- Rockford visitor spending jumps
- The misguided Cecil the lion debate
- State, union extend contract again
- Willow Creek left in the dust by development
- CUB helps residents find best deal
- What the Scott Walker fundraising controversy means for 2016
- Corn prices fade as supplies stay in surplus
- Cubs make history in an unfortunate way
- Pension battle headed for SCOTUS?
- Closed for Progress: downtown’s steady revival
Illinois Municipal Retirement Fund reports flat investment returns for 2011
Online Staff Report
OAK BROOK, Ill. — After a year of frequent and sometimes dramatic swings in the financial markets, investment returns for the Illinois Municipal Retirement Fund (IMRF) finished flat in 2011.
Overall, the total return for IMRF was a negative 0.5 percent, compared to a 13.6 percent positive return in 2010. The investment loss was approximately $106 million. The fund finished the year with $24.7 billion in assets.
These returns are based on unaudited investment return data. Finalized investment return data for IMRF will be available in early May 2012.
IMRF administers retirement, disability and death benefits on behalf of approximately 3,000 local units of government around the state. Its independent board of trustees, guided by professional investment managers, invests in a highly diversified portfolio that includes a broad mix of domestic and international stocks and bonds, real estate, private equity funds and hedge funds.
IMRF Executive Director Louis Kosiba said: “The financial markets were volatile during 2011, but we’ve experienced this before. Between 1982 and 2011, IMRF averaged a 9.95 percent annual return — and that period included the major bear markets of 2001, 2002 and 2008. Fortunately, IMRF and other solid, defined benefit plans with long-term investment horizons are designed to withstand that volatility.”
The end-of-the-year numbers close 12 months of significant market movements. The Dow Jones U.S. Total Stock Market Index decreased more than 7.7 percent in September, for example, then leapt more than 11.5 percent in October. By year-end, it settled up 1.08 percent overall. The MSCI ACWI Index (All Country World Index) was down 13.33 percent at the end of 2011. The Barclays Capital U.S. Aggregate Bond Index was up 7.84 percent.
Goal to be 100 percent funded
As of Dec. 31, 2011, IMRF was 80.5 percent funded on a market value basis (83.4 percent on an actuarial basis). Pension experts consider public pensions funded at 80 percent or higher to be fiscally sound. IMRF continues to strive toward its goal of being 100 percent funded both to maximize investment gains and provide long-term benefits to its members.
As an institutional investor with an infinite investment time horizon, IMRF is able to operate at about one-third the cost of a conventional 401(k). This gives it a decided advantage over the self-directed defined contribution plans that are common among employees in the private sector. During periods of market volatility and economic uncertainty, employees often either sell low and buy high, borrow against their retirement assets or cash out their 401(k)s prematurely. This leads to unnecessary tax bills and penalties for early withdrawals.
An IMRF account, on the other hand, cannot be withdrawn or used as loan collateral before retirement. The account is funded primarily by investment returns earned on regular contributions/payments from employees and their employers, made during the course of employees’ careers. Combined, these three sources guarantee the lump sum needed to fund a lifetime pension when an employee retires.
Further, the plan is designed to achieve the greatest long-term return with an acceptable amount of risk borne by the employer. For 2011, employer reserve accounts will be charged about $1.4 billion to cover interest credited to member and retiree accounts, as well as administrative and investment expenses. Employee and retiree reserve accounts will be credited about $1.26 billion.
“In the private sector, 401(k)s and IRAs place all the investment risk on the employee,” Kosiba said. “As a pension professional with more than 30 years studying investments and investors, I worry whether individuals are prepared to take on the responsibilities, risks and emotional swings that accompany retirement asset management.”
The Illinois Municipal Retirement Fund (IMRF) was created by the Illinois General Assembly. Since 1941, IMRF has partnered with local units of government to provide death, disability and retirement benefits for working and retired public employees.
Today, IMRF has more than 176,000 active members working for nearly 3,000 different units of government, including school districts, counties, cities and villages, parks and libraries. It has more than 97,000 retirees.
Members who retired in 2010 retired with approximately 22 years of service and received an average annual benefit of approximately $17,000.
IMRF consistently works toward reaching full funding over the long term, ensuring it remains financially sound. A full-funding goal guarantees public workers a secure and modest retirement income at the lowest long-term cost to taxpayers.
For more information, visit www.imrf.org.
Posted March 15, 2012