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Local governments present pension fund consolidation plans

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Illinois

* Illinois Municipal League press release…

As local pension costs continue to skyrocket across Illinois, mayors are pursuing legislation to reform and consolidate the state’s more than 650 public safety pension funds. Consolidating these funds could streamline investments and benefit decisions and eliminate unnecessary, redundant administrative costs, ensuring more money is available to fund pension benefits without reducing benefits.

Bipartisan legislation has been introduced by Sen. Steven Landek, a Democrat who currently serves as the mayor of Bridgeview, and Rep. Ryan Spain, a Republican who previously served as a member of the Peoria City Council. The package of legislation proposes varying degrees of reform and consolidation for local public safety pension funds in order to deliver on promises made to those who have dedicated their lives to serving their communities.

The Illinois Municipal League’s (IML) Pension Reform Working Group made the recommendation to consolidate the individual public safety funds after examining the best ways to stabilize pension benefits for hardworking public servants. Smaller local pension funds have experienced lower returns on investments than larger consolidated funds. As a result, many communities across Illinois are forced to choose between funding basic municipal services, including police and fire services, or making pension contributions. […]

“Consolidating smaller pension funds into larger funds has been shown to generate greater investment returns. 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,” said Michael J. Inman, mayor of the City of Macomb and president of the IML Board of Directors.

One proposal recommends a single downstate fund modeled on the Illinois Municipal Retirement Fund (IMRF), which remains the second largest and best-funded pension system in the state. Consolidating funds would enact efficiencies and streamline services to ensure financial contributions from both taxpayers and employees go towards pensions, and not unnecessary overhead or administrative expenses.

* The bill list…

SB 1106/HB 1566: Consolidation into IMRF, with IMRF Formula for New Hires
Consolidates all downstate public safety pension funds into the Illinois Municipal Retirement Fund (IMRF) and requires the regular IMRF pension formula to apply to all newly hired public safety employees after a certain date. Local pension boards would be abolished following consolidation.

SB 1107/HB 1567: Consolidation into IMRF, with Retained Police and Firefighter Formulas
Consolidates all downstate public safety pension funds into IMRF. This proposal would allow the benefit characteristics of these funds to stay the same, but be under the management and administration of IMRF. Local pension boards would be abolished following consolidation.

SB 1108/HB 1568: Consolidation with IMRF, for Investment Funds Only
Consolidates the investments (only) of all local pension funds by the transfer of assets and investment authority into IMRF and maintains local pension boards for each fund to administer pension determinations.

SB 1109/HB 1569: Consolidation Creating a Single Downstate Police Pension Fund
Consolidates all downstate police pension funds into a single downstate police pension fund. The fund would have one statewide board that would carry out all aspects of the fund’s management, thereby eliminating the local pension boards.

SB 1110/HB 1570: Consolidation Creating a Single Downstate Firefighter Pension Fund
Consolidates all downstate firefighters pension funds into a single downstate firefighter pension fund. The fund would have one statewide board that would carry out all aspects of the fund’s management, thereby eliminating the local pension boards.

SB 1111/HB 1571: Consolidation with IMRF, for Investment Funds Only, By City Council Action, Maintaining Local Pension Boards
Allows municipal officials to direct the local pension fund board to transfer and consolidate its investment funds into a single statewide fund. Allows local pension boards to maintain all other authority, such as pension awards and disability determinations. Participating communities would see their property tax levies for pensions be exempted from the Property Tax Extension Limitation Law (PTELL).

SB 1112/HB 1572: Extend the Amortization Period and Reduce the Funded Ratio Target
Maintains all characteristics of each local pension fund (i.e., no consolidation), extends the amortization period from 2040 to 2050 and reduces the required funding ratio target from 90% to 80%, and directs a comprehensive study be done to examine the costs and benefits of full consolidation.

Thoughts?

posted by Rich Miller
Wednesday, Feb 6, 19 @ 10:32 am

Comments

It’s worth a look and crunching the numbers.

I’m sure that the more underfunded your plan, the more that you’d favor consolidation. And highly funded plans will oppose it.

Comment by wordslinger Wednesday, Feb 6, 19 @ 10:38 am
If I’m one of the municipalities in the bottom 50% of funding ratios, I love it. Reverse, not so much.

These seems to bypass the obvious and probably least obtrusive choice which would be consolidating police and fire pensions by municipality.

Comment by City Zen Wednesday, Feb 6, 19 @ 10:39 am
I am in a small one. Yes good plan.

Comment by Not a Billionaire Wednesday, Feb 6, 19 @ 10:40 am
I think the underfunded pensions get the least value. The cost is of a transitional nature. If you are a small fund you are in investments that benefit small funds liquidity and legal authority. You have to liquidate those assets to transfer into a big fund. That is an upfront cost. If you are underfunded you have less assets to recoup that cost with a higher assumed rate of return. Larger well run funds have the most to gain.

Comment by Polpen Wednesday, Feb 6, 19 @ 10:46 am
Not a fan of the 90% to 80% transition
Wouldnt mind hearing the rationale.

Comment by Blue Dog Dem Wednesday, Feb 6, 19 @ 10:48 am
You don’t often hear the IML advocating to forfeit local control, so there must be merit to this idea. If you can streamline the administration, reduce overhead, expand investment opportunities to enhance returns, ensure that full contributions are made, and protect from cross-subsidization, then let’s go. Maybe at the same time, you can fix the disability decisions so that taxpayers aren’t soaked for societal issues like colon cancer.

