Illinois police, firefighters push back on state control of pensions

Gov. J.B. Pritzker signed a bill to consolidate local police and firefighter pensions from across downstate Illinois, but beneficiaries are suing because the state is notorious for poor pension management.

A court ruling as soon as December will determine the fate of a 2019 law Gov. J.B. Pritzker championed to consolidate about 650 local police and firefighter pension funds from across Illinois under state management by mid-2022.

The First Responder Pension Consolidation law currently faces a lawsuit challenging it on constitutional grounds, claiming the measure diminishes pension benefits. The law is aimed at easing shortfalls in Illinois’ local public safety pensions by merging more than $16 billion in assets from the 650 retirement plans into two funds, one for police and one for firefighters

While Pritzker said the measure would cut costs and improve returns for recipients, three dozen current employees and retirees, along with 18 local retirement plans, filed the lawsuit in February. They are seeking to maintain local control over pension management.

“I don’t think many of us trust the government of Illinois to handle our money given their history,” said Jim Kayes, president of the DeKalb Police Pension Fund board, which is among the plaintiffs.

Illinois is home to the nation’s worst pension crisis, leaving taxpayers on the hook for $317 billion in unfunded pension liabilities for the five statewide retirement systems.

More than $13 billion in debt was owed to local downstate public safety pension plans through 2020, according to Illinois Department of Insurance data.

These pensions are primarily funded through the state’s second-highest in the nation property taxes, diverting taxpayer dollars from improving cities’ core services. Problems include:

• In DeKalb, police and fire pension costs use up about 20% of general fund revenue, up from 10% in 2014, said city manager Bill Nicklas.
• In Carbondale, 290% of the city’s property tax collections go to pensions.
• In Peoria, Mayor Rita Ali recently called on state leaders to fix pension costs on which the city will never catch up, “not in our lifetimes.”

Statewide, pensions obligations consumed nearly 30% of all government spending.

Nicklas and some other city leaders are relived to see their pensions consolidated, noting the underfunded plans weigh on budgets and credit ratings, contributing to a slowed economic recovery from the pandemic.

The Illinois Municipal League, which has advocated for pension consolidation for the past decade, also supports Pritzker’s plan. The league stated it is confident it will beat the legal challenge.

“We are already showing savings and increased earning ability, proving the benefit that was predicted and is needed by this consolidation,” said league Executive Director Brian Cole.

However, many of the local pension leaders remain hesitant or are even refusing to merge until they learn the outcome of litigation to block Pritzker’s law.

While consolidation cuts down on duplicative administrative costs and pools investment assets for larger returns, downstate police and fire pension debt is only about 5% of total state obligations.

The only real way to fix the pension crisis once and for all – and strike a balance between protecting taxpayers, retirees and vulnerable Illinoisans who rely on government services – is with a constitutional amendment to allow for structural pension reform.