General Memo 568

Paperwork

Meetings to discuss IMRF’s 2007 Investment Return and the impact on Employer Contribution Rates

April 3, 2008

We encourage each Authorized Agent to share this memorandum with your
unit of government’s chief financial officer, other officials, and governing body members.


Executive Summary

The estimated 2007 investment return for IMRF is 8.5%. Its actuarial return—the return that impacts employer contribution rates—is estimated to be 8.9%, greater than the actuarial investment return assumption of 7.5%. For 2007, IMRF will credit approximately $734 million of interest and $136 million of residual investment income to employer reserves.

The “public pension crisis” often referred to in the media resulted from the deliberate underfunding of state and local pension systems. IMRF, however, is an example of the story that is not being told: a public pension system that acknowledges its actuarial liabilities, makes contributions when due, and uses investment earnings to help maintain stable employer rates.

IMRF will conduct meetings throughout the state to meet with you and other representatives of your employer to discuss IMRF’s recent results, employer rates, and to answer your questions.


Positive investment returns

Prior to the Employer Rate meetings, you will have received your Advance Rate Notice for employer contributions to IMRF in calendar year 2009, your Employer Reserve Statement, and your GASB 27/50 Footnote Disclosure.

IMRF earned 8.5% on a market basis in 2007; its actuarial return—the return that impacts employer contribution rates—was 8.9%, higher than the actuarial investment return assumption of 7.5%.

For actuarial purposes, IMRF’s 2007 investment return will be approximately $1,852 million.

For 2007, IMRF will credit approximately $734 million of interest and $136 million of residual investment income to employer reserves.

The average employer rate for the Regular plan for 2009 is currently estimated to be decreased to 9.27%. If IMRF is able to earn a market return of 7.5% or more in 2008, the average rate for the Regular plan will continue to decrease for 2010.

The missing story

The “public pension crisis” often referred to in the media resulted from the systematic underfunding of state and local pension systems. Some systems ignored their underfunding and granted costly benefit increases. During the market downturn of 2000 through 2002, those plans saw their funding ratios drop sharply. Other public pension plans chose to ignore their severe underfunding and defer required contributions to their plans.

However, not all public pension systems are underfunded. Many are well funded, including IMRF. IMRF is an example of the story that is not being told: a public pension system that acknowledges its actuarial liabilities, makes contributions when due, and uses investment earnings to help maintain stable employer rates.

Employer rate meetings

We know you and others in your unit of government may have questions about future employer rates.

The IMRF Chief Financial Officer and I have scheduled meetings throughout the state to meet with you and other representatives of your employer to discuss IMRF’s recent results and to answer your questions.

The meetings will take approximately an hour-and-a-half, consisting of both a formal presentation and a question and answer period. We encourage you, the chief financial officer, other officials, governing board members, and other interested parties from your employer to attend.

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