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Status of Illinois Municipal Retirement Fund — 3 Comments

  1. As of the FY 2017 IMRF CAFR, IMRF had 2,997 different employers.

    Each employer has a unique funded ratio…the 92.7% in 2017 in the third chart above is the AVERAGE for all 2,997 employers.

  2. The McHenry County unit of government, as of December 31, 2016 (the most recent statistics publicly available):

    – owed $51,053,142 to the IMRF pension fund.

    – was 85.7% funded, which was below the average of all IMRF employers.

    ++++++++

    The most recent McHenry County CAFR (FY ending November 30, 2017) contains IMRF balances as of December 31, 2016.

    As of December 31, 2016, McHenry County’s combined IMRF (regular + SLEP) funded ratio was 85.7%.

    Compare that to the 2016 column in the chart above (the third chart), which indicates the average IMRF employer in 2016 was 88.9% funded.

    Thus McHenry County fell below average.

    +++++++

    In raw numbers, the unfunded liability for McHenry County’s IMRF (regular + SLEP) was $51,053,142.

    That means $51M was missing from the pension fund.

    Since the investment return on zero, is zero, there were no investment returns on the missing $51M.

    Employers (taxpayers) are responsible for 100% of the missing investment returns.

    +++++

    Here’s how that works in general.

    McHenry County does not get a bill from IMRF for the missing investment returns.

    Rather, the missing investment returns are absorbed into the unfunded liability when IMRF performs its annual actuarial calculations.

    The assumed rate of return of IMRF is currently 7.5% (the IMRF board voted to lower it to 7.25% effective 2020).

    $51,053,142 x .075 = $3,828,985 pension interest.

    +++++++

    Employees and retirees are responsible for zero pension interest.

    +++++++

    Sources:

    Source 1 – The IMRF percent funded calculation was derived from figures on pdf page 88 of 243 of the McHenry County 2017 CAFR.

    Here’s how to locate the information.

    Note, SLEP = Sheriff Law Enforcement Plan.

    Step 1. “Regular Plan” “Plan Fiduciary Net Position” + “SLEP PLan” “Plan Fiduciary Net Position”.

    Step 2. “Regular Plan” “Total Pension Liability” + “SLEP Plan” “Total Pension Liability”.

    Step 3. Divide the totals.

    “Plan Fiduciary Net Position” / “Total Pension Liability”.

    The result is the Funded Ratio.

    ++++++

    Source 2 – pdf page 73 of 102 of the IMRF 2017 CAFR, used as a reference point that IMRF was 92.9% funded based on the smoothed value of assets (aka actuarial value) as of December 31, 2017.

    Thus use the 2016 Funded Ratio column in the third chart in the blog article, to compare the 2016 McHenry County Funded Ratio, to the 2016 average Funded Ratio for all IMRF employers.

    ++++++++

    McHenry County could use the Valley Hi surplus to more fully fund IMRF, saving taxpayers pension interest.

    ++++++++

    Those participating in IMRF also participate in Social Security.

    Thus retirees receive both IMRF and Social Security.

    For comparison, most participants of other Illinois public sector pension funds do not participate in Social Security (for the job covered by the pension).

  3. Annual interest cost due to unfunded pension liabilities.

    Call it pension interest (layman not technical term).

    The pension interest is mentioned in the above comments.

    The discussion continues below.

    ++++++++

    Neither IMRF nor McHenry County posts a document on their website which explains the annual IMRF pension interest cost attributed to McHenry County.

    GASB (Government Accounting Standards Board) apparently has no such recommended document

    No document explaining the annual taxpayer cost, estimated in interest, of underfunded pensions.

    The annual estimated cost in interest to taxpayers for financing underfunded pensions.

    Pension interest.

    ++++++++++

    The referenced pension interest is due to a shortfall of investment funds.

    The shortfall of investments is the unfunded liability.

    The shortfall of investments is the amount missing from the pension fund.

    The amount missing can be expressed as zero.

    The investment return on zero, is zero.

    Big problem.

    ++++++++++

    The problem is not isolated to IMRF or the McHenry County unit of government

    The same is true of all local units of government which participate in IMRF.

    The same is true of local school districts and the TRS pension fund.

    The same is true of the many local units of government, including school districts, regarding other post employment benefits (OPEB).

