Retirement Savings Options

Financial Literacy Month is a great time to strengthen your knowledge of important financial topics that impact you every day.

This April, IMRF is highlighting different types of retirement plans people participate in and how they compare to your IMRF pension and other saving options available through your IMRF membership.

Defined Contribution v. Defined Benefit

There are two main types of retirement plans - defined contribution and defined benefit.

With defined contribution plans, employees, and, possibly, their employers, put a specific dollar amount into the account. The employee receives the amount contributed, plus investment increases or minus investment losses. Common types of defined contribution plans include 401(k), 403(b), 457(b) and IRA plans.

Defined benefit plans promise participants that they will receive specified monthly benefits after they retire. These conditions can be established by the employer or the appropriate governing body.

Your IMRF pension is a defined benefit plan, and IMRF is a custodian who manages its investments and distributions. The creation of IMRF and the benefits that members receive are established by the Illinois legislature and governor. Laws regulating IMRF can be found in the Illinois Pension Code.

There are lots of resources on IMRF's website to learn more about your benefits for your Tier 1 or Tier 2 pension, including on-demand webinars. You can manage your pension, send secure messages, and get up-to-date pension estimates in your Member Access account. Learn how to create your account and more in the Member Access Learning Center.

Voluntary Additional Contributions

In addition to your pension, IMRF offers an option to participate in the Voluntary Additional Contribution (VAC) program to help you save more money for your future retirement.

Through this program:

• Members can save up to 10% of their after-tax IMRF reportable earnings in a separate retirement account.
• Earn a rate of return of 7.25% every year, after the first year, on their savings. This rate may change.
• Keep earning interest in their account, even if they leave IMRF employment.

Below is an example of how interest is applied in a VAC account.

There are some slight differences based on your pension tier. Be sure to learn more about the VAC program for Tier 1 and Tier 2.

Regardless of your pension tier, you can add significantly to your pension by participating in the VAC program.

How Does this Compare to Other Defined Contribution Plans?

When you participate in the VAC program, you currently earn 7.25% interest every year.

While you can earn more interest in a retirement plan that invests heavily in stocks, you can also face significant risks and losses as markets change. You will not lose money you put in a VAC account.

The VAC program is similar to low-risk savings accounts, like CDs and High-Yield Savings Accounts, which typically can earn between 3-5%. Your VAC account earns a significantly higher return on your retirement contributions.

The VAC program is a low-risk, high-earning retirement investment account and is a great additional way to save more money for your future.

Don't forget some employers may offer other programs to help employees save for retirement. Check with your employer to see if there is any other assistance available.