Kane County must make up difference on poor pension investment returns

A presentation Wednesday by state pension fund leaders provided new fuel for Kane County officials who want to shift local government employees into 401(k) plans.

County officials first raised the idea of dumping Illinois Municipal Retirement Fund pensions Tuesday. That's when new numbers revealed a $4.5 million deficit for the county budget heading into 2017. The deficit is the largest threat so far to keeping the county's frozen property tax levy in place.

Louis Kosiba, executive director of the retirement fund, told Kane County finance committee members investment returns of 0.44 percent fell far short of the 7.5 percent pension recipients are guaranteed. The county must pump more money into the pension fund to make up the difference. County officials could immediately quantify how much less they will have in property tax dollars to fund daily operations in 2017 because of the pension shortfall. However, the $4.5 million deficit does factor in the new expense.

County board Chairman Chris Lauzen said “the world has changed” and called on IMRF to reduce the expectation of investment returns below 7.5 percent.

“When we don't make 7.5 percent, it's bad,” Lauzen said. “In this system, we make our contribution plus we guarantee what the market is going to do. That one is a very hard burden. This year, we smacked our head against that burden.”

The remarks follow comments Lauzen made a day earlier in support of the finding a way to shift the county's employees out of a guaranteed benefit program and into a defined contribution system, more commonly known as 401(k) plans. Gov. Bruce Rauner supports a similar switch for state workers.

Kosiba congratulated county officials several times for having a pension plan that's in much better shape than any of the pension funds Rauner is concerned about. Some state pension funds have as little as 28 percent of the funds needed. In contrast, the pension fund for non-sheriff employees is 85 percent funded. The fund for sheriff's employees is 72 percent funded.

Lauzen pledged to work toward 100 percent funding for both plans. In the meantime, the burden to maintain current funding levels will increase for at least the next five budget years. Kosiba said that's how long IMRF will spread out the additional pension debt to county resulting from the $10 million additional shortfall created by poor investment returns in 2015.

Kosiba acknowledged that additional debt may grow. So far, IMRF fund advisers have not backed away from the expectation of a 7.5 percent investment return for this and future years. While 2015 was bad, and 2016 also looks poor, Kosiba said the average return on investment since 1982 has been more than 9 percent. A dollar invested with IMRF in 1982 is now worth $27.50.

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