MUNICIPAL OBLIGATIONS UNDER ILLINOIS
MUNICIPAL RETIREMENT FUND

The Municipal Audit Division of the office of Auditor of Public Accounts has recently received a number of inquiries which indicate that some municipalities and some accountants auditing funds and accounts of the municipalities may not be fully aware of the obligations of municipalities with respect to withholding and reporting contributions, levying taxes, and other actions required under the Municipal Retirement Fund Law in cases where they have eligible or participating employees.

The following summarized information concerning the Illinois Municipal Retirement Fund is believed to be a reliable outline of pertinent statutes on this subject and may be helpful to municipal officials as a reminder of their obligations with respect to:

I. Required or optional municipality participation;

II. Employees covered, and employees' contributions;

III. Obligations to withhold contributions from salaries of participating employees;

IV. Contributions by municipalities;

V. Tax levies authorized, and restrictions governing tax levies;

VI. Administration of Fund;

VII. Benefits coordinated with Federal Social Security.

The Illinois Municipal Retirement Fund is an actuarially funded plan. Full funding is attained by establishing the actuarial deficit of each municipality and determining amounts to be paid yearly to liquidate that deficiency. The Act provides that each municipality make payments annually for their current obligation, interest on their actuarial deficiency, and a payment against that actuarial deficiency. It is expected that over a period of years the municipality's obligations will have become fully funded, and there will be no unfunded liability for past service. The existing liability to the plan should be recognized in the audit report, as it represents a very real liability of the municipality.

It should be pointed out that accountants auditing the funds of municipalities should examine records of Municipal Retirement Fund contributions, and take cognizance of municipal obligations even though not recorded on the books of account, contributions collected but not remitted to Municipal Retirement Fund, obligations with respect to eligible employees, and other obligations under the Act.

Since this review is admittedly both cursory and general, it is urged that municipal officials rely upon their attorneys and independent auditors in arriving at solutions to specific problems. It may also be noted that the staff of the Illinois Municipal Retirement System has indicated a willingness to work with municipal officials in answering specific inquiries regarding their responsibilities to the fund. Such inquiries should be addressed to the Illinois Municipal Retirement Fund, 309 West Jackson Boulevard, Chicago, Illinois.

I. Municipalities mandatorily included by law: All cities, villages, and incorporated towns having a population over 10,000 inhabitants (for cities, villages, and towns which attain a population of 10,000 inhabitants after having effected Social Security coverage through the State Social Security Unit, participation is optional) ; all school districts (non-teaching personnel) ; and all counties and sanitary districts. Township School Treasurers in Cook, St. Clair and Madison Counties are specifically included.

Municipalities excluded by law: The City of Chicago, Chicago Sanitary District, and Cook County proper, and any of their related functional subdivisions. Methods by which a municipality may participate:

(a) By a referendum of the people within its territory.

(b) By adoption of a resolution or ordinance by the governing body to be included. Instrumentality: Functional groups operating within the structure of a municipality, but having its own administrative board, such as a City Library, or a County Hospital, are automatically included in the Fund, if they are instrumentalities of participating municipalities.

II. Participating Employees

(1) Compulsory participating employees : Under the Act, employees who must participate in IMRF include employees who:

(a) are on the regular payroll of the municipality;

(b) paid from funds controlled by the municipality;

(c) are employed in a position normally requiring performance of duty at least 600 hours a year;

(d) are not elected to office by vote of the people;

(e) are not working for a city hospital. For persons meeting the above conditions, participation in both IMRF and Social Security is compulsory and contributions for such persons will be 6% for female and 7% for male employees. These contributions will include the Social Security contributions for such employees.

(2) Optional participating employees: All non-participating employees, defined in sub-paragraph

•EDITOR'S NOTE: This is the fourth of a series of periodic bulletins issued by the Municipal Audits Division in the Office of the State Auditor, Elbert S. Smith, which will be published from time to time in the Review. These informative articles should prove of interest to all municipal officials.

Page 122 / Illinois Municipal Review / June 1958

(c) below, have the option to participate in IMRF and thus become participating employees. The method for exercising an option is:

(a) Elected officials and employees employed in a position normally requiring performance of duty less than 600 hours a year, may file a written notice with the Board of Trustees signifying their intention to become a participating employee.

(b) Persons working for a City Hospital are considered to be participating employees unless they file with the hospital notice of intention not to be included as a participating employee. A copy of such notice must be filed with the Board of Trustees. Since the option to city hospital employees has been changed, it will be necessary for employees to file new notices. Those who have heretofore filed notices not to participate under the old law may now reconsider and decide to participate at this time.

(c) Non-participating employees: Those employees who are not compulsory participating employees, and who do not exercise their option to become participating employees, are not covered by IMRF, but only by Social Security. Employee contributions for such employees will be 2 1/4%, all of which is for Social Security purposes.