    No one publishes a document of the annual interest cost to taxpayers of underfunded pensions & OPEB.

    Thus, the public does not recognize the problem.

    ++++++++

    The problem is masked by amortizing (spreading) the annual interest cost over the amortization (payment) period.

    That can be compared to burying the annual interest cost in your mortgage, student loan, or car loan.

    That can also be compared to a local unit of government burying its annual bond interest cost.

    It is very important to have itemized annual interest for unfunded liabilities and bonds, so the taxpayer understands the cost of financing these items.

    ++++++++

    Unfunded liabilities result in a more expensive product due to interest on the unfunded liability.

    In this case, interest on unfunded pensions & OPEB.

    ++++++++++

    In the previous comments above are references to pages in the McHenry County FY 2017 CAFR.

    Here is more information about that source document.

    Link to the McHenry County (unit of government) Comprehensive Annual Financial Reports (CAFRs):

    mchenrycountyil.gov/county-government/departments-a-i/auditor/comprehensive-annual-financial-reports

    ++++++++++++++++++

    Link to the fiscal year 2017 (FY 2017) McHenry County CAFR, for the fiscal year ending November 30, 2017 (the most recent report posted on the county website):

    mchenrycountyil.gov/home/showdocument?id=87659

    ++++++++++++++++++

    Restatement from previously posted comment:

    $51,053,142 McHenry County IMRF pension unfunded liability

    x

    .075 IMRF interest rate

    = $3,828,985 pension interest.

    That is $3.8M pension interest for one year.

    ++++++++

    $3.8M interest is the estimated annual interest cost to McHenry County taxpayers of having a $51M unfunded IMRF liability.

    ++++++++

    A credit card with no limit.

    Constitutionally guaranteed pension benefits that can be hiked to unlimited benefit levels, allowing unlimited salary hikes, while pensions are already underfunded, is a pension credit card with no limit.

    Shorting the annual pension contribution allows money to be diverted to salary hikes and other pet projects.

    That of course exacerbates the problem.

    For example.

    Not fully funding IMRF allows the County Board Chair to propose rebating a surplus in the Valley Hi retirement home fund to taxpayers, leaving IMRF pensions underfunded.

    No mention to taxpayers of the opportunity cost of such an action.

    The annual cost of having an unfunded IMRF liability.

    (The annual pension interest cost is spread over the IMRF amortization period during the annual actuarial calculation.)

    A diabolical politician’s dream.

    +++++++++

    The unfunded liability results in more expensive pensions due to interest.

    That pension interest compounds over time, in the wrong direction.

    Interest on the unfunded pension liability results in more expensive government.

    Pension interest in this case is in lieu of investment returns.

    ++++++++++

    Amortization period.

    pdf page 119 of 243 of the McHenry County FY 2017 CAFR.

    Methods and Assumptions used to determine 2016 contribution rates.

    27 year closed period.

    Meaning, the annual pension interest is amortized (spread) over 27 years.

    2016 + 27 years = year 2043.

    Thus the annual $3.8M pension interest on the $51M unfunded liability is amortized (spread) from years 2017 – 2043.

    Thus the taxpayers are financing the unfunded pension liability from years 2016 – 2043.

    During that period, annually, more pension interest is added, then spread over the remaining period.

    +++++++

    The Illinois Supreme Court ruled that pension & OPEB benefits cannot be diminished or impaired for existing workers (only future employees).

    The ruling was regarding the pension sentence, which was one many sentences approved in the December 15, 1970 special election for the re-written state constitution.

    The ramifications of that sentence were not understood by voters then.

    And it seems most people still don’t understand the possibilities and consequences of that sentence.

    For good reason, as it is a complicated topic.

    One problem being, salaries and benefits can be hiked to unlimited levels, while simultaneously the government makes lower than responsible annual pension contributions and diverts some or all of the proceeds to salary hikes.

    Of course hiking the salaries, hikes the government pension contributions.

    Which makes no taxpayer sense since the government is already making artificially low contributions.

    Which does make sense to public sector unions and workers who want maximum salaries and pensions.

    And this went on for decades.

    The younger one is, the more risk one assumes for this scheme, be it taxpayer or public sector worker.

    Who is educating the youth about this problem?

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