Employers' Guide to IPERS
Pension Benefits That Attract and Retain Top Talent |
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How the Plan Is Funded
IPERS’ total assets fund its total liability to active members, current retirees, and surviving beneficiaries.
The Plan's Total
Assets Include... |
The Plan's Total
Liability Includes... |
- Employer contributions
- Member contributions
- Investment earnings
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- Benefits earned by active and inactive members
- Benefits paid to current retirees and beneficiaries
- Refunds paid to those leaving IPERS
- Costs of administering the Plan
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Here's how it works:
- The IPERS Trust Fund, by law, must be used for the exclusive benefits of members. IPERS needs to have enough assets to pay benefits to current retirees and surviving beneficiaries and future benefits earned by active members.
- As active members work, they earn IPERS benefits, which IPERS pays at retirement (or another qualifying event such as disability or termination of employment).
- Active members contribute to the System while they are working. Employers pay a share of the contributions as part of the total compensation package they provide to employees.
- IPERS is a “prefunded” system, which means that current contributions should cover the future retirement benefits of members currently working.
- Federal and state law allows IPERS to invest a portion of its assets. The earnings on these investments (11.25 percent rate of return for fiscal year 2005) provide the largest percentage of income to the Plan. Because contributions coming into IPERS do not equal benefit payments, a situation common with mature retirement systems, some of the investment income pays for benefits.
 As an institutional investor, IPERS is able to invest in funds individuals cannot. IPERS also uses professional investment managers not available to the average individual investor. As a result, IPERS is able to pool and better manage its investment risk and maximize the investment returns for the Fund.
A Note About Expenses
The Legislature controls what IPERS pays in expenses in two ways:
- The law caps the amount IPERS can spend on investment expenses. In fiscal year 2005, IPERS spent about one-third less than the law allows IPERS to spend on investment expenses.
- The Legislature authorizes spending from the Trust Fund to pay
other administrative expenses.
IPERS closely monitors and negotiates what it pays to investment
portfolio managers, does not spend money on costly advertising
campaigns, and manages itself with a lean and efficient staff. Limiting
administrative and investment management expenses allows IPERS to
use its assets to pay out benefits and helps ensure the long-term fund-
ing of the Plan. |
