By: Ted Dabrowski and John Klingner
So you’d think a newly-implemented law that allows pension trustees to effectively garnish monies owed to their funds would be getting lots of use.
Police and fire pension trustees in Harvey and North Chicago have already successfully used the intercept law to shore up their pensions, so the path has been cleared. (Click here for details on the intercept crisis and the latest on Harvey.)
If that’s the case, why haven’t the trustees of the nearly 400 other pension funds that have been shorted in recent years requested intercepts from the State Comptroller?
They have a fiduciary responsibility to the pensioners they represent, but most are not requesting intercepts.
Read Wirepoints’ special reports on Harvey:
- Harvey, the first domino: Data shows 400 other pension funds could trigger garnishment
- Beyond Harvey: Many Illinois municipalities running out of options
Almost 100 funds have less than 40 percent of the money the need on hand today to pay out future benefits.
Officials have begged for a pension funding guarantee for decades, but now that they have it, they aren’t acting on it.
We have talked to parties close to the decision making in some of those municipalities and compiled a list of ten potential reasons why.
1. Some funds fear their city will lay off workers or cut services just like Harvey did.
2. Some funds don’t have attorneys on staff to help with the intercept process.
3. Some funds don’t have the expertise to calculate if their city actually paid the money it was required to.
4. The funds aren’t getting help from the Illinois Public Pension Fund Association, as far as we know. The IPPFA does not publicly advocate for garnishment or help with the process.
5. Some funds simply don’t care if their city failed to pay in full.
6. Some funds have gotten full or almost-full funding from their cities just by threatening to garnish. They don’t want to mess up the deals they’ve made to get money owed in previous years.
7. Some funds don’t want to garnish because some parts of the law are still unclear. For example, now that it’s 2018, funds are unclear as to whether they can request an intercept for monies due in 2016 or 2017.
8. Dozens of pension funds have been shorted by their sponsoring fire protection districts. But those districts rely almost entirely on local property taxes, so there is no money for the state comptroller to intercept.
9. Many funds have different accounting calendars, so they can’t demand garnishment for missed 2018 money until later this year.
10. Nearly 400 pension funds were shorted in 2016 – the most recent year comprehensive data is available. But fewer pension funds could have been shorted in 2018 due to the threat of the garnishment law.
This is a complex issue, there is still a lot to unravel, and it’s unclear how things will ultimately play out. But one thing’s for sure, the next recession will put even greater pressure on those funds already in trouble.
Some will say that pushing for garnishment will foster a crisis – ending in layoffs and cuts in city services. But so will a continual worsening of underfunded pensions.
Either pension funds create a crisis by taking city revenues, or they create one by going insolvent.
Some trustees can help their funds avoid a deeper crisis by garnishing revenues. But for others, garnishment will have to be accompanied by a slate of reforms, from a renegotiation of benefits to 401(k)s for new workers to salary freezes to bankruptcy protection.
The crisis is now playing out in real terms – people are being hurt – and every single reform available to government officials must be used to reverse the collapse. The intercept law available to pension trustees is just one of them.
Read more about the downstate pension crisis here: