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By: Mark Glennon*

Updated 3/25/15


Should Illinois taxpayers subsidize and guaranty an exceptionally high interest rate on savings accounts for a select few? If so, shouldn’t the select few be the neediest, instead of a group with Social Security, a pension and a job?


Here’s a paraphrase of a special account offered only to members of IMRF, one of Illinois’ public pension systems, which was in its Winter newsletter to members:


Great news! We’ll give you an account paying 7.5% annually, compounding and guaranteed. You can withdraw your money at any time, except for interest, which can only be withdrawn when you retire or change jobs.

But wait, there’s more! This account is in addition to your pension and your Social Security, yet interest you earn is still tax deferred.

The only major limitation is that your deposits cannot exceed 10% of your pay.

Available to IMRF members only.

The actual message from IMRF is below, and it says basically the same thing. (The tax deferral on interest and access to Social Security, however, are described in different IMRF materials.)


“Too good to be true,” you would say if your employer offered that, until you remember that this is Illinois and the account is offered only to members in one of its public pensions. And, yes, the account is in addition to ordinary pension contributions and benefits for IMRF members, and Social Security in which most of them participate.


Financially oriented readers will know this already, but here’s why this benefit is so generous compared to what the rest of us can get: No mutual fund, ETF, hedge fund, CD or anything else will guaranty you 7.5% today. With risk-free rates of interest well under three percent, even for the long term, you can’t guaranty anything that high unless somebody is paying very, very heavily to provide a subsidy and that guaranty.


In this case, that somebody is you — taxpayers.


IMRF, the Illinois Municipal Retirement Fund, is among Illinois’ biggest pensions, with $33 billion in assets. Its pensioners are employees of roughly 3,000 different towns and cities across the state. IMRF is unique, however, in that it has a funding mandate that forces municipalities to adequately fund it with tax collections. Consequently, it’s nearly fully funded, assuming you believe it’s assumptions (which no independent pension expert does, such as a 7.5% projected return).


In other words, taxpayers are forced to cough up the difference between what IMRF promises and what it will receive in contributions and earn on investments — for the pension as well as the savings account.


Despite that mechanism, should IMRF really be saying that payment of that interest is guaranteed? IMRF’s funding mandate could be changed in Springfield. Moreover, at least one official, the mayor of Freeport, says IMRF is “a potential target for consolidation with other state pension systems that are desperate for assets.” Hmmm.


But the craziest part is that whether IMRF or the new administration could end the offer of this savings account is questionable. Based on how the Illinois Supreme Court sees things, IMRF members’ constitutional rights would be violated if IMRF stopped offering it!


Specifically, in the Kanerva decision rendered last July, the Illinois Supreme Court said that any benefits offered to members of the public pension systems that are “attendant” to the pension cannot be cut. That decision held that healthcare benefits are attendant to pensions, and therefore entitled protection under the state constitutional pension protection clause.  “The drafters [of the pension protection clause],” the court claims, “chose expansive language that goes beyond annuities and the terms of the Pension Code, defining the range of protected benefits broadly to encompass those attendant to membership in the State’s retirement systems.” Kanerva, page 12. Once offered, in other words, an attendant benefit cannot be diminished, and access to this account sure looks like an attendant benefit.


But, wait, there is indeed more. A reader of our original version of this article wrote to say, “Don’t forget about the 13th payment.” Huh? Well, IMRF members also get a sort of bonus check once a year in addition to their monthly pension payments, also paid for by taxpayers by a specific assessment on municipalities, according to IMRF’s site.  It reportedly cost $41 million in 2013, with 13th checks averaging $340 and going up as high as $7,600. A coalition of public unions gloated last year about killing a bill that might have ended it.


Both a 13th payment plan and a savings account similar to IMRF’s caused plenty of controversy in the Detroit bankruptcy. A Detroit Free Press article about their 13th payment plan is linked here and a Bloomberg article about their savings account is here. Bloomberg quoted a director at the National Association of State Retirement Administrators as saying, about the account, “I’ve never heard of that happening. I’m not aware of a guaranteed return on a defined-contribution plan.” Great to know Illinois and Detroit are so special.


You gotta love one of the actual lines from the IMRF’s newsletter below about the special savings account. It should be the epitaph on gravestones for any towns and cities that succumb to their pension costs: I thought I knew, but I didn’t understand. Illinoisans may think they know how insane their pubic pension system is, but they don’t.


*Mark Glennon is founder of WirePoints. Opinions expressed are his own.





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Also, it is is not a ‘true’ 7.5 % return. Remember that the funds you deposit during the year, do not get interest until the following year. So for example, if during 2016 you contributed $6,000 you won’t get any interest on those $6000 until January 2018. Basically, your contributions go without interest for a year.


