PLANSPONSOR - April/May 2019 - 45

2019
balanced perspective on everything, " he observes.
" Notably absent from this plan are political appointees,
as are often [found] in other pension plans, " he says. " Not
having politics enter into this fiduciary relationship has been
a strength of ours.
Over the years, the trustees-and I have been here 29
years-really keep in mind what is in the best interest of the
pension plan when making decisions. " Moreover, " they receive
training each year aimed at fiduciary responsibility. "
The pension plan team includes Callan as consultant and
Northern Trust as plan custodian.
The Illinois state legislature granted IMRF statutory
authority to set employer contribution rates based on actuarial
best practices, and the pension system 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
IMRF was 98.2% funded
on a market basis at the
close of its fiscal year
ending December 31, 2017.
the municipal entity's sales tax revenue, Collins explains. " It's
unusual to have this legislative authority. Having the leverage of
this enforcement power has put IMRF in a very strong position
whereby we have almost never had to use our intercept authority.
" The state teachers' plan and the university system are
funded either by the state or the city of Chicago, " he continues.
" 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 has paid anywhere approaching the required minimum. "
The Actuarial Difference
By comparison with the other two governmental plans, 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. When you combine the
funding structure with our disciplined investing, that's how you
come up with exemplary performance. "
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. " Our employers value consistent
rates. "
Moreover, 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.
" We ended 2018 around 90% funded, which is quite
strong on both a statewide and a national level, " Duquette says.
In Chicago, some of the pension plans are at a funding level of
40% or less, he observes. " The disparity between our plan and
those is extreme. "
" A funding level of 80% or more is considered healthy, so to
be anywhere near 90% is unusual, " Collins says.
Performance Excellence
According to Duquette, IMRF works toward " continuous process
improvement. " In 2017, the pension plan was awarded the
Illinois Performance Excellence (ILPEx) Gold Award. " Only 14
Illinois-based organizations have received this award over the 22
years of this program, " he says.
" As deputy executive director, one of the things I am most
proud of is our journey of excellence-being able to balance
everything from senior leadership to workforce engagement. We
try to measure everything that we do and aim to be in the top
10% in terms of relative benchmarks. "
In addition to IMRF, Illinois offers its workers a 457 plan
and a voluntary additional contribution (VAC) program to save
for retirement, Duquette says. Workers may contribute up to 10%
of their salary, post-tax, into the VAC. These funds earn 7.25%,
with the earnings tied in to the assumed rate of return in the
pension portfolio.
" With savings at many banks earning as little as 0.07%, this
is a pretty good deal and is a great benefit for our members, " he
says. Twenty thousand workers participate in the VAC, he says.
-Lee Barney
Public Defined Benefit Finalist
Missouri Local Government Employees Retirement
System (LAGERS) Jefferson City, Missouri
Read the finalist profile on plansponsor.com/PSOY2019.
PLANSPONSOR.com April - May 2019 45
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