Illinois’ second-biggest pension seeks new leader – Finance News

on Jul16

13 July 2017 | 10:30 am

There’s one healthy major pension fund in Illinois, and it’s looking for a new leader.

Lou Kosiba, who has led the Illinois Municipal Retirement Fund for 16 years, announced last year that he’s retiring at the end of this year, leaving behind a $38 billion pension that is nearly 90 percent funded.

IMRF, which covers school janitors, county hospital nurses, sheriffs and other workers in 2,987 municipalities from Evanston to Springfield (excluding Chicago), is a bright spot among the state’s five largest pensions. The other four woefully underfunded pensions give Illinois the worst pension system in the U.S., and are arguably the state’s biggest financial burden. Kosiba, 66, has some unpopular parting advice.

“The money just isn’t there with the current tax structure,” said Kosiba, who is IMRF’s executive director. “There’s a couple of things they can do to kick the can further down the road, and no one wants to see that done, but on the other hand, the only way to address the pension issue is to raise taxes.”

Despite the recent breakthrough for Illinois in finally passing a budget, for the first time in more than two years, the legislation did nothing directly to address the state’s $130 billion in unfunded future pension liabilities, and it may have even made it worse, according to my colleague Joe Cahill. Kosiba’s comments came in an interview last month, before passage of the state’s recent tax increases, but he said this week that his comments about the need for more revenue are still valid.

Moody’s has pointed to the pension underfunding as one of the key reasons it’s keeping Illinois in the hot seat for a possible downgrade on its bonds to junk status. “So far, the plan appears to lack concrete measures that will materially improve Illinois’ long-term capacity to address its unfunded pension liabilities,” Moody’s Investor’s Service said in a July 5 note.

IMRF is the second-biggest of five major pension funds in the state, based on its assets, behind the Illinois Teachers Retirement System. The major difference between IMRF and the other pensions is that the four others are dependent on state government for annual contributions that just haven’t been made consistently since the 1980s.

Unlike those pensions, IMRF can force its city and county employer members to pony up contributions needed to make sure the pensions are healthy in the long run. “One of the key factors that has made IMRF unique is that we have the ability to require our employers to make the required contributions so we have policing authority,” Kosiba said.

“If a unit of government fails to contribute the money they’re supposed to contribute we can sue them in court. We can intercept monies flowing from the state to the unit of government. If they’ve levied real estate taxes to fund the IMRF program, we can go to the county treasurer and get that money.”

IMRF, which has 205 employees, gets about $900 million in contributions from its municipality members every year, and only about $600,000 to $700,000 is slow to arrive, he said. The fund discovered in the 1980s that suing members didn’t do much good because it would just get a judgment bond similar to the IOU it already had, so today it resorts mainly to intercepting state funds eight to 10 times a year.

“You go after the money, and guess what, people see the light of day and then they don’t do it anymore,” Kosiba said.

IMRF, which has about 175,000 active workers and covers 123,200 retirees, is funded for 89 percent of its future pension obligations. By contrast, the rest of the states’ pensions have about 40 percent, at best, and Chicago’s major pensions are also underfunded.

Even with the leadership change, IMRF’s positive ledger isn’t likely to change anytime soon. Its track record in effectively collecting money from its members over the years means it can rely heavily now on investment returns. Earnings from investments have accounted for 62 percent of its overall income over the past, with just 26 percent coming from its employer members and 12 percent from active workers.

Getting to this point hasn’t been pain-free for IMRF. The fund’s members swallowed a big hike for their contributions after the 2007 financial crisis undercut investment returns. To make up for that setback, their contributions have jumped to 11.8 percent of their payroll, on average, from 6.6 percent back in 2002.

Statewide pension reform in 2010 under former Illinois Democratic Gov. Pat Quinn helped ease the pressure. Under changes that took effect the following year, new hires can only retire with full benefits at 67, up from 60 previously, and cost-of-living increases for those future retirees are lower, plus annual wages used to calculate pensions are capped. That significantly cut the pension burden, Kosiba said, reducing IMRF costs for those future retirees about 40 percent relative to the workers who aren’t covered by the changes.

Soon, Kosiba himself will be relying on two of those state pensions to fund at least part of his own retirement. He’s covered by IMRF as well as one of the state’s laggard funds, State Employee Retirement System, which is only 31 percent funded.

He notes that none of the state’s pension funds have ever missed a payment to a beneficiary, and he expects they never will. In any case, he said he feels fortunate to even have a pension when so many people in Illinois don’t. He’s also lucky to be part of the one Illinois pension that is better funded than most in the country.



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