Understanding IMRF. IASPA Winter Conference. Tecya Anderson Field Service Representative. January 26, 2012

Transcription

1 Understanding IMRF IASPA Winter Conference Tecya Anderson Field Service Representative January 26,

2 What We Will Cover Today Why talk about pensions? What is IMRF? Where does the money come from? Where does the money go? What happens when an employee retires? What is impact of Tier 2 legislation? What were the 2011 Legislative changes? How does IMRF help Illinois economy? 2

3 Why talk about pensions? Americans worry about retirement* 84% are concerned current economic conditions hurt their ability to achieve a secure retirement 78% believe the average worker cannot save enough money on their own to guarantee a secure retirement 73% believe the stock market makes it impossible for the average American to predict how much money they will have in their nest egg *National Institute on Retirement Security 2011 study. Telephone interviews of 800 Americans age 25 or older, margin of error 3.5%. 3

4 Why talk about pensions? Americans want pensions* 81% agree all workers should have access to a pension, so they can be independent / self-reliant in retirement 77% agree the disappearance of traditional pensions has made it harder to achieve the American Dream 80% agree Washington needs to give higher priority to ensuring Americans can have a secure retirement 83% agree government should make it easier for employers to offer traditional pension plans *National Institute on Retirement Security 2011 study. Telephone interviews of 800 Americans age 25 or older, margin of error 3.5%. 4

5 What is IMRF? One of 646 public pensions in Illinois Five state-funded systems State Universities, State Employees, Teachers, General Assembly, Judges Six Chicago-funded pension systems Three Cook County-funded pension systems 631 local police and fire pension systems Illinois Municipal Retirement Fund (IMRF) 5

6 What is IMRF? 118th largest pension system in the world 54th largest pension system in the country Second largest public pension system in Illinois Among best funded in state (86.3%)* *Market basis as of December 31,

7 What is IMRF? Created in 1939 by Illinois General Assembly In response to economic conditions (Great Depression) Social Security was not available for public employees Governed by Article 7 of the Illinois Pension Code Neither funded nor managed by the state 7

8 What is IMRF? Independently managed by autonomous board of trustees Represents municipal employers, employees, retirees 4 elected by employers 3 elected by active members 1 elected by retired members No appointed or ex-officio trustees 8

9 What is IMRF? Provides benefits to municipal employees Disability Retirement ( defined benefit pension) Death Serves 2,960 units of local government Cities, counties, non-teaching personnel 176,703 actively participating members 97,281 retired members 115,279 inactive members 9

10 What is IMRF? 10

11 What is IMRF? School District employee participation 600-hour standard, any consecutive 12-month period Consider all non-certified positions with same District Participation is required School Districts represent approximately 30% of our employers 11

12 Where does the money come from? Employees Employers Investment returns 12

13 Where does the money come from? Employees Contribute either 4.5% or 7.5% of pay Fixed by statute 97% of members pay 4.5% 13

14 Where does the money come from? Employers Contribute varying amounts Average employer rate for 2012: 12.42%* of employee s salary Contribute based on annual review of Employee demographics Value of pension assets ( reserve account ) Value of pension liabilities ( benefit promises ) Pay retirement benefits for their employees only *Regular Plan 14

15 Where does the money come from? Investments Are managed prudently IMRF chief investment officer One investment consultant firm 66 professional investment firms Admin costs are 35% of those charged by a 401K Are highly diversified with infinite time horizon Stocks Alternative Bonds Real estate 15

16 Where does the money come from? Investment returns Continue to recover from 2008 downturn 2008 lost $6.1 billion (24.8%) ROI 2009 earned $4.4 billion 24.5% ROI 2010 earned $3 billion 13.6% ROI 16

17 Where does the money come from? "&$ "#$ %&$ %#$ '&$ '#$ &$ #$!&$!'#$!'&$!%#$!%&$!"#$ 31.70% 10.60% 9.30% 22.70% 16.14% 6.04% 12.83% 16.96% -1.49% 20.98% 5.21% 13.78% -0.40% 20.68% 15.87% 16.19% 12.63% 20.93% 1.87% -6.08% -8.72% % 12.38% 8.71% 13.87% 8.52% % 24.52% 13.59% Penn Square Bank Failure Stock Savings Post Eight Asian Crisis Housing Market & Loan Gulf War Fed Rate Long Term Capital Failure Collapse Crash Collapse Recession Hikes Internet Bubble Financial September 11th In 1982, began operating under the Prudent Person Rule Total Fund return 1982 through 2010: 10.32%» 5 periods in which IMRF lost money» 3 periods < 7.5%» 21 periods > 7.5%» 18 periods double-digit returns Markets Collapse 17

18 Where does the money come from? Investment returns On average, fund 60% of benefit payments Members Employers (taxpayers) 13% 26% * Investment Income* 61% 18

19 Where does the money go? IMRF member benefits Refunds, $32.2 million paid in 2010 Disability, $11.5 million paid in 2010 Death, $28 million paid in 2010 Retirement, $1,138.5 million paid in 2010 IMRF provides a lifetime of benefits to our members 19

20 Where does the money go? The average IMRF member 47 years old Most likely works for a school district Earns $36,277 a year Received a 1.4% salary increase in 2010 Has 10.3 years of IMRF service credit 20

