By: Mark Glennon*
The Illinois Supreme Court on Friday upheld a 2020 Illinois law consolidating management of some 650 local Illinois pensions for police and fire departments, mostly in smaller communities. The court’s slip opinion is here.
It’s a common sense step that was long overdue and had bipartisan support.
Keep in mind that the law only consolidates management of the pensions’ investment activities. There’s no substantive consolidation – no pension is taking on the liabilities or assets of another. Consolidating the investment function is sensible. It made no sense to have duplicative management for smaller pensions. Consolidation allows for more flexibility in making longer term investments and is better handled by one large, professional staff.
The same law that authorized the consolidation also included adjustments to Tier 2 benefits (workers hired after 2009) for the lame local pensions. That fix was needed to remove the risk of Tier 2 being in violation of federal rules on minimum benefits.
The bill won’t save much, as we explained when the bill was passed.
Consolidation’s annual benefits, according to the state’s own estimates when the law was passed, were $164 million to $500 million per year in total, though there’s no guarantee those savings will actually occur.
That means almost nothing to Illinoisans’ property tax bills, which fund the lion’s share of local pensions. The property tax collections in downstate and suburban Illinois total about $27 billion. The annual potential savings are just 0.6 percent to 1.8 percent of the total. So if savings materialize and if the savings go towards property tax relief, then residents may just see a very tiny reduction in their property tax bills. In short, it’s no “banner accomplishment” as Gov. JB Pritzker claimed and we criticized when he signed the bill.
The savings will also be offset by the additional cost of the Tier 2 benefit adjustment. Whether one exceeds the other remains to be seen.
Pritzker’s Friday statement on the court decision only called the law “meaningful reform.” That’s progress on two fronts: A good bill and an appropriately modest description.
*Mark Glennon is founder of Wirepoints.
This column was updated to note that the consolidation bill also included Tier 2 benefit adjustments for the same pensions.
Earlier Wirepoints columns on the consolidation bill:
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
It concentrates power in fewer hands and makes Illinois pension more powerful in the investment world.
I believe IMRF consolidated in the past.
IMRF is kind of the same idea. It’s one big fund for local public employees who are not police and fire. Each municipality has an account in it, making payments in and taking benefits out in proportion to their number of employees. But it is invested as one big fund.
Additionally, They will increase their power to use my property tax money to bid against my smaller private pension fund.
Correction, pension fund and/or retirement fund.
Plus, it takes several months to get funds from the state to replenish the local pay-out fund.
Remember, the times, the state stopped paying bills and community colleges.
IMRF has the advantage that it is responsible for only for the pension beneficiaries. Each year it sends a bill to municipalities for their non-police, non-fire employees.
In contrast, a conflict arises with local management of police and fire pensions, where government can under-fund a plan with several different accounting and actuarial contortions where few residents will notice and pension beneficiaries are on board and even indifferent to underfunding, relying on the iron-clad constitutional guarantee that public pensions can never be diminished.
Consolidation of the pension funds DOES allow for a better return on investment AND reduced (duplicated) administrative costs – a good thing. However, the legislature could have allowed the local pension boards to invest in funds that it had previously prohibited. It will also be interesting to see how long it will take Pritzker and the legislature to change the law to allow them access to the pension funds ($18 – $19 BILLION) to pay the state’s bills. All it takes is the stroke of a pen in this corrupt state to allow the Marxist governor or the legislature to… Read more »
Regarding allowing access I would not be surprised if down the road Pritzker et al pushes for a total consolidation of funds that could potentially considerable abuse
Now that the Illinois Supreme Court is bought and paid for by JB, perhaps they could do REAL pension reform.
There will be no REAL pension reform because the Illinois Supreme Court IS bought and paid for by JB. Just as there has been and will continue to be NO real reforms in Illinois as long as Dems are in charge.
Will there be only one pension management fund and how much will it cost?
How politically connected will the pension managers be?
What was the total cost to manage all the separate funds and what was their returns?
