SPRINGFIELD – Illinois lawmakers resumed the discussion Thursday on a topic that has emerged numerous times before – consolidating the state-owned 656 downstate state police officers and the fire brigade pension funds into one system.
Although the idea has flown around the Capitol for a while, this year receives help from the Democratic Governor J.B. Pritzker, who in February appointed a task force to study the issue.
Outside the task force, the Illinois Municipal League and a community coalition in the northwestern suburbs of Chicago led the charge, offering as many as seven different alternatives that they claim would save their tax payers money and improve the financial conditions of those pension systems.
"We are now focused on what we believe is a very important tool, and in many ways an unscrupulous tool, towards the consolidation of pension funds, which as you will hear can lead to numerous savings – many dollars – without any cut in charity", has said the mayor of Mount Pleasant Arlene Juracek, who also leads the Northwest Municipal Conference, during an information hearing on Thursday.
Currently, there is a pension fund for non-uniform municipal workers in the downstate called the Illinois Municipal Retirement Fund or IMRF. But communities outside of Chicago that manage full-time, paid police and fire departments all have separate pension funds for those employees, each with their own board of directors and administrative staff.
Of all public pension funds in Illinois, IMRF is in the best financial form, with a 90 percent funded ratio. This, however, is due to the fact that state law requires local governments to make their required contributions each year, even if it means raising taxes on property or cutting funds for other public services.
Until a few years ago, this was not the case with police and fire brigades, which were often under-funded during the lean years for local governments. In addition, officials said, public security pension funds were further limited due to statutory restrictions on the types of investments they are allowed to make.
Accordingly, according to officials, the police and fire pension funds in the downstate are, on average, only about 55% financed.
"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 have always been handcuffed by not being able to get full market participation."
Juracek said the consolidation of the funds would save local governments a total of $ 21 million a year in administrative costs, or about $ 1,000 per member, which, in her opinion, could instead be added to the pension fund.
Furthermore, he added, a single large pension fund such as IMRF would have greater flexibility to diversify its investments and thus help protect the fund from losses due to a downturn in any segment of the economy.
If the 69 community-run public security funds at the Northwest Municipal Conference had achieved the same kind of returns that IMRF saw over a 12-year period, from 2003 to 2015, Juracek stated that "these activities would grow by an additional 978 million of dollars ".
This means that the unfunded liability of these funds, estimated at $ 2 billion in 2016, would have been cut in half, from just over $ 2 billion to just over $ 1 billion, without raising local taxes, he said. And those funds would have gone from being 61% financed to 80% of the financing.
The Northwest Municipal Conference and the Illinois Municipal League have presented several options for consolidation.
These include the merger of all the funds in the IMRF and the possibility for the IMRF board to manage the investments and the daily administrative activities; set up a separate state system to manage only the downstate police and fire pensions; have a single fund and allow existing local trustees or local government bodies to make daily administrative decisions; and setting up two separate plans throughout the state: one for the police and one for the fire department.
But the officials responsible for those local pension funds, as well as many of their members, claimed to remain skeptical at the idea of consolidating.
"This is anything but child's play," said Andrew Bodewes, a lawyer who represents the fraternal police order. "This is much more difficult. This is much, much more."
Among the concerns that local funds and their members have the cost of the transition from 656 funds to a single fund, estimated up to 150 million dollars.
James McNamee, president of the Illinois Public Pension Fund Association, said it would cost up to 10 years to pay.
"And I think we all know that budgets are under stress," he told the committee. "So we see how a risk involved in this venture is to look at this consolidation. But we also believe that this needs to be further studied."
Lawmakers are unlikely to take any action, at least until Governor Pritzker's task force presents its report and recommendations by the end of the year.