Illinois Senate president backs bill merging police, fire pension funds
Illinois Senate President John Cullerton is championing a bill to merge more than 640 local police and fire pension funds into two investment pools. With lawmakers returning to Springfield for veto session, action on the bill may be near.
Momentum may be building to consolidate Illinois’ more than 640 downstate and suburban police and fire pension systems’ investments now that Illinois Senate President John Cullerton introduced a bill to do just that.
Cullerton on Oct. 29 filed an amendment to Senate Bill 616 that would consolidate all local police and firefighter pension funds other than Chicago’s into two investment pools, one for firefighters and one for police. The measure follows recommendations made by a task force formed by Illinois Gov. J.B. Pritzker.
Police unions are “working hard against” the proposal, according to the Illinois Police Benevolent and Protective Association, which along with the Fraternal Order of Police and the Metropolitan Association of Police hopes to defeat the bill. The PBPA in a statement Oct. 28 questioned how long it would take pooled investment gains to recover municipalities’ consolidation start-up costs. Cullerton said the bill could change.
“I think that we would like to pass a bill that covers both [police and fire] but we may have to compromise in order to get the police on board,” Cullerton told The Center Square.
At least one statewide group representing Illinois firefighters supports the move, according to The Center Square.
Action on the bill could come as early as Nov. 12, when the Illinois House of Representatives and Senate resume veto session for three more days.
Police and fire pensions are demanding more and more from local property taxpayers. And despite a property tax burden that ranks second-highest in the nation, many of the 640-plus pension funds are in trouble.
Four Illinois cities so far have faced interception of state funding because of their debts owed to their police and fire pensions. State data from 2018 shows 1 out of 6 of the pension funds have 40% or less of the money they need. Pension experts consider a 40% funding ratio a “point of no return” from which plans may never be able to recover.
The task force urged action this fall because members estimated every day of delay in merging the plans could mean up to $1 million lost on potential investment returns. Merging the plans would give them greater investment strength and greater potential returns, but the task force’s estimate of between $160 million and $288 million is likely too optimistic, according to an Illinois Policy Institute analysis.
The low-end estimate of $160 million more a year is likely more realistic because the funds collectively contain only about 55% of what they need to meet their obligations to pension plan members. That smaller investment pool coupled with the need to minimize risk will hamper investment returns, as will the widely predicted recession.
While Cullerton’s proposal could be a good start, it could also be $21 million better: The bill would not merge administration of the 640-plus plans, which would save taxpayers $21 million a year. Pritzker’s task force said that question “requires further discussion with those who would be affected by such a change.” They recommended further research.
Other municipal retirements are ably administered by the Illinois Municipal Retirement Fund, or IMRF, which is 93% funded with 290,000 working and retired participants. So if that single plan is working for nearly all other employees at city hall, why does each police and fire department need its own plan? Why do taxpayers need to spend an extra $21 million per year to maintain more than 640 separate boards and administrators?
Most importantly, IMRF has more sustainable benefit levels such as a simple cost-of-living adjustment, rather than the 3% compounded post-retirement increases typical of other Illinois pension systems.
One danger that consolidation could present is the state declaring “mission accomplished” upon passage, and neglecting to address the core of the state’s pension crisis. While local public safety pensions need to be fixed, they are only a fraction of the problem. The suburban and downstate police and fire pensions represent about $11 billion in pension debt. That’s 5.5% of the state’s $200 billion total public pension problem.
Just the debt on the five statewide funds for teachers, state employees, judges, university workers and state lawmakers officially stands at nearly $137 billion. But Moody’s Investors Service recently pegged the debt at $241 billion for the five funds, using less rosy estimates of future investment returns. That means despite a healthy stock market, each Illinois resident is on the hook for $18,896 in state pension debt. That doesn’t include the debt taxpayers will eventually pay depending how far into the red their local public pension plans may be, and 3 out of 5 police and fire pensions rank as “deeply troubled.”
Consolidating police and firefighter pension investments is one small step on the quest for Illinois pension reform. The next leap forward should be to structurally reform the state’s pension systems to control the growth of future, unearned benefits so they are in line with what taxpayers can afford.
Reforming the rate of growth for future pension benefits through a constitutional amendment is the only way to ensure the retirement security of government workers, protect taxpayers and provide the public services Illinoisans value. Public servants who risk their lives to save the lives of others deserve no less than a secure retirement.