There continues to be a call forpension reformat the state level and for the City of Chicago and Cook County. As the executive director of the Illinois Municipal Retirement Fund, I think that is misleading. Let me explain.
This year marked the 75th anniversary of IMRF, which provides death, disability and retirement benefits for some of your neighbors, friends and possibly family who work in local government at town halls, libraries, park districts and schools. We do not cover city of Chicago employees or those of Cook County. We do not cover teachers in school districts, but rather the support personnel who create and maintain the physical learning environment.
IMRF is over 87 percent funded, which is considered very solid by industry standards. This is due to proper, prompt and full contributions by local units of government. Over the long term, 62 percent of the pension cost has been funded through investment returns. Public employees contributed 12 percent, and taxpayers the remaining 26 percent. From 1982 through 2015, IMRF averaged investment returns of 9.94 percent.
There is popular rancor over public pensions—but if properly funded, costs are manageable. Yet those costs havegotten out of handbecause proper funding has not been viewed as a priority in the past. Now these costs—which are part of a comprehensive compensation package—have a major impact on tight budgets.
As for why the call for pension reform is misleading, remember that reforms were enacted at the state and local level in 2010. As a result, pension costs at IMRF for new employees are 40 percent lower. That pension reform reduced costs for every public pension in Illinois, as well.
So when we say we have a problem, that problem is budgetary, not structural. Illinois' pensions are not overly generous. Likewise, if you run up your credit card bill, the issue is not the existence of a credit card, but how you use it and how you pay for it.
Moreover, as the state, county and city underfunded pensions, taxpayers received other benefits and programs funded through short paying those retirement systems. Some programs enjoyed by taxpayers today would not have existed unless taxes were raised or pensions shortchanged. Unfortunately, shortchanging pensions was easy and painless until now.
The unfunded liabilities incurred to date are a permanent fixed cost that cannot be reduced. “Pension reforms” intended to reduce that cost are a pipe dream. Benefits promised need to be paid.
That is not to say that the public, press and pension administrators should not seek to stop pension abuse—which usually happens through salary spikes that ultimately inflate pensions. Abuse also occurs by enrolling people who do not meet the eligibility requirements.
But new legislative proposals to “tweak” retirement benefits ought to stop. I've experienced sufficient legislative sessions to know that, every year, proposals will be made seeking small adjustments in benefits in the name of “fairness”. But fairness often means increasing benefits for someone or some small group. The costs, it is argued, are small. As the proverb says, the journey of a thousand miles begins with one step. Sometimes good intentions (such as compounding cost-of-living adjustments) lead to a small, fair step that ultimately costs taxpayers tens of billions of dollars.
I believe in pensions like IMRF. I wish every worker in Illinois had a reasonable compensation package that provided some protection when they no longer could, or wanted to, work. Until that happens, I will work to make IMRF a better, more efficient program and support pensions for all.
Louis W. Kosiba has been with the Illinois Municipal Retirement Fund since 1988 and has served as executive director since 2001. He was IMRF general counsel from 1990 to 2001.