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State

Talks of police, fire pension consolidation resume in Illinois

Local governments say it could save millions and improve returns; fund managers and members skeptical

Brad Cole, right, executive director of the Illinois Municipal League, testifies in favor of consolidating the state’s roughly 650 police and firefighter pension funds. With him are Mount Pleasant Mayor Arlene Juracek and Peoria Republican Rep. Ryan Spain.
Brad Cole, right, executive director of the Illinois Municipal League, testifies in favor of consolidating the state’s roughly 650 police and firefighter pension funds. With him are Mount Pleasant Mayor Arlene Juracek and Peoria Republican Rep. Ryan Spain.

SPRINGFIELD – Illinois lawmakers resumed discussion Thursday of a topic that has come up numerous times before – consolidating the state’s 656 local downstate police and firefighter pension funds into a single system.

Although the idea has floated around the Capitol for some time, it is getting help this year from Democratic Gov. J.B. Pritzker, who appointed a task force in February to study the issue.

Outside the task force, the Illinois Municipal League and a coalition of communities in the northwest suburbs of Chicago have been leading the charge, offering as many as seven different alternatives they argue would save their taxpayers money and improve the financial condition of those retirement systems.

“We’re now focused on what we believe is a very important tool, and in many ways a no-brainer tool, toward pension fund consolidation, which as you’ll hear can result in numerous savings – lots of dollars – without any cut in benefits,” Mount Pleasant Mayor Arlene Juracek, who also leads the Northwest Municipal Conference, told a House committee during an informational hearing Thursday.

Currently, there is one pension fund for downstate nonuniformed municipal workers called the Illinois Municipal Retirement Fund, or IMRF. But the communities outside of Chicago that operate full-time, paid police and fire departments all have separate retirement funds for those employees, each with its own board of trustees and administrative staff.

Of all the public pension funds in Illinois, IMRF is in the best financial shape, with a 90 percent-funded ratio.

That, however, is because state law requires local governments to make their required contributions each year, even if that means raising property taxes or cutting funding for other public services.

Until a few years ago, that was not the case with police and firefighter pension funds, which have often gone underfunded during lean years for local governments. In addition, officials said, public safety pension funds have been further limited because of statutory restrictions on the types of investments they are allowed to make.

As a result, officials said, the downstate police and firefighter pension funds are, on average, only about 55-percent funded.

“It was never really an investment problem with what the funds were doing,” James McNamee, president of the Illinois Public Pension Fund Association, told the committee. “It was always a restriction problem. We were always handcuffed in not being able to get full participation into the market.”

Juracek said consolidating the funds would save local governments a combined $21 million a year in administrative costs alone, or about $1,000 per-member, money she said could be added to the pension pool instead.

In addition, she added, a single, large pension fund like IMRF would have more flexibility to diversify its investments and thus help protect the fund from losses due to a downturn in any one segment of the economy.

If the 69 public safety funds operated by communities in the Northwest Municipal Conference had earned the same kind of returns that IMRF saw over a 12-year period from 2003 to 2015, Juracek said “those assets would have grown by an additional $978 million.”

That means the unfunded liability of those funds, estimated at $2 billion in 2016, would have been cut roughly in half, from a little over $2 billion to just over $1 billion, without raising local taxes, she said. And those funds would have gone from being 61-percent funded to being 80-percent funded.

The Northwest Municipal Conference and Illinois Municipal League put forth several options for consolidation.

Those include merging all the funds into the IMRF and allowing the IMRF board to manage investments as well as day-to-day administrative duties; setting up a separate statewide system to manage only downstate police and fire pensions; having a single fund and allowing the existing local trustees or local governing bodies to make day-to-day administrative decisions; and setting up two separate statewide plans – one for police and one for firefighters.

But officials in charge of those local pension funds, as well as many of their members, said they remain skeptical to the idea of consolidating.

“This is anything but a no-brainer,” said Andrew Bodewes, an attorney representing the Fraternal Order of Police. “This is very much a brainer. This is very much, very much a brainer.”

Among the concerns that the local funds and their members have is the cost of transitioning from 656 funds into a single fund, estimated to be as high as $150 million.

James McNamee, president of the Illinois Public Pension Fund Association, said that would be a cost that could take as long as 10 years to pay off.

“And I think we all know that the budgets are under stress,” he told the committee. “So we see that as a risk involved in this venture of looking at this consolidation. But we also believe this needs to be studied some more.”

Lawmakers are unlikely to take any action, at least until Gov. Pritzker’s task force issues its report and recommendations later this year.

Editor’s note: Capitol News Illinois is a nonprofit news service operated by the Illinois Press Foundation that provides coverage of state government to newspapers throughout Illinois. The mission of Capitol News Illinois is to provide credible and unbiased coverage of state government to the more than 400 daily and weekly newspapers that are members of the Illinois Press Association.

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