Municipal pension plan almost fully funded
CHAMPAIGN — Louis Kosiba wants folks to know the pension plan for local government employees in Illinois is in much better financial shape than the state pension plans.
The Illinois Municipal Retirement Fund was 86 percent funded at the end of 2012. Contrast that with the five state pension plans, which collectively were 39 percent funded at year's end.
Kosiba, the IMRF's executive director, visited Champaign on Wednesday to brief officials from area cities, villages, counties, library districts and park districts on the system.
In comments following the presentation, Kosiba said the municipal retirement system was fully funded at the beginning of 2002 and at the beginning of 2008.
Markets fell that year, but the funding percentage reached 80 percent at the beginning of 2012 and 86 percent by the beginning of this year.
The retirement fund, which covers 175,000 local government employees, gets its money from three sources:
— 60 percent comes from investment returns.
— 27 percent comes from employer contributions.
— 13 percent comes from employee contributions.
Last year, the retirement fund had a return on investments of 13.5 percent, easily topping its annual "assumed return" of 7.5 percent. But in 2011, the return was negative (-0.5 percent).
Richard DeCleene, the fund's chief financial officer, said some people consider a 7.5 percent annual return "unrealistic" over the long term. He said that rate is "increasingly difficult to make," but the assumed rate is evaluated each year and the fund plans to stick with 7.5 percent for now.
By comparison, the Teachers' Retirement System assumes an 8 percent rate, and the State Universities Retirement System and State Employees' Retirement System assume a 7.75 percent rate, DeCleene said.
DeCleene said about 69 percent of the municipal retirement fund is invested in equities, and almost all the remainder is in fixed-income investments.
Some of the state retirement funds allocate greater percentages to equities — 82.5 percent for the teachers' fund and 75 percent for the state universities fund, for example, he said.
They "take on more risk to get a higher return," DeCleene said.
The municipal retirement system differs from the state pension plans in other ways:
— It makes annual cost-of-living increases using simple rates, not compounded rates.
— It does not provide health insurance to retired members.
— Employers in the municipal system are required to pay the full "actuarial required contribution" — and the system has enforcement authority if the employer falls behind.
The municipal retirement fund is the second-largest defined-benefit public pension system in Illinois, behind the Teachers' Retirement System.
Though some say retirement systems should move away from defined-benefit plans, Kosiba said there's no consideration of doing that by the municipal retirement fund.
He called defined-benefit plans the most "cost-efficient."
Kosiba said most pension reform efforts pending in the Legislature address the state retirement systems. The proposals include phasing in later retirement ages and limiting cost-of-living adjustments, among other things.
Kosiba cited only two proposals that would affect the Illinois Municipal Retirement Fund. One would set new rules for retirees who return to work, and the other would eliminate service credit for unused unpaid sick leave, he said.
Statewide, the municipal retirement fund paid out $1.17 billion in benefits to Illinois residents in 2012. In Champaign and Vermilion counties, the system paid out a total of $33 million to 2,937 retirees.