“The 2008 financial crisis hurt retirement savings, but we found public defined benefit pensions in red states and blue states that survived the market’s free-fall in reasonable shape. Surprisingly, one of those well-funded plans is the Illinois Municipal Retirement Fund.
What distinguishes financially sound pensions from others? It’s simple: mandated, adequate contributions. “Adequate” means contributions from both employees and employers totaling the amount that actuaries calculate will cover benefits—the actuarial determined contribution, or ADC.
IMRF reached over 100 percent funding before 2008 because Illinois requires municipalities to fund their ADCs. At 93 percent today, the plan is almost back to full funding. Legally mandated employee contributions and—as Texas, Idaho and other states require—employer contributions ensure long-term soundness.
Problems arise when elected officials shortchange the ADC. The short-term revenue that’s gained to spend on current projects comes with a high price later. The power compounding can generate a long-term disaster, akin to paying only the minimum credit card payment while continuing to spend. The outstanding balance balloons. Likewise, unfunded pension liabilities, created when politicians contribute less than ADC, ultimately explode skyward as unpaid contributions compound with interest.” -Crains Chicago Business