General Memo 638


Preliminary Notice of IMRF Contribution Rate for Calendar Year 2014

March 29, 2013

Please share this memorandum with your unit of government’s chief financial officer, other officials, and governing body members.

Executive Summary

Each employer’s “Preliminary Notice of Illinois Municipal Retirement Fund Contribution Rate for Calendar Year 2014” is available in your Employer Document Archive in your Employer Access account under the EFINANCE category.

If you are offered a phase-in rate:

Your employer’s “Preliminary Notice of Illinois Municipal Retirement Fund Contribution Rate for Calendar Year 2014” is available in Employer Access. The majority of employers’ Preliminary Notice provides the annual required contribution or “ARC” only.

For some employers (5% of Regular plan employers) the Preliminary Notice provides two rates for each IMRF plan the employer offers, e.g. Regular, Sheriff’s Law Enforcement Personnel (“SLEP”) or Elected County Official (“ECO”) plans, if applicable.

Rates provided on the Preliminary Notice

All employers will see their annual required contribution or “ARC,” which was calculated by IMRF’s actuaries. The ARC reflects the recovery of the employer’s actuarial accrued unfunded liability (“Funding Adjustment”) over 29 years for employers who can levy property taxes and over 10 years for employers who cannot. The impact of the employer’s Tier 2 members is reflected in its 2014 ARC rate.

For ECO employers, most employers will experience a large increase in the ARC rate due to the fact that the ECO plan is now closed. Because the ECO plan is closed to new members, the unfunded actuarial accrued liability is being recovered on a constant dollar basis rather than on a level percentage of payroll, in accordance with GASB Statement No. 27.

Some employers will also see a lower rate, the optional phase-in contribution rate, which is based upon the IMRF Board of Trustees’ phase-in plan which was adopted in 2009 in response to 2008 investment losses.

In 2011, the IMRF Board of Trustees amended the phase-in plan to ensure that all employers would be contributing the ARC by 2015. If you were on the phase-in plan in 2013, your Preliminary Notice provides an optional 2014 phase-in rate which is the higher of:

For the Regular and SLEP Plans

For the ECO Plan

Impact of Tier 2

As noted above, 2014 employer contribution rates reflect the impact of Tier 2 members on an employer’s normal cost. Each employer’s blended normal cost reflects its own mix of Tier 1 and Tier 2 members.

The following table shows the composition of the aggregate average normal cost by plan. If you have a higher or lower blended normal cost, this means you have a lower or higher percentage of Tier 2 members than the aggregate average.

Normal Cost
  Tier 1 Tier 2 Blended
Regular 7.89% 4.67% 7.64%
SLEP 12.84% 8.88% 12.61%
ECO 17.60% 13.57% 17.59%

If you were not offered an optional phase-in rate
If an employer was not offered an optional phase-in contribution rate for one of its plans, that means that either the employer’s ARC rate for that plan was lower than the optional phase-in rate, or the employer’s 2013 rate was based on the ARC and it is not eligible for a phase in rate for 2014. Only 5% of Regular plan employers were offered a phase-in rate for 2014.

If your rate includes ERI or SLEP enhancement
For most employers who are offered a phase-in contribution rate, the optional phase-in contribution rate will be 10% higher than their 2013 contribution rate. Employers who have an Early Retirement Incentive (“ERI”) or SLEP enhancement component of their contribution rate may have an increase more or less than 10% because ERI and SLEP enhancement costs are based on a fixed liability and are not directly impacted by investment returns.

If you were overfunded as of 12/31/11 but underfunded as of 12/31/12
Employers who were overfunded as of December 31, 2011, but underfunded as of December 31, 2012, and had a 2013 employer contribution rate that was less than the full cost of the IMRF program will be required to pay—at a minimum—the full cost of service credit earned by its IMRF members in 2014. The average full cost of current service for 2014 is 8.54% for the Regular plan, 13.52% for SLEP, and 18.50% for ECO.

Individual employers’ full cost of 2014 current service credit can vary from these averages. If an employer’s 2013 contribution rate was less than the full cost of current service credit in 2013, the employer will see its 2014 contribution rate increase to at least the full cost of current service credit for 2014. In all cases, these employers will see at least a 10% increase in their 2014 employer contribution rate.

Options Available for 2014 Employer Contribution Rates
Employers may select:

If you have been offered a phase-in rate:

Choice letters: Employers who are more than 120% funded Employers who are more than 120% funded on a market value basis as of December 31, 2012, have an additional option. They may choose a lower minimum contribution rate calculated by IMRF.

In May, IMRF will mail these employers a “choice letter” explaining this additional option.

Lump sum payments

In addition to paying normal contributions through the monthly wage reporting process, employers can make lump sum contributions to reduce their unfunded liability.

While these contributions can be made at any time throughout the year, from the employer’s perspective it is most advantageous to make such payments in December since IMRF grants interest on beginning of the calendar year balances.

Any employers thinking of making additional payments may want to contact IMRF staff before doing so. (See Exhibit 1 of this memorandum for detailed instructions on how to make additional contributions using IMRF’s Electronic Funds Transfer system.)

IMRF discussed the pros and cons of making additional contributions to reduce the unfunded liability in General Memorandum 631.

Recording net pension obligation

From a financial accounting perspective, an employer’s pension expense is based on its ARC rate. The fact that an employer is allowed to contribute something less than its ARC does not change the employer’s actual pension cost.

Employers who choose to contribute less than the ARC will be required by generally accepted governmental accounting principles to record a net pension obligation (NPO) on their books for the difference between what they actually contributed and what would have been contributed using the ARC. GASB Statement 27 “Accounting for Pensions by State and Local Governmental Employers” has a detailed example on how to account for this difference.

To help employers determine their NPO, IMRF developed an Excel spreadsheet which will help employers calculate the NPO.

The spreadsheet includes instructions on how to use it and how to journalize the amount it calculates.

Spreadsheet to calculate the Net Pension Obligation (Updated 6/2017)


If you have any questions regarding the information presented in this memorandum, please call or e-mail IMRF Employer Relations Audit Supervisor Audrey Brown-Ryce at (630) 706-4246 or, IMRF Employer Account Analyst Corey Lockwood at (630) 706-4226 or, Finance Operations Manager Jim Splitt at (630) 706-4260 or, or IMRF Chief Financial Officer Richard DeCleene at (630) 368-5345 or