By DENNIS GRUBAUGH
While state-funded pensions around Illinois are floundering, another retirement plan that benefits many of its residents is leaving most pensions in the dust.
That plan is the Illinois Municipal Retirement Fund, and it is doing quite well, thank you.
The IMRF’s members are employed by taxing bodies, meaning the plan itself is funded by local governments and not the state of Illinois. And in the last four decades, the fund has proven itself time and again, through a disciplined, conservative funding structure, addressed by state law.
“Last year was outstanding for IMRF. Our plan realized a return on investments of more than 15 percent, and that’s pretty impressive,” said newly-appointed leader Executive Director Brian Collins, who stopped recently in Collinsville, one of the fund’s member communities. “IMRF’s assumed rate of return is 7.5 percent. Simply put, we doubled our goal. So, this is great news for units of government that participate in IMRF and taxpayers statewide.”
The new chief of the Illinois Municipal Retirement Fund has been meeting with municipal representatives and other employer partners to discuss what he called the fund’s “continued track record of success.”
IMRF is one of at least 660 Illinois public pensions — but it’s the second-largest in terms of assets and the best funded. It paid $1.71 billion to retirees in Illinois in 2017, resulting in $2.51 billion in local economic activity, according to IMRF estimates based on data from the U.S. Bureau of Economic Analysis.
As of this year, there were 9,559 IMRF members living in Madison County and another 9,538 in St. Clair County. IMRF has 419,799 total members. There are 76 local units of government participating in IMRF in Madison County, and another 81 in St. Clair County.
Every IMRF pension dollar has been funded by three sources. Some 64 cents per dollar comes from IMRF investment earnings. Another 24 cents comes from IMRF employers. The remaining 12 cents comes from IMRF members. That makes people who pay taxes associated with those systems stakeholders in the whole process.
Collins says 86 percent of the fund’s retirees stay in Illinois, contributing to the welfare of a state that can sorely use it.
“They are shopping, eating, traveling, and paying sales taxes. IMRF’s retirees have a collective, positive impact on local and statewide economies,” he said.
Because its investments did well in 2017, the average employer contribution rate for the IMRF is decreasing – from 11.24 percent of payroll in 2018 to 9.06 percent of payroll in 2019, Collins said.
IMRF’s investment portfolio realized a gain of 15.73 percent, net of fees, during 2017. That generated about $5 billion in net investment income, growing the total value of the portfolio to $41.4 billion as of Dec. 31, 2017, the close of IMRF’s fiscal year.
“That compares very favorably to the industry. We believe we have been good stewards of the money,” Collins said.
The 2017 investment return increased IMRF’s funded status on a market basis from 88.3 percent on Dec. 31, 2016, to 98.2 percent on Dec. 31, 2017 (the close of IMRF’s most recent fiscal year).
So, why is IMRF so well-funded? How is it able to stay out of debt when so many pension plans in Illinois are struggling to survive?
“No doubt about it, what makes our pension boat float is our long-term investment strategy,” Collins said. “We are among a very, very small number of large public pension plans that have a funding level this high,” Collins said.
However, that number is volatile and reflects the performance of the market. Since 1982, the fund has enjoyed a gross return of 10.05 percent and has declined in only six years during that 36-year timeframe.
The vast majority of public pensions in Illinois, 653, are for police and fire systems of various cities and villages of 5,000 or more population.
There are five state-run systems, for teachers, employees, universities, the General Assembly and judges.
Cook County has two systems, and there are eight others for the Chicago area.
IMRF was founded in 1941 by five employers — the cities of Rockford, Evanston and Galesburg, the village of Riverside and the Rockford Park District.
Today, the fund serves almost 3,000 units of government. Some 850 are school districts, representing 85,555 members, or 48.7 percent of the total. Another 1.9 percent are in townships, 8 percent in villages, 10.2 percent in cities and 1.9 percent in libraries. The remaining 29.3 percent are an amalgam of other entities.
IMRF’s Chief Financial Officer Mark Nannini appeared with Collins at the Collinsville presentation, one of several that the organization is holding around the state.
By state statute, IMRF members contribute 4.5 percent out of every paycheck to fund their future IMRF pension. IMRF employers also contribute an amount of their covered payroll to IMRF on a monthly basis.
“We credit you for the contributions you make, we credit you for any investment gains or losses. Your assets, your liabilities, your payouts, your contributions are unique to you as an employer,” Nannini said.
“It’s one of the bright spots of the pension world, but although it’s a bright spot there’s trouble all around us, as everybody knows,” he added.
Collins is only the seventh executive director of the agency. He followed Louis Kosiba, who had spent 17 years at the helm.
IMRF last year won the gold ILPEx, or Illinois Performance Excellence Award, a qualifier award that makes it eligible to compete for the Malcolm Baldrige Quality Award that recognizes business efficiency.
“The process of competing for that award makes you a better organization,” Collins said. The organization began chasing the award 10 years ago when it decided to increase its focus on customer service and operational excellence.
The fundamental difference between IMRF and other pensions is that IMRF employers have to pay their annual required contribution.
“If they don’t, IMRF has the obligation and statutory authority to intercept the payment. Over the course of history, you could probably count those (intercepts) on one hand,” Collins said.
It’s all about being part of a disciplined system that pays its obligations as it goes, but even with that discipline, returns are still two-thirds of the equation, he said.
Other funds, like those funded by the state of Illinois, haven’t received adequate contributions from their employers, and therefore are suffering now.
“This year we’ve made almost 16 percent (return). You can’t get that back if you didn’t put the funds in,” Collins said. “That’s what’s so frustrating about the (state’s) problem. It’s the elephant in the room. It’s not a math problem — these pension funds can’t crank out returns if the state isn’t making the full contribution.”
There are a lot of ideas about how to fix Illinois’ pension problem, but none gets to the basic idea of investing the money routinely. The state’s used that money for other purposes and now doesn’t have it to apply to pensions.
One of the reasons IMRF did well in rebounding from the recession years, and other down years, is a conservative long-term investment strategy, he said.
“The higher your funding level, the bigger your shock absorber,” Collins said. “If you’re at only 25 percent funded, a (recession) market like that takes you basically to zero. You’ve got the luxury of not panicking when you’ve been building it as you should.”