General Memo 690

General Memos

Impact of 2020 Investment Return on Employer Funding Status, Employer Reserves, and Future Employer Contribution Rates

February 12, 2021

Executive Summary

This preliminary information is based on unaudited investment return data and projected actuarial information. Finalized information will be available at the end of May 2021.


The estimated 2020 investment return for IMRF is 14.69%. This return translates into investment gain of approximately $6.34 billion, after investment and administrative expenses. Member and annuitant reserves were credited with approximately $2.34 billion, as required by the Illinois Pension Code. Employer reserve balances were credited, approximately $4.09 billion. On average, employer accounts were credited approximately 34.47% of net 2020 interest and residual investment gain on their beginning of the year employer reserve balance. This credit reflects the fact that, as a sponsor of a defined benefit plan, IMRF employers share all the risks and rewards of investment returns.


In April and May 2021, IMRF will present a series of Employer Rate Meetings (Webinars). At these meetings, the impact of year-end financial and actuarial data on IMRF as a whole and its estimated impact on individual employers will be discussed. Current topics impacting IMRF and pension plans in general will also be discussed. IMRF will record the webinar in May 2021 that will be available on the IMRF.org website.


Investment Returns

IMRF’s investment returns reflect financial markets over a calendar year. IMRF reports both a market basis return and an actuarial basis return. IMRF’s estimated 2020 investment return on a market basis is 14.7%. IMRF’s estimated actuarial return for 2020 is 15.0%, due to five-year smoothing. The actuarial return is used to determine employer contribution rates and actuarial funding status. The actuarial return moderates fluctuation in employer contribution rates, and smooths the recognition of market returns that either exceeds or falls short of the assumed annual actuarial return of 7.25%.


Employer Funding Status

In April 2021, IMRF will furnish each employer its annual GASB 68 information as well as GASB 50 footnote information for 2020. This information will disclose both the actuarial and market-based funding status for all plans for their active and inactive members. Annuitant information is included in the GASB 68 report.


Given the positive market returns in 2020, employers should expect the funding status of their plan to increase on both an actuarial and market-value basis and, consequently, 2022 employer contribution rates will more than likely decrease.


Impact on Employer Reserves

By statute, IMRF must debit member and annuitant reserves with 7.25% interest annually on their opening reserve balance amounts (approximately $2.34 billion for 2020).


On average, employers will be credited approximately 34.47% based on their beginning-of-the-year employer reserve balance. This debit reflects the fact that, as a sponsor of a defined benefit plan, IMRF employers share all the risks and rewards of investment returns. The actual amount credited to individual employers will vary from the average due to differences in employer and annuitant reserve amounts.


Over the last 10 years, IMRF employers have been credited or (charged) the following amounts:

GM 690 Bar Chart

                                      Total Last 5 years = $2.62 billion

                                      Total Last 10 years = $12.25 billion


Employer Contribution Rates

Employer contribution rates have six component parts:


The ongoing cost of the IMRF benefit package for the regular plan, covering normal retirement costs, death in service benefits, temporary disability benefits, and supplemental retirement benefits, was 6.81% of payroll in 2020. Put another way, for each dollar of service an employee renders, the employer also incurs a pension cost of 6.81 cents. If an employer is overfunded, the 6.81 cents is reduced and IMRF draws from the surplus. If an employer is underfunded, the 6.81 cents is increased to collect the shortfall.


Average employer rates over the past five years:

Year Rate
2021 10.62%
2020 10.91%
2019 9.06%
2018 11.24%
2017 11.34%

 

Individual employer contribution rates vary from the average since each employer has a unique rate affected by its own demographics and funding status as well as a unique mix of Tier 1 and Tier 2 members. Employer rates for 2020 and beyond were impacted by lowering the assumed rate of return to 7.25% as of January 1, 2019.


IMRF Meetings

To discuss the potential impact on individual employers in 2020, 2021 and beyond, IMRF will conduct a series of Employer Rate Meetings (Webinars) in April and May 2020. Current topics impacting IMRF and pension plans in general will also be discussed. In May, IMRF will provide a recording of the webinar on our website.


Additional details and registration information for the Employer Rate Meeting (Webinar) will be available on IMRF’s website, www.imrf.org, and in upcoming editions of Employer Digest e-newsletter.


Questions

If you have any questions regarding the information presented in this General Memo, please call or email Mark Nannini, Chief Financial Officer, at (630) 368-5345 or mnannini@imrf.org.