City leaders want to consolidate hundreds of local pension funds for police officers and firefighters as the cost of paying for those obligations crowds out money needed for basic services.
State Sen. Steven Landek, D-Bridgeview, and state Rep. Ryan Spain, R-Peoria, filed seven bills to address the local pension problem with help from the Illinois Municipal League, a group that advocates on the behalf of municipalities. Six of the seven bills include plans to consolidate at least some of the more than 650 public safety pension funds. None of the bills would reduce benefits for retirees.
Some of the bills go further than others. Two bills would fold all downstate pension funds into the Illinois Municipal Retirement Fund, which serves municipal retirees and is the state’s best-funded pension system. Those bills would abolish local pension boards.
Another would consolidate all downstate police pension funds into a single police pension fund. Still another would do the same for firefighter pension funds. A sixth would allow municipal officials to order consolidation of the public safety funds into a statewide system. The final bill would lower pension funding targets and study the benefits of consolidation.
“The current public safety pension system is unaffordable for local taxpayers and unsustainable for future pension benefit recipients. We can and must do better, and that starts with consolidating municipal public safety pension funds,” Illinois Municipal League Executive Director Brad Cole said in a statement. “None of our proposals call for benefit reductions. These consolidation efforts are intended to stabilize pension funds and relax the financial burden on taxpayers.”
Consolidating the smaller funds would boost returns, said Michael Inma, who is mayor of Macomb and president of the league’s board of directors.
“Consolidating smaller pension funds into larger funds has been shown to generate greater investment returns,” he said in a statement. “Additionally, consolidation will relieve some of the burden placed on taxpayers. This is a win-win for both retirees and our communities as a whole.”
As public safety pension costs have grown in recent years, municipalities have had to put more money into the funds, leaving less money for services. In 2018, a new state law gave pension boards the ability to petition the state to withhold municipal income tax funds if the town fell behind on pension contributions.
Pension boards in several towns, including Harvey and North Chicago, made requests under the intercept law. When the state intercepted funds in Harvey, the city laid off dozens of firefighters and police officers.
“We believe other pension boards may use the intercept mechanism given chronic underfunding among many of the approximately 656 suburban and downstate public safety pension plans,” S&P Global Ratings warned in a May 2018 report, “although, in our view, it is too early to determine if use of the intercept law will become the norm, rather than the extreme exception.”