Illinois has far too many anemically funded pension plans and it’s time to do something about it.
The state’s five main pension funds have more than $130 billion in debt, meaning they need that much more to be considered in good health. Soon, nearly a quarter of every dollar we send to Springfield will go toward paying state retirees. That’s a problem that needs to be addressed and, so far, there’s been no wherewithal to do it.
But that’s just part of the pension story. We also have 653 separate local police and fire pension funds in communities all around the state, and many of those are in poor shape, too. Several approaches to consolidating those funds are expected to get a hearing Wednesday in Springfield.
Illinois alone is home to 43 percent of all public pension funds nationwide. According to a 2012 report by the Marquette Associates, the state with the second most pension funds is Pennsylvania. It has only 137 pension funds.
Why should you care about this? If your community’s funds are in trouble, you’re likely paying more in interest costs every time your town’s officials need to borrow money. And if your community’s funds are in trouble, you might be facing a tax or fee hike to fix it. Chicago, for example, already approved a four-year property tax increase to boost police and fire funds that, in 2016, were only 25 percent and 23 percent funded, respectively.
Many of us already feel overburdened by local property taxes. If taxes help drive people from Illinois — and we know the state is losing population — then the burden grows for the rest of us who remain to pay for the governments we have.
Do you know how well-funded your community’s police and fire pension funds are? You can check the financial health of your police and fire pension funds outside of Chicago with a tool at https://www.bettergov.org/news/statewide-police-and-fire-pension-fund-database-how-much-does-your-town-owe.
Do you know who invests those funds and how those investment decisions are made? There are fund managers and boards of fund trustees for every one of those 653 police and fire funds. And there are fees charged by all the managers for all those investments made.
It makes little sense to have hundreds of funds with hundreds of pension board trustees and hundreds of investment managers. Consolidation will create efficiencies and economies of scale. It also should streamline processes, significantly reduce costs and boost investment returns, improving many towns’ ability to finance the retirements promised to public safety workers.
The Illinois Municipal League has been pursuing consolidation options and there are five general approaches up for debate:
- Consolidate the funds outside of Chicago into the Illinois Municipal Retirement Fund (IMRF), with the regular IMRF pension formula applying to all new employees hired after a certain date. (SB 3426). This approach likely would drive up the debt of the IMRF fund, which is among the state’s healthiest, making it tougher to get done.
- Merge the police and firefighter pension funds into IMRF, keep the current setup of the funds, but adopt IMRF’s management of the funds. (SB 3425).
- Consolidate investments only by transferring assets and investment authority from the current police and firefighter pension funds into IMRF, but maintain the local pension boards for each fund. (SB 3423). Obviously, this approach keeps hundreds of board bureaucracies going.
- Consolidate all the police pension funds outside of Chicago into one downstate police pension fund, with one pension board to carry out the fund’s management, thereby eliminating the local pension boards. (SB 3422).
- Consolidate the firefighter funds into one downstate firefighter pension fund, with one pension board to manage the fund. (SB 3424).
Each approach ought to be analyzed financially. Some board members, investment managers, and local police and fire officials will want to keep the status quo and the control they have. But we simply have too many boards, too many funds — many of which are ailing — and too much government bureaucracy that costs all of us.
It’s time to support pension solutions. Some avenue toward consolidation of local police and fire pension funds ought to be one of them.
Madeleine Doubek is policy & civic engagement director for the Better Government Association.
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