21 Where does the money go? The average IMRF retiree is Female Age 62 Final rate of earnings of $3,486 a month Retired with 22 years of service Receives a pension of $1,421 month 21

22 What happens when an employee retires? Pension is based on formula Service credit x Percentage x Final Rate of Earnings Years & Months x 1.67% (years 1 through 15) 2.00% (for each year 15+) x Average of highest 48 months in last 10 years of service After earning Pension would equal 8 years of service 13% of FRE 15 years of service 25% of FRE 20 years of service 35% of FRE 30 years of service 55% of FRE 40 years of service 75% of FRE (Maximum payable) Regular Plan 22

23 What happens when an employee retires? Mary R. is a secretary in the school district Retired at age 63 with 24 years of service credit 43% of final rate of earnings Average salary based on highest-paying consecutive 48 months during last 10 years Her monthly final rate of earnings $3, Her monthly pension $1, The present value of her pension $240, From her member account $61, Member contributions Interest (investment income) $30, $31, From her employer s account $179, Employer contributions.. Interest (investment income) $55, $123,

24 What is the impact of Tier 2 Legislation? Effective January 1, 2011 Impact on employees Vesting period Increases to 10 years from 8 Normal retirement / full pension Increases to age 67 from 60 Early retirement / reduced pension Increases to age 62 from 55 *Regular Plan 24

25 What is the impact of Tier 2 Legislation? Impact on employees Final rate of earnings Increases to 96 months from 48 months Salary cap Replaces no limits Set at $108, in 2012 Annual pension increases Delayed to age 67 Formerly began the first January after retirement Limited to 3% or one-half of increase in CPI, whichever is less *Regular Plan 25

26 What is the impact of Tier 2 Legislation? Impact on employers Normal cost* of pension reduced To 4.67% from 7.58% Reduction will vary with proportion of employer s Tier 2 members vs. its Tier 1 members In 8 to 10 years, expect 50% turnover in members Number of Tier 2 members expected to grow Employer costs expected to decrease *Cost of retirement benefits earned in the current year. 26

27 What were the 2011 Legislative changes? Accelerated Payment Public Act , General Memo 620 Not a penalty Applies to earnings paid 1/1/2012 or later Requires an Accelerated Payment, if increase earnings exceed 6% IMRF will calculate present value with and without earnings that exceed the limit Payment required in 90 days no interest; or up to 3 years with 7 ½% interest New calculator available online 27

28 What were the 2011 Legislative changes? Exceptions to Accelerated Payments Overtime Increase in number of hours required for work Employment promotions that increase responsibility and workload Earnings paid to members more than 10 years from retirement Earnings paid under contracts or collective bargaining agreements entered, amended or renewed prior to 1/1/12 Personnel policies adopted by governing body prior to 1/1/12 and applicable only to members participating prior to 1/1/12 Must be in writing 28

29 What were the 2011 Legislative changes? Pension impact statement Effective 1/1/12 Statement required prior to increasing earnings by 12% or more for an officer, executive or manager Will provide the effect the earnings could have on pension, and AP cost Fee is $100 per member Employers must sign and return Statement to IMRF 29

30 What were the 2011 Legislative changes? Open Meeting Act Effective 1/1/12 IMRF employers must post total compensation package that exceed $75,000 Questions, please contact the Illinois Attorney General s Public Access Counselor 30

31 What were the 2011 Legislative changes? Tier 2 changes Applies to members that begin IMRF participation 1/1/12 or later FRE is highest consecutive 96 months within 10 years 125% limit on last 3 months is replaced by 125% limit on last 24 months 31

32 What were the 2011 Legislative changes? Return to work issues Applies to members that begin IMRF participation 1/1/12 or later Cannot perform contractual service Pension is suspended ERI retiree can work as auxillary police officer effective 8/26/11 See Municipal Code Section

33 What were the 2011 Legislative changes? Employer retirement cost changes This affects employers who have had an IMRF member who has participated with two or more employers. Instead of prorating employers cost based on service alone we will now be calculating costs based on service and salary. Old method: based upon service; employers were charged based on their share of service, irrespective of what the member was paid New method: based upon service and salary

34 What were the 2011 Legislative changes? Benefit Protection Leave Enables member to establish up to 12 total months of service when paid For retirement credit For death and disability protection Employer cost is amortized No time limit for approval, other than member must be a participant in IMRF or reciprocal system when application is received Gap in service needs to be approved by employer that member was with at the time

35 How does IMRF help Illinois economy? Retirees spend their money here 85% of retired members remain in Illinois In 2010 IMRF paid $988 million to Illinois retirees 35

36 What We Covered Today Why talk about pensions? Americans worry about retirement, want pensions, and think government should make them easier for employers to offer them What is IMRF? Independent, fiscally responsible, cost-effective, well-funded Central to retirement security of 389,200+ Where does the money come from? Members, employers, primarily investment returns Where does the money go? To retired municipal employees What is the impact of Tier 2 legislation? As Tier 2 members increase, employer costs will decrease What were the 2011 legislative changes? Accelerated payments, pension impact statements, open meetings act, Tier 2 changes, return to work, employer charges, benefit protection leave How does IMRF help Illinois economy? $988 million in pension payments created $1.5 billion economic activity 36

37 Questions? 37