State Wants To Consolidate Downstate, Suburban Police/Fire Pensions
The Pension Consolidation Feasibility Task Force issued a report to Gov. JB Pritzker last week recommending that the state take action in the veto session to consolidate the nearly 650 suburban and downstate police and fire pension plan assets into two new statewide systems.
What that means for Kane County police and fire pension funds has yet to be determined, but the task force says it will save money overall.
According to a state of Illinois news release, the consolidation could generate as much as $1 million a day in additional returns for the funds and help stabilize pensions for first responders.
State officials said the consolidated funds would total more than $14 billion in assets, generating an additional $820 million to $2.5 billion in investment returns alone over the next five years and an additional $3.6 billion to $12.7 billion in investment returns alone over the next 20 years, based on the performance of the statewide municipal employees’ fund.
The two consolidated funds — one for police and one for fire — would pool assets to lower administrative costs and gain access to better investment opportunities, improving performance and easing the growing pressures on local property taxes to pick up the tab when funds underperform.
“Under the current arrangement, Illinois’ suburban and downstate police and firefighter pension funds are underperforming by nearly $1 million per day,” Pritzker said. “That’s not just a missed opportunity — that’s a hole these funds are digging deeper every year — and then municipalities have to ask taxpayers to fill the hole.”
The legislation would consolidate the assets of the 649 suburban and downstate pension funds into two statewide funds.
Because most of the existing 650 funds are so small — nearly half have less than $10 million in assets — returns on their investments have been significantly lower than other pension systems.
Currently, the array of smaller funds each pay higher administrative fees and see significantly lower investment returns than larger pension plans in Illinois, averaging 2% less annually during the past 10 years than the statewide municipal employees’ fund.
With regard to the two new funds, the task force also recommends that the state make some changes to Tier 2 beneficiaries’ plans to address future concerns about the safe harbor standard of the Social Security Administration and Internal Revenue Code, as well as avoiding substantial and sudden future costs to municipalities resulting from non-compliance.
In the future, the task force could consider consolidating the benefit administration of the suburban and downstate police and fire pensions, as well as the advantages of further consolidation of other state and local benefit plans, including Chicago’s funds.
Pritzker established the task force less on Feb. 11, 2019. Former Chicago Board Options Exchange Chairman and CEO William J. Brodsky, Associated Fire Fighters of Illinois President Pat Devaney and former Illinois Senate Minority Leader Christine Radogno co-chaired the 10-member committee.
The full report by the Pension Consolidation Feasibility Task Force as submitted to the governor is attached.
SOURCE: state of Illinois news release