There will be one investment management team. No word on cost but it no doubt will be less than the combined cost of doing all the pensions separately. Yes, you can expect political connections, as is common on most pension boards. Hopefully, the new team will be less political. I am aware of no broad review of return performance for those smaller pensions, or any comparison to other pensions. That would be rather unfair, however, because smaller pensions are subject to strict restrictions on what they can invest in, pushing them into lowe return, short term debt. The law is… Read more »
Investment management fees are a small fraction of the total cost of delivering pension benefits; I’d expect consolidation benefits to be minimal in this area.
This consolidation law also included enhancements to Tier 2 pensions for safety personnel. Whatever savings might materialize will be smaller than reported.
Yup, I’ve updated the column to include that.
Great idea, lets make the already abused law enforcement officers even madder. Any efficiencies gained will be lost by hiring JV players to run the fund and prosecuting the absurd DEI ,MWDBE and ESG rules IL shoves down these plans throats.
The funding shortfall will mostly disappear if the state pays the money they owe (with interest) all the funds from when they took their “Funding Holiday”
This bill is about local police and fire pensions. The state pays no money to them and it did not effectuate any funding holiday for them.
Yes but some local police and fire were 100% funded and they are now 30% funded so they basically got SCREWED.
True-I believe the Belvidere fire dept was funded very well and now who knows what the funding level is now collectively. I am or at least was for consolidating the school districts but if that happens will the excess employees be absorbed into a newer larger district thus not saving taxpayers any money. Instead of having 3 assistant supers there may be 9 or 10. Unit districts comprising of 40K students each would mean only 50 districts statewide instead of 850 or so. In Florida there are approx 70 districts for the 2.7M students. Soon every student in Illinois will… Read more »
I don’t believe that’s how it works David F. My understanding is the consolidation is done to reduce administration costs and improve the rate of return but it’s not “combining” and making an aggregate funding level. (40 ILCS 5/22B-114) Sec. 22B-114. Purpose, establishment, and governance. The Fund is established to consolidate the transferor pension funds to streamline investments and eliminate unnecessary and redundant administrative costs, thereby ensuring more money is available to fund pension benefits for the beneficiaries of the transferor pension funds. The transition board trustees and permanent board trustees of the Fund shall be fiduciaries for the participants and beneficiaries of… Read more »
Yes, that’s my understanding.
Properly funding all the pensions never was affordable, which is why it was never done. I wish we had tried because it would have then been evident long ago that the system is unaffordable.
Mark F is claiming that properly funded pension funds would now be underfunded. That’s not how the law reads.
Mr. Glennon is making the point that the pension benefits, if paid for on a full actuarial basis, would be unaffordable to many municipalities. That is why many Illinois cities and villages used actuarial assumptions that far underestimated the life expectancy of beneficiaries, resulting in systematic underfunding of the plans.
Yes. Those municipalities would be forced to live within their means. Possibly fewer police and fireman and maybe not the fancy new community center. Now they are behind and are paying way more. Had they made the proper payments all along their actuarial payments would be affordable by comparison. He is right that it would put financial pressure and that’s exactly what fiscally prudent voters should demand.
Municipalities shorted pensions because they didn’t want to make those tough decisions like fewer services and/or increased taxes. Now they pay more.
Here is some info on the consolidations. Some smaller funds were getting only 2% per year.
https://www.pionline.com/legislation/illinois-consolidates-649-police-and-firefighter-pension-funds
This is some older info but this article states how much is in each fund for police and fire.
Absolutely correct David F Romeoville fire was 100% funded.
It doesn’t matter. They will still be 100% funded.
This move cannot be fair and equal; someone will win and someone will lose.
“ The usual gang of idiots “ will say anything to
Keep the heat off of them, Baby Huey keeps spouting the same lies about the pensions
But it will soon happen that they need more money, we will be off to the races again.
The weight of the failures will come down and crush the idiots and they will be voted out of power, what remains will take decades to fix.
It’s the right thing to do, but it’s like putting a bandaid on a massive head wound. It does not change the trajectory of the pension funding shortfall in any way.