By: Mark Glennon, Ted Dabrowski and John Klingner
Add the Illinois Municipal Retirement Fund to the free-for-all grab on state money flowing to Illinois’ troubled towns and cities that’s now setting up. That money recently became subject to intercept by the state comptroller who then redirects the money to pensions. Based on data we obtained earlier under the Freedom of Information Act, over 600 Illinois towns and cities were underfunded on their IMRF obligations, at least to some extent, apparently putting them at risk of at least a partial intercept.
The unfortunate City of Harvey is again providing the illustration, but it’s not likely to be the last.
Harvey was the first to first to face that intercept and a court fight ensued between the city, bondholders, the police pension and the firefighters’ pension. Each wanted at least some of the state money. That money, which includes local share of sales tax and income tax, is often critical to providing essential services. Harvey initially responded by laying off about half of its firefighters.
A global settlement was reached among the claimants and the City of Harvey. As reported by The Bond Buyer yesterday, that settlement includes the city’s obligation to keep IMRF current.
Importantly, that requirement was included because the comptroller concluded that IMRF has intercept rights, just like the police and fire pensions, according to The Bond Buyer.
The implications are extensive because IMRF is huge and so many municipalities are delinquent on their obligations to it. It’s the second biggest Illinois pension by membership, covering over 400,000 municipal employees (other than teachers, police and firefighters) across the state other than those of Chicago and Cook County.
Each of the municipalities that participate as employers in IMRF has a separate account, of sorts, with it.
IMRF’s aggregate funding ratio is comparatively healthy, most recently reported at 93% (thanks to its unique rights to force funding in other ways).
However, that aggregate belies the reality that the vast majority of towns and cities have been underfunded in the accounts they maintain with IMRF for active workers. Retired workers, as IMRF accounts for things, are fully funded, but municipalities are often short on their obligation to fund their IMRF account for active workers.
The numbers we obtained are below and are from 2016, the most recent we could get. Note that these funding levels are for active workers only, and for towns and cities only (not other types of municipalities that also participate with IMRF).
615 towns and cities are underfunded to some degree. 278 have funding levels under 75% for active workers.
IMRF trustees, like local police and fire pension trustees, are no doubt thinking hard about whether their fiduciary duty to the pension requires them to request an intercept. Once a pension validly requests and intercept, the comptroller is legally obligated to effectuate it. The comptroller earlier indicated that first-to-ask wins in cases where multiple multiple pensions seek intercepts but there’s not enough to cover each.
Obviously, this is an awful mess. Pensioners, bondholders, taxpayers and service recipients face a free-for-all in fiscally troubled communities across Illinois. It’s a fight over some of the last meat on the bones.
We called IMRF for comment or elaboration but have not heard back.
For further background on the intercept and Harvey’s plight, see these earlier articles: