have to be a participant in the pension plan – either IMRF or one of the reciprocal plans – for the law to apply to you. If you work for an IMRF employer and you never meet the hourly standard, there are no benefit rights that accrue to you.
Q. Public Library: What if an employee has a period of unpaid time off during the year which decreases the total hours worked for the year? Below the 1,000 hours, what happens?
A. Louis W. Kosiba: Our hourly standard is the hours you are expected to work. If someone is hired in a full-time position, for example, and they quit three weeks later, they still receive one month of service credit with IMRF. If you have someone who takes unpaid leave, they are still going to be participating in IMRF upon their return.
Q. Park District: Please discuss the new mortality tables.
A. Louis W. Kosiba: The IMRF Board adopted the new mortality tables that were issued by the Society of Actuaries in November 2014. We are implementing those tables and the cost is reflected in future Employer Contribution Rates. What is exciting about these tables is that they will reflect changes in life expectancy more quickly than past tables. Previously there was a “step-up” after many years then you’d have a new mortality table and new costs. This new table will be a bit more gradual. It will reflect how people are living longer. In terms of our general liabilities market, this probably increased our liabilities by $1.3 billion to $1.5 billion. That was practically offset by other assumption changes the Board made after the Triennial Experience Study. We reduced some assumptions regarding growth of salary and disability.
Mark Nannini: Those tables are referred to as RP2014 if you’d like to look further into this.
Q. Park District: When an employee returns to work and wants to receive prior years of service but they took a refund check, is there a limit on prior service years to buy back?
A. Louis W. Kosiba: No, there is no limit but if you take a refund, you will have to work for an IMRF employer or reciprocal employer for two years. Then you’d have to pay back what you took plus interest at 7.5%. The employee does not have to buy everything back. The employee can buy as little as one month and the employee is not required to pay everything at one time. They can buy it back in one month increments. Only after the employee pays for the service will an employer have any liability.
Q. Park District: Are members allowed to add additional funds through payroll deductions?
A. Louis W. Kosiba: No. You don’t have an opportunity to contribute more money. The IMRF benefit is a formula based on your service and you are not able to enhance the program. Some alternative ways to supplement the program include a 457 plan or a 403(b) plan – which are typically offered through school districts – an IRA, or Voluntary Additional Contributions.
The following questions were submitted but time did not allow a response during the program:
Q. Park District: I am still unsure of the year a staff member’s retirement impacts the rates. Two years later? One year? Same year?
A. Louis W. Kosiba: There is always a two-year lag.
Q. Consolidated Communications: An employee with 39 years of service asks if they should continue to work another year or retire using their available one-year sick time.
A. Mark Nannini: The decision to retire is the member’s. Contacting their financial advisor is recommended to determine the correct answer.
Q. Park District: Are any agencies outside of Illinois cooperating partners? [What about the] Texas Municipal Retirement System?
A. Mark Nannini: There is a process to purchase service outside the state. It is not considered reciprocal service, but a member can establish up to a maximum of ten years of service from a local governmental unit. The member must have two years of service with IMRF then the current employer authorizes the out-of-state service using Form 6.33 [transfer service credit earned with an out-of-state pension system to IMRF]. This is necessary since the current employer will be assuming the liability for the ten years of service. Service and benefits in the out-of-state system must be canceled.
Q. Village: Does a VAC [Voluntary Additional Contributions] affect the employer’s contribution or account, or is it separate as it is an individual employee issue?
A. Louis W. Kosiba: It is a separate account, held in the member’s name. It does not directly affect an employer. However, by law IMRF posts 7.5% at the end of the year based on the opening balance. If IMRF does not earn 7.5%, all employers are indirectly affected because the interest is paid out of all investment income. Similarly, when IMRF earns more than 7.5% on its investments, employers indirectly benefit.
Q. Village: Am I correct that disability payments do not affect the employer rate?
A. Mark Nannini: That is correct; it is a pooled reserve. It is set up as a portion of your current and future rates.
Q. Park District: Considering the 125% rule, what if in months 45-48 there were three payrolls in one month ... how is that considered? Not an issue because you average it over 48 months?
A. Mark Nannini: You answered your own question … it is not an issue.