As detailed in the Illinois Pension Code, trustees of public pension funds in the State of Illinois have a fiduciary duty to act solely in the best interest of participants and beneficiaries. An audit of the pension fund helps trustees fulfill these fiduciary duties. The following is Part 3 of our Public Pension Plan Trustee series.
Part 3 – Retirement Funding
Funding for State of Illinois public pension funds comes from two sources:
(1) Participant contributions
Contributions from participants are calculated as a percentage of the participant’s salary, at rates specified by statute.
(2) Employer contributions
Contributions from the government entity are determined annually by the fund’s actuary or the Illinois Department of Insurance based on the funded status of the pension fund as determined by the fund’s actuary or the Illinois Department of Insurance. These calculations use actuarial assumptions that compare the fund’s assets with the benefits to be paid over the existence of the fund. Actuarial assumptions include items such as the investment rate of return, mortality rates, and rates of retirement. Small changes in these assumptions have significant effects on the funded status and the amounts to be contributed by the government entity. In an effort to improve funding, recent legislation has significantly affected amounts to be contributed.
The independent certified public accountant (CPA) performs numerous audit procedures on both participant and employer contributions. These procedures typically include confirming amounts paid by the government entity, examining the actuarially determined employer contribution, performing tests of payroll on participants and their pension contribution withholdings, recalculating the participant contributions, and performing analytical procedures.
For a fund trustee, an audit provides reasonable assurance that both participant and employer contributions have been made in accordance with the Illinois Pension Code. Ensuring that the fund is receiving appropriate contributions is vital for the long-term sustainability of the fund.
Click here for Parts 1 and 2 of this series.