A pension consolidation task force Thursday released a report that recommends the state combine roughly 650 suburban and downstate police and fire pension funds to try to increase efficiency and lower costs — while also increasing pension benefits.
The report argues that the plans are largely falling behind in meeting their minimum required investment rates of return, and should be consolidated to achieve substantially higher returns and to save taxpayers more than $160 million on an annual basis. It’s a plan local governments have been pushing for years — and one that would require legislation as soon as possible to get it running.
It’s just one piece of the puzzle to unravel a statewide pension mess, which also includes $134 billion in unfunded liabilities from five statewide public pension funds and Chicago’s $28 billion in four of their own funds.
The task force — led by Deputy Gov. Dan Hynes — recommends consolidating the pension plans under two new statewide funds — one for police and one for fire. As separate plans, each would have their own board in charge of their own personnel and asset management decisions, and each would remain separate from the assets of other statewide pension systems.
In forming the task force in February, the governor’s office argued that the $355 billion in accrued liabilities from the state’s pension funds are placing increased pressure on local governments and the state, driving up property taxes and crowding out funding for public services. Of the state’s 67 separate public pension funds, 656 are suburban and downstate police and fire pension funds regulated by the Illinois Pension Code.
The board would consist of eight trustees: three executive trustees elected by municipalities; two police and fire employee trustees elected by participating police and fire members; one police and fire annuitant trustee elected by police and fire annuitants; one ex officio trustee that is a representative of the statewide association representing participating municipalities; and one ex officio trustee that is a representative of the largest statewide association representing police and fire employees, the report says.
The report also recommends an interim board be put in place, to allow time for the legislation to be passed and for the board to begin operating normally. The interim board would consist of State Treasurer Michael Frerichs as a trustee and chair to preside over meetings and only cast a vote to break a tie, alongside eight other trustees and an interim executive director, appointed by the governor.
The task force wants legislators to take action as soon as the veto session, which begins on October 28, with a law in place by July 1.
The goal is to have the newly consolidated funds operational by July 1, 2023.
While Cook County and Chicago plans, which number nine, have an average actuarial value of $3.5 billion per fund, the 649 suburban and downstate plans only average $22 million, the report said.
Critics of the consolidation plan say it will be a cash cow for the first investment adviser who will be able to place $14 billion in funds. They also worry that the increase in benefits for the funds — mostly a higher pensionable salary — will offset any savings in investments. Others have argued there should be more local control and fewer restrictions on how the small pension funds invest.
As for Chicago’s problems — with Mayor Lori Lightfoot earlier this year floating the idea of state takeover of city employee pension funds — the task force says in the report that it will, alongside the governor’s office, work with the city “as part of the next phase of this work.” Gov. J.B. Pritzker immediately ruled that plan out.
“Their current funded levels and projected growth in required employer contributions means significant changes will need to be made to correct course, which may entail greater efficiencies captured through some level of consolidation,” the report said.
“To be clear, the state is at just above junk status in its credit rating. So there are not liabilities that can be adopted by the state that would not drive us into junk status. So, that is not something that we can do,” Pritzker said in July.
“But again, we want to help municipalities in every way we can. And we’re looking at all of the opportunities to do that — like improving investment returns.”