It is the same as a Roth IRA.. NO DIFFERENT! Some IRA’s pay well above 7.5%.

Roger Kempa

What, if any, Illinois local governmental units have issued bonds to pay off their IMRF unfunded pension liability, for which they are being charged 7.5% annually?

One alleged reason for the IMRF 13th payment is it has a 3% Simple Interest COLA, rather than the 3% Compound Interest COLA present in most or all of the other public sector pension funds in Illinois. With Simple interest the annual COLA increase is flat, meaning if a particular retiree receives a $1,000 increase in year 1 the retiree will receive a $1,000 increase every year. Compound interest COLA is a different calculation, whereas the retiree receives an ever increasing Cost of Living Allowance, meaning year 2 COLA is larger than year 1 COLA, etc. ++++++++++++++++++ There are actually 3 separate plans in IMRF. 1. Standard… Read more »
Give me a break.

Oh cut the bull. The 7.5% is a very poor return. I’ve been in IMRF for 30 years, the 7.5% is set in stone and STINKS. Why, because the money taken from my paychecks for 30 years, would be much higher than the 7.5% if the returns were based on the returns that IMRF actually received over the years. It is what it is, a very modest pension with no health care. Also retirement age is 60 unlike other plans (you can retire at 55 but with a large penalty).

Jim Palermo

Your IMRF plan may have returned 7.5% over the years, but to earn that rate you had to endure the terrible markets late in the prior decade and hope stocks and bonds returned far higher than that in the following years. Moreover, with the Federal Reserve ready to take away the low rate bunch bowl, stocks and bonds are facing a challenging environment going forward. Count your blessings with your guaranteed 7.5% return; many would gladly trade places with you.

Mark Glennon
It’s very clear that IMRF does pay out to its members all that it earns on your money, as well as on the roughly $2.50 that taxpayers put in for every dollar you put in (exact numbers are below). IMRF, like most funds, has done much better than 7.5% in the past few years because the stock market has done the same. But, to repeat, there is NOBODY out there now that will guaranty anything close to 7.5%. If you know of such a place, please identify it — my IRA money and that of lots of our readers will go there. You may be interested to… Read more »

IL public pension plans have lots of goodies. The author forgot to highlight THOSE goodies also. WHY THE DOUBLE STANDARD? Let me guess. The real goal is to get IL state hands on the IMRF $ and spread it around to the broke plans. By the way IMRF pensions are a small % of IL state PUBLIC pensions with no where near the medical health insurance honey pot the state retires get.

Mark Glennon

On the contrary, I’ve written dozens of times here about the other pensions and never about IMRF. You may well be right that IMRF benefits, all-in, are less than for state employees. I have never seen that analysis but would be interested in whatever you are referring to. My point here is just that if taxpayers are going to be subsidizing an account like this, it ought to be for those who most need help, and that does not mean those with a job, pension, Social Security and a 13th payment.


When these Cities go bankrupt, all of the interest above 1% ( a HIGH percentage for “demand” deposits) should be forfeited.

ALL of their taxpayer-funded retiree healthcare benefits should end (such benefits RARELY granted to Private Sector workers), and their pensions should be reduced to a level no greater than those TYPICALLY granted comparable Private Sector Taxpayers (clearly1/4 to 1/3 those granted these workers when BOTH the rich formulas AND the generous “provisions” are factored in).

Greed HAS consequences


This is news to me that they get Soc.Sec. thought all pensioners do not.

Jim Palermo

Mark, any idea on the amount of voluntary contributions made over the years by IMRF participants ?

Mark Glennon

According to their last CAFR online, taxpayer contribution went up from $883 million to 931 million from 2012 to 2013. Employee contributions went up $331 million to $339 million.

Important to remember that most IMRF employees get Social Security, too. According to their site, “With the exception of a small number of people, IMRF members participate in Social Security in addition to IMRF, and you are entitled to full retirement benefits from each.” I was reminded of this by the IMRF member who told me about the account — he was very angry that it exists.


Wow so angry. They DO PAY SS and full FICA + their IMRF contribution. Why shouldn’t they get SS, they DID pay for it.
State workers no NOT pay SS/FICA so they can’t get it. Sounds fair to me.
Imrf pensions are peanut shells compared to state pensions.

Mark Glennon

Of course they should get the SS benefits they paid for. More importantly, they can reasonably count on those benefits being there. IMRF pensions are not peanuts compared to the state pensions — taxpayers are putting $931 million/year into IMRF. As I mentioned in the other comment, a comparison of total IMRF benefit costs to those of state employees would be interesting. If you actually have that, please link to it. The pension annuity is only part of that issue.


If you had the option to choose between investing in the IMRF account vs a 403b what would you do?