SPRINGFIELD — Hundreds of the state’s pension funds should be consolidated to improve investment returns and ease the burden on local property taxes, a state task force recommended Thursday.
The report from the Illinois Pension Consolidation Feasibility Task Force only made recommendations for 649 local police and fire pension systems scattered around the state. It did not make recommendations that affect the woefully underfunded five state pension systems or those operated by the city of Chicago.
But Gov. JB Pritzker, who formed the task force in February, said the recommendations for the police and fire funds represented “monumental progress” in the state’s effort to get control of spiraling public employee pension costs.
“One of the most critical, long-term fiscal challenges is the need to address unfunded pension liabilities for local governments and the surging property tax burdens that they create,” Pritzker said.
Part of the problem, the task force said, is the sheer proliferation of downstate and suburban police and fire pension systems. Illinois has the second most public pension systems in the country with 660 — and 649 of them are police and fire pension systems for suburban and downstate police officers and firefighters.
Many of the funds are too small and hold too few assets to achieve top returns on their investments, the report said. Smaller investment income means money to keep the systems solvent has to come from elsewhere and that usually falls to property taxes.
“Because many are so small, they are unable to gain access to investment opportunities that provide the highest returns and competitive investment rates,” the report said. “The single most impactful step that the state can take to address the underfunding of downstate and suburban police and fire pension funds is to consolidate the plans’ investment assets.”
The state Department of Insurance estimated that if the police and fire pension funds had been consolidated and gotten the same returns as larger public pension funds, they would have earned $820 million to $2.5 billion in higher investment returns. Citing the report, Pritzker said those police and fire pension funds are losing $1 million a day to poor investment returns.
“Taxpayers are having to come up with nearly $1 million a day to make up for the underperformance of their local pension plans,” Pritzker said.
The report said that “higher returns will ultimately mean a reduction in the required annual employer contribution and therefore an easing of the burden on taxpayers to pay down the unfunded pension liabilities.”
Under the proposal recommended by the task force, all police pension fund assets outside the city of Chicago would be consolidated into one newly created account and all fire pensions into another account. Each of the funds would be governed by its own board, comprised of equal numbers of employer and employee representatives.
Within each of those funds, though, each current pension plan would maintain a separate account so that funds would not be mingled. Also, the administration of pension benefits would continue to be handled at the local level.
Pritzker wants lawmakers to address the consolidation issue during the upcoming veto session that starts Oct. 28. A timetable laid out in the report anticipates a law authorizing the consolidation to take effect July 1. The actual consolidation would be completed by July 1, 2023.
Two weeks ago, the Illinois Public Pension Fund Association issued a statement advising against “a rush to push through any possible changes in the local control of police and fire pension fund assets …” based on a report from the task force.
On Thursday, the Illinois Fraternal Order of Police issued a statement criticizing the task force’s work.
“Law enforcement officers were not allowed to participate, provide feedback or be shown that this was anything other than an attempt to grab officers’ money,” said Shawn Roselieb, FOP’s labor council executive director. “No one is more concerned with the proper administration of public safety pensions than our 36,000 members. But this committee thinks downstate police officers are the only public employees who are just not smart or sophisticated enough to manage their own money.”
Pat Devaney, president of the Associated Firefighters of Illinois, was a co-chair of the task force. He appeared with Pritzker and others at Thursday’s news conference and said the report contained “commonsense recommendations that will go a long way to improve the funding levels of firefighter pension funds.”
Former Senate Republican Leader Christine Radogno of Lemont, another task force co-chair, said the process that led to the report was “inclusive, it was thorough. In no way was this a rushed recommendation.”
“It’s critical to know that if we don’t do this, taxpayers will be asked to pay more. There is no question about that,” she said.
Pritzker acknowledged there will be “headwinds” working against consolidating the funds, but he thinks “collectively we’ll be able to get this through.”
Doug Finke: firstname.lastname@example.org, 217-788-1527, @dougfinkesjr