(d) Employees not included:

(i) Teachers and other persons coming under the State Teachers' Retirement System. This includes all full-time and substitute teachers, as long as they are certified teachers. However, to the extent that such teachers are employed in non-teaching duties, they are included in IMRF.

(ii) Hospital interns and student nurses.

(iii) Policemen who

(1) are employed by a city or village having a population of 5,000 or more (and thus is required by statute to establish a Police Pension Fund) irrespective of whether or not a Police Pension Fund has been established by such city or village, or

(2) are employed by a city or village with a population of less than 5,000 which has established a Police Pension Fund. Policemen are excluded even though they themselves may be ineligible to participate in the Police Pension Fund because of age or other reasons. However, to the extent that policemen are employed in non-police duties, they are covered. Therefore, all service and earnings of policemen not designated as being for police duties should be reported on your monthly payrolls.

(iv) Firemen who are employed by a fire protection district having a full-time paid fire department, city, township or village having a population of 5,000 or more (and thus is required by statute to establish a Firemen's Pension Fund) irrespective of whether a Firemen's Pension Fund has been established by such municipality. Firemen are excluded even though they themselves may not be participating in the Firemen's Pension Fund because of age or other reasons. However, to the extent that firemen are employed in non-fire protection duties, they are covered. Therefore, all service and earnings of firemen not designated as being for fire protection duties should be reported on your monthly payrolls.

(v) Persons not on the "regular payroll" of a municipality. Workers hired on a day basis and paid in that manner are an example of this class of persons.

(vi) Independent contractors are not employees.

III. Employees' Contributions to be withheld:

Each participating municipality is authorized and directed to deduct all normal and additional contributions from each payment of earnings payable to each participating employee who is entitled to any earnings from such municipality or instrumentality, and to remit all such contributions to the board.

IV. Contributions by Municipalities: A municipality participating in the Fund is required to make contributions according to the experience in that particular municipality, with respect to "Participating" Employees. The cost is expressed in an actuarially determined rate of percentage of participating payroll and, when multiplied by such pay-

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Page 123 / Illinois Municipal Review / June 1958

MUNICIPAL OBLIGATIONS UNDER ILLINOIS MUNICIPAL RETIREMENT FUND

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roll, is expected to yield an amount which is equivalent to the actual cost or as close thereto as can practically be predetermined.

The rate constructed to yield revenue in five separate parts:

(1) A monthly payment against the obligation of the municipality for past service, which is spread over a period of forty years from the effective date.

(2) A monthly payment against normal cost for funding- annuities over the expected service of the employees.

(3) A monthly premium to provide for Death Benefits.

(4) A monthly premium to provide for Disability Benefits.

(5) A pro rata share for expenses of administering the Fund.

The rates are computed each year from the experience of each municipality, and basically, therefore, each municipality pays its own costs. The actuarial rate may be obtained from the IMRF office in Chicago.

For "Non-Participating" employees (those under Social Security only) the municipality contribution rate is 2.65% of such payroll.

V. Tax Levies: The Act provides that a participating municipality may levy a special tax for the purpose of providing such revenues as are deemed necessary by the governing body of the municipality to meet the contributions required by the Act. Counties which have a population of less than 12,000 inhabitants are limited to a levy of .025% of assessed valuation. All other municipalities have unlimited taxing powers for purposes of this Fund, except for the restrictions as may be applicable to the municipality through the General Revenue Law.

VI. Administration: The Illinois Municipal Retirement Fund is a trust created by state law. It is governed by a Board of Trustees, consisting of seven persons, each serving for five year terms, without compensation from the Fund. One is elected in each of four years, and three are elected each fifth year. Four Executive Trustees are elected by the governing bodies of participating municipalities, two Employee Trustees are elected by participating employees, and one Annuitant Trustee is elected by retired employees. The Treasurer of the State of Illinois is, by law, Ex-Officio Treasurer of the Fund, and custodian of assets owned by the Fund. The Fund is administered by its own staff, under the supervision of the Executive Director, from its headquarters in Chicago. All necessary material, data, and records are maintained by the staff in Chicago.

VII. Benefits Coordinated with Federal Social Security: In a referendum concluded November 25, employees covered by the Illinois Municipal Retirement Fund approved a plan coordinating benefits of the fund with Federal Social Security. This plan also includes employees formerly covered by the Illinois Municipal Public Utilities Employees' Annuity and Benefit Fund, which was merged with the Illinois Municipal Retirement Fund on December 1, 1957. The coordinated plan provides for retroactive Social Security coverage to January 1, 1956, with contributions by employees remaining at 6% for females and 1% for males.

Page 143 / Illinois Municipal Review / June 1958