By Greg Bishop
SPRINGFIELD – Gov. J.B. Pritzker wants lawmakers to pass legislation in the upcoming legislative session to consolidate the state’s 649 local police and fire pension funds into two funds in an effort to reduce taxpayer costs.
Lawmakers have six days scheduled for the fall session. They return for three days beginning Oct. 28. The governor said he wants lawmakers to tackle what he said was the state’s greatest challenge: Unsustainable local police and fire pension funds.
“The current system of investing 649 small funds is failing and taxpayers are paying a high price,” Pritzker said.
Pritzker released a report Thursday from the Illinois Pension Consolidation Feasibility Task Force with recommendations. The governor created the task force shortly after he took office in January.
The report recommends combining the 649 local police and fire pension funds into two funds, one for police and one for fire. This would maximize investment returns and lower taxpayer costs.
The report said in the fiscal year 2017, the hundreds of funds together had $25.9 billion in liabilities and $14.3 billion in assets. That’s a combined $11.5 billion in unfunded liabilities, or an average funded ratio of 55 percent. Combining the funds to maximize investment returns could net between $820 million to $2.5 billion, according to the report.
“Each fund would be governed by a board with equal representation of employees and employers,” the report said. “Each local pension plan would maintain an individual and separate account within the new consolidated funds, such that no assets or liabilities are shifted from one plan to another. Each of the two consolidated funds will be held in independent trusts, separate from the State Treasury, with sole governments provided by their respective boards.”
Public finance watchdog Ted Dabrowski, of Wirepoints.com, said the plan was smart and could save money. However, Dabrowski said he expected resistance from special interest groups and labor unions.
“If it doesn’t pass, it is because the police and fire unions have been very strong and persuasive to block it, but it’s certainly something that should be done,” Dabrowski said. “There’s absolutely no reason to block it.”
The Associated Fire Fighters of Illinois stood by Pritzker when he announced the plan on Thursday. The Illinois Fraternal Order of Police said it has concerns.
“No one is more concerned with the proper administration of public safety pensions than our 36,000 members,” FOP Labor Council Executive Director Shawn Roselieb said. “But this committee thinks downstate police officers are the only public employees who are just not smart or sophisticated enough to manage their own money.”
Springfield Alderman Joe McMenamin said the plan would be a good first step, but more needs to be done to make the expected rate of return more realistic for local government budgets.
“And I think that will require greater contributions,” McMenamin said. “And then by requiring greater contributions, that would naturally put pressure on how much can be spent for current pay and benefits.”
When passing budgets, municipalities often use an expected rate of investment returns as a discount rate of how much they don’t have to put into the pension funds for that year. If that rate of return is not met, governments have to increase how much they put in or it adds to the unfunded liability. To make up that growing liability, municipalities often must either raise taxes or cut services.
Dabrowski said he agreed with McMenamin. However, Dabrowski said the real solution was to move away from pensions and toward a defined-contribution system such as 401(k) plans.
“It shouldn’t be a surprise every year,” Dabrowski said. “It should be a defined amount that’s given and every city can then plan on that defined amount to contribute to retirements and the taxpayers would know.”
The Illinois Municipal League, which represents municipalities, endorsed the plan.
“This plan is the result of a true collaborative effort to find a solution to one of the state’s most pressing problems,” Illinois Municipal League Executive Director Brad Cole said. “Consolidating the investments of these pension funds will serve as a win-win for both pensioners and their communities by stabilizing pension funds and easing the financial burden on taxpayers. Lawmakers must now take action to make this proposal law.”
Cole served on the consolidation task force.
State lawmakers are scheduled back for six days of fall session beginning Oct. 28.
Greg Bishop reports on Illinois government and other statewide issues for The Center Square. Bishop has years of award-winning broadcast experience, and previously hosted “Bishop On Air,” a morning-drive current events talk show.