Public Defined Benefit (DB)

Brian Collins, executive directorBrian Collins, executive director

Illinois Municipal Retirement Fund

Total Plan Assets: $41.4 billion
Participants: 419,799
Funding Status: 98.2% at year-end 2017
Employers in the Plan: 2,997

The Illinois Municipal Retirement Fund (IMRF) is a public defined benefit (DB) pension plan providing retirement, disability and survivor benefits to the employees of units of local government and school districts throughout Illinois. As of December 31, 2017, IMRF served 2,997 employers, and 419,799 active, inactive or retired members.

Members are classified by “plan” and “tier” depending on their position and participation dates. Members in the Regular Plan contribute 4.5% of their IMRF reportable earnings. Tier 1 Regular Plan members are vested after obtaining eight years of service credit, and Regular Plan Tier 2 members are vested after obtaining 10 years.

IMRF was 98.2% funded on a market basis at the close of its fiscal year ended December 31, 2017. That doesn’t surprise Brian Collins, executive director of the fund, as IMRF “has always enjoyed a relatively high funding level of between 90% and 100%, with two-thirds of our pension payments coming out of the investment returns as opposed to larger employer contributions.” Further, over the past 36 years, IMRF has earned an average of 10% on its investment portfolio, Collins notes.

By keeping the pension consistently funded at such a high level, “the more money the chief investment officer [CIO] has to invest, and the more money on hand to invest, the more money you will make over time,” says Dan Duquette, deputy executive director of IMRF. “Some plans have had to sell investments in order to pay benefits. That is a rare event but a dangerous situation to be in. We are fortunate in that we are nowhere close to that.”

Illinois Municipal Retirement Fund is able to achieve such a high funding status through a “very disciplined approach to investing,” Collins says. “Our asset allocation doesn’t change dramatically over time,” he says. “We take a conservative and committed approach. We also have really high-quality people running the plan. We are proud of our CIO, Dhvani Shah, and her team, as well as past CIOs and teams that preceded her.”

Four trustees of the eight-member board are elected by the nearly 3,000 employers, Collins says. Three trustees are elected by the 177,000 working active members of the pension plan, and one by the plan’s 125,000 retirees. “This gives the board a very balanced perspective on everything,” Collins says. “Notably absent from this plan are political appointees, as are often [found] in other pension plans. Not having politics enter into this fiduciary relationship has been a strength of ours.  The trustees keep in mind what is in the best interest of the pension when making decisions.” Furthermore, “they receive training each year aimed at fiduciary responsibility.”

The pension plan team includes consultant Callan and Northern Trust as the plan’s custodian.

The Illinois state legislature granted IMRF statutory authority to set employer contribution rates based on actuarial best practices, and the pension has the authority to enforce payment if necessary. IMRF can achieve this by going to the state comptroller’s office and taking the money out of the municipal entity’s sales tax revenue, Collins explains. “It is unusual to have this legislative authority. The state teachers’ plan and the university system are funded either by the state or the city of Chicago. Each year, those governing bodies decide how much to contribute, which may not relate to what is the actuarial requirement. It has been many years since either of those governmental bodies have paid anywhere approaching the required minimum.”

By comparison, the Illinois Municipal Retirement Plan uses actuarial guidelines and has the guardrail of being able to enforce payment, Collins notes. “The health of our plan is defined not just by the rate of return but by” consistent, reliable and actuarially sound input, he says.

“We have 3,000 municipal entities that participate in our plan,” he says. “Each and every one of those has its obligation recalculated every year by our actuaries. They all realize it is a real-time obligation, and they pay their obligations like clockwork. It has been engrained into their DNA over the past 20 to 30 years. We have always had actuarially required funding. This allows us to be a more conservative long-term investor and keeps us out of short-term cash flow stress.”

IMRF also averages gains and losses over a five-year period so that obligation rates stay relatively stable, Collins says. For example, the pension plan achieved a 15% return in 2017 that earned it over $5 billion, but 2018 was a rough year, with a return of -4.31%.

“Averaging the returns mitigates volatility so that rates stay relatively stable,” Duquette says.

In fact, the pension plan will be decreasing the average employer contribution rate from 11.24% of payroll last year to 9.06% this year. “To get contribution rates to the single digits is pretty rare,” Collins says. Duquette adds: “We ended 2018 around 90% funded, which is quite strong on both a statewide and a national level.”

By comparison, says Duquette, other pension plans in Illinois permit their governing bodies to decide how much to contribute each year, rather than relying on actuarial assessments, and some of the other large pension plans are in the low 70% funding level. In Chicago, some of the pension plans are even at a funding level of 40% or less, he notes.

“A funding level of 80% or more is considered healthy, so to be anywhere near 90% is unusual,” Collins says. “When you combine our funding structure with our disciplined investing, that’s how we achieve exemplary performance.”

Duquette notes that IMRF works toward “continuous process improvement” and strives to “be in the top 10% in terms on relative benchmarks.” In 2017, the pension plan was awarded the Illinois Performance Excellence Gold Award. “Only 14 Illinois-based organizations have received this award over the 22 years of this program. As deputy executive director, one of the things that I am most proud of is our journey of excellence.”

In addition to IMRF, Illinois offers its workers a 457 plan and Voluntary Additional Contribution (VAC) program to save for retirement, Duquette notes. Workers can contribute up to 10% of their salary, post-tax, into the VAC, Duquette says. These funds earn 7.25%, with the earnings tied into the assumed rate of return in the pension portfolio. Twenty thousand workers participate in the VAC, he says. —Lee Barney

E_NOTICE Error in file class.bcn_breadcrumb_trail.php at line 329: Undefined index: bpost_awards_hierarchy_display