Illinois Municipal Retirement Fund

The Illinois Municipal Retirement Fund is a public pension system with 2,900 employers. According to Louis Kosiba, executive director of the IMRF, it is the best-funded pension system in the state of Illinois. That may not be saying a lot, given that Illinois itself has among the worst-funded state retirement systems in the U.S. 

And perhaps that helps to explain why Kosiba works so hard to ensure the IMRF stays in good health. "I think a natural question is, 'Well, why do you want to be 100-percent funded?' And the answer is that over the long-term, that's the lowest cost to the employer," said Kosiba.

Not every employer might agree at all times, but Kosiba has a way of enforcing compliance.

"We have policing authority to ensure that employers pay what's required of them to fund retirement benefits for their employees," said Kosiba. "If you have the authority to do something and you're afraid to use it, then it's like not having the authority at all. But we have the authority and we do use it when necessary."

The IMRF can, for example, sue a delinquent employer in circuit court, garnish state monies and, if the unit of government levies real estate tax to fund its IMRF obligations, can secure the funds directly from the county treasurer.

Kosiba said that in an average year, of the 2,900 employers in its stable, the IMRF has five or six against whom some sort of action is required.

"It's pretty rare," said Kosiba. "These are not big units of government. A lot of times it's just two or three people working for a unit of government, but when necessary we will exercise that policing authority."

IMRF's board – four trustees elected by employers, three elected by employees and one elected by retirees — helps, too.

"We really stick to our plan during difficult economic times, like during 2008," said Kosiba. "We didn't give anyone a pass, we didn't have funding holidays. We took a hit like everybody else, but we're long-term investors and what that means is we don't panic when the market panics. … As a sophisticated institutional investor we have the luxury to wait out those market fluctuations."

Kosiba said that the system, which started 2008 with $24 billion in assets, dropped to $18 billion by the end of 2008, but now manages over $35 billion.

"What we have is a culture in which IMRF employers pay their bills," said Kosiba. "Just like they pay the light bill, they're going to make sure that payments to the retirement system are paid as well."

It's that, or their power goes out.

Oh, and what was the system's funding ratio in 2013? A very respectable 87.6 percent.

The Iowa Public Employees' Retirement System  

The Iowa Public Employees' Retirement System, which covers 346,413 members who work for schools, cities and the like, had a funded ratio of 82.7 percent last year, also one of the highest in the nation.

"IPERS is a prefunded system," said Judy Akre, director of communications at IPERS. "To make this successful, IPERS must manage to a simple funding equation: 'Contributions + Investments = Benefits and Expenses.'"

Well, of course it is. But pursuing this equation has not always been easy.

CEO Donna Mueller explains that in the wake of The Great Recession and a decade of underfunding contributions, IPERS ended up with a sizable shortfall. According to Mueller, IPERS took various steps to address the problem, including changing member benefits. That included:

• Increasing the vesting period from four to seven years for non-vested employees;

• Increasing the early-retirement reduction in benefits for all IPERS members from 3 percent to 6 percent for each year someone retires before reaching normal retirement age;

• Increasing the number of years used in the calculation of an employee's average salary from three years to five years.

Also, the Iowa General Assembly in 2010 increased the combined required employer-employee contribution to 13.45 percent, an increase of nearly 30 percent from the 10.45 percent previously required.

Moreover, since the beginning of fiscal 2013, IPERS has been allowed to adjust the contribution rate up or down each year by up to 1 percentage point to bring it closer to the actuarially required contribution level.

All of these adjustments give cause for optimism, Akre said. "The changes that have been made to IPERS are proving to be beneficial in securing the funding for paying promised benefits," she said. And that, as many public retirees know, is saying a lot nowadays.

North Carolina Retirement Systems

The North Carolina Retirement Systems serve 875,000 current and former state and local employees and administer seven major public pension plans. 

According to the SLGE study, "the system consistently uses conservative actuarial assumptions, assuming a 7.25 percent return on investments to minimize risk and recognize all promised benefits in actuarial liabilities."

As simple as that sounds, there are plenty of systems that aren't very conservative about their investment projections. It's a bad habit that, when markets sink, invariably leaves them short.

"Historically, we have utilized a lower-risk and highly-diversified approach to help avoid large increases and decreases in the contribution rates over time," said Brad Young, a spokesman for the North Carolina State Treasurer's Office. "It has been the treasurer's long-standing goal to diversify the fund to help ensure that it can weather market volatility. While we are still more invested in fixed income than our peers, we continue to strategically diversify the fund."

Thanks to the bull market, it's an approach that has worked nicely. The funding ratio for the Local Governmental Employees' Retirement System last year was 99.8. It was 94.8 for the state's Teachers' and State Employees' Retirement System. As a result:

• The vesting period for all employees was returned to five years last year, after having been increased by the General Assembly in 2010 to 10 years.

• In 2012, the legislature authorized a 1 percent increase in benefits to retirees on the roll as of July 1, 2011.

Neither change is at all commonplace in the underfunded public pension world.