How is the Illinois Municipal Retirement Fund in such strong financial shape? Local governments are forced to make their contributions on time and in full.
"A public pension plan that actually works" is how Crain's Greg Hinz described the Illinois Municipal Retirement Fund (IMRF) in a post yesterday. The Civic Federation's Laurence Msall agreed, saying: "They represent the best model we have in Illinois." The numbers speak for themselves. Despite taking a big stock market hit in 2008, IMRF -- which covers about 182,000 municipal workers outside of Chicago -- is funded to the tune of 81 percent of its current actuarial value. So why is it more stable than the state's other funds? As Hinz explains, local governments -- unlike the state -- are forced to make their contributions on time and in full:
Every year, IMRF reviews the books, checks with the actuaries and lets each of its members know how much they will have to pay next year to keep reserves adequate. And the towns effectively have no choice but to pay, because IMRF has the legal authority to tap the tax income of towns and districts that don't pay up.
Hinz makes some valuable points about the financial management of the fund. But he also suggests that the size of IMRF benefits contribute greatly to the fund's solvency:
That mix means IMRF does not have to deal in Springfield with the powerful teachers and public-safety unions, which have used their power to jack up retirement benefits mandated by the state.
As a result, IMRF benefits haven't changed since the early '80s, while benefits covered in other plans have been sweetened time after time.
A quick comparison with the state's five public pension funds appears to undermine this argument. Below is a chart outlining five key components of a pension package: the retirement formula, retirement age, vesting (how many years one must work to qualify for full benefits), the cost-of-living adjustment, and the employee contribution. While IMRF is not the most generous of the bunch, the differences are relatively minimal. And when compared to the state employee fund (SERS), which employs workers in similar trades, it's almost identical:
The lesson here? Illinois' problem is not that state worker retirement benefits are too big. It's that the state has, for decades, avoided making full contributions to its pension systems. Perhaps if the state funds had a similar authority to IMRF, we wouldn't be facing such a drastic shortfall.
UPDATE: Be sure to read the comment left below by AFSCME Council 31's Anders Lindall. He highlights some important distinctions between the pension systems compared in the chart above.