The MEABF pays out benefits consistent with the Illinois Pension Code. Unlike private defined benefit pension plans insured by the Pension Benefit Guaranty Corp., there is no entity that insures the MEABF’s ability to make benefit payments. The MEABF’s sole sources of funds to make benefit payments are (i) employee contributions; (ii) employer contributions and (iii) investment returns.
A funding ratio compares a Plan’s assets to their projected liabilities. A plan that is 100% funded has accumulated $1 of assets for every $1 of projected liability. This type of plan would be referred to as being fully funded. A plan that has a ratio under this amount, would be referred to as under funded and a plan exceeding 100% would be over funded. Normally, a plan is considered well funded if it is at least 90% funded.
Revenues of the Plan are provided from three sources:
- Member contributions
- Employer contributions
- Investment income
Members contribute 8.5% of their salary, which is distributed towards the cost of their potential retirement benefit (6.5%), a benefit for their spouse (1.5%) and towards the costs of future increases (0.5%). If a member leaves the service of the City or Board of Education and is eligible to a refund, they will receive back their contributions plus interest (3% per annum). Member contributions normally make up 15 to 20% of total revenues over a year.
The employer contributes an amount that is dictated by the Illinois Pension Code. For MEABF, the employer is responsible for contributing 1.25 times the amount the member contributed two years prior. Employer contributions normally make up 15 to 20% of total revenues over a year.
Investment income is generated by the investment of the Plan’s reserves. The income is comprised of dividends on stocks, interest on bonds, and gains on the investment assets. Investment income normally makes up 60 to 70% of total revenues over a year.
MEABF is governed in accordance with the requirements of the Illinois Pension Code. The Plan is administered by a five person Retirement Board (the Board) made up of three members elected by the active membership of the Plan and two ex-officio members selected by the Mayor of the City of Chicago by job title; the Comptroller and Treasurer of the City. The Board has a fiduciary responsibility to ensure all decisions made are in the best interest of the membership.
Similar to social security, a defined benefit plan is a plan where an employee is able to vest a defined retirement benefit, which is achieved by earning a required amount of qualified work history and attaining the necessary retirement age. A member of MEABF normally has earned the right to receive an undiscounted benefit under the following circumstances:
- 10 years of service at 60 years of age
- 25 years of service at 55 years of age
- 30 years of service at 50 years of age
The Municipal Employees’ Annuity and Benefit Fund of Chicago (MEABF) is a governmental defined benefit plan established under Illinois State law to provide annuity benefits for certain municipal employees of the City of Chicago and career service employees of the Chicago Board of Education. The Fund is a qualified 401(a) plan under the Internal Revenue Code.