Comment by Anon Wednesday, Feb 6, 19 @ 10:56 am
The firefighters union (IAFF) will never go for this. They are under the AFL-CIO umbrella, so that will provide influence on the Governor’s administration and his support. I like the proposal, but I am not optimistic it will receive support.

Comment by Just a guy... Wednesday, Feb 6, 19 @ 10:57 am
If nothing else, consolidating public safety pension funds would provide actuarial expertise to provide data sorely lacking data when some pensions were increased willy nilly after 9/11.

Comment by Anyone Remember Wednesday, Feb 6, 19 @ 10:58 am
Some of the comments don’t seem to understand the proposals. If you are currently 50% funded, you are still going to be 50% funded under these new plans. The new consolidated pension funds will still keep individual accounts for each pension fund/municipality, just like IMRF does currently. This just streamlines the whole administration of the pension funds into one centralized pension fund.

Comment by Smalls Wednesday, Feb 6, 19 @ 11:01 am
Smalls is correct, except that if you are 50% funded now, you will be 45% funded after this. A 2012 Marquette study of this issue for COGFA suggested an up front cost of $160,000,000 paid by the funds. The theory is then that reducing the administrative costs by 30 basis points means this eventually gets repaid and generates savings decades down the line.

Comment by Polpen Wednesday, Feb 6, 19 @ 11:07 am
gotta do something … worth exploring

Comment by west wing Wednesday, Feb 6, 19 @ 11:11 am
it’s OK as a small move. but it’s just re-arranging the deck chairs on the Titanic.

Comment by jim Wednesday, Feb 6, 19 @ 11:41 am
Will current IMRF plan participants, plus the plan managers, have any say in this? Expect some pushback if the current plan is diluted significantly.

To illustrate, imagine that my neighbor and I own similar homes. I owe ten grand on my mortgage, and he owes fifty grand on his. He comes up with an idea to bundle our properties and pool our mortgages, and keep our current payments the same. Exactly where is the upside in that for me? I’m not sure that’s a perfect analogy, but it’s likely one that current IMRF members will be considering.

Comment by Stuntman Bob's Brother Wednesday, Feb 6, 19 @ 12:15 pm
Consolidation into IMRF with elimination of all the local boards probably makes the best fiscal sense.

Consolidation into a single police fund and a single firefighters fund probably makes the best political sense. However, it also makes those 2 new funds more visible, and possibly easier to attack benefits at a later date.

However, consolidation by itself is not an underfunding fix. At best, it may save about 10% of the total fund debt through reduced fees and better returns. Don’t get me wrong, I think consolidation is a good idea … but it is not magic beans to automatically fill the funds.

Comment by RNUG Wednesday, Feb 6, 19 @ 12:15 pm
@Polpen - By Marquette, do you mean Marquette Associates in Chicago? There study should definitely be taken with a grain of salt considering they are the investment adviser for many of these small pension funds and would likely lose a good chunk of business if this went through.

Comment by Chicagonk Wednesday, Feb 6, 19 @ 12:15 pm
RNUG. Your thoughts on the 90% to 80% transition. I have felt that’s IMRFs strength.

Comment by Blue Dog Dem Wednesday, Feb 6, 19 @ 12:21 pm
IMRF is in great shape. One of the reasons is that the employer contribution varies each year and is based on projections for funding retirements. So if investments do badly, the employer contribution increases. And vice versa. If these small pension plans join IMRF, some municipalities with low % funding will have some years of high contributions, while others that are well funded will have lower contributions. BUT the contributions will be mandatory.

Comment by Barrington Wednesday, Feb 6, 19 @ 1:28 pm
== RNUG. Your thoughts on the 90% to 80% transition. I have felt that’s IMRFs strength. ==

-blue dog-, I always thought the mandatory / actuarial contributions were its’ strength.

I don’t really have any strong feelings on 90 vs 80 for government entities that are not allowed to take bankruptcy. I would object to going below 80%.

You didn’t ask, but if the rules were changed to allow bankruptcy, then I would want to see 90 or higher and I would want to see a state run version of the PBGC just for government entities.

Comment by RNUG Wednesday, Feb 6, 19 @ 1:37 pm
650 public safety pension funds…i think here lies the bulk of the problems….. 650 funds,,public safety..thats not counting other public pension funds.

Comment by jimmydean Wednesday, Feb 6, 19 @ 2:22 pm
IMRF is in great shape. One of the reasons is that the employer contribution varies each year and is based on projections for funding retirements. So if investments do badly, the employer contribution increases. And vice versa. If these small pension plans join IMRF, some municipalities with low % funding will have some years of high contributions, while others that are well funded will have lower contributions. BUT the contributions will be mandatory…. true but them mandatory funds are crushing a lot of cities.

Comment by jimmydean Wednesday, Feb 6, 19 @ 2:24 pm
the reason IMRF is in great shape is because annual contributions are paid automatically our high property taxes. there’s no magic to its strong status.

Comment by jim Wednesday, Feb 6, 19 @ 2:51 pm
Could this consolidation work on our state pension pension problem through lower fees and more clout with a larger and multistate fund for current holders and meet the current constitution without amendment?

Comment by BEAR 3 Wednesday, Feb 6, 19 @ 3:40 pm
== Could this consolidation work on our state pension pension problem through lower fees and more clout with a larger and multistate fund for current holders and meet the current constitution without amendment? ==

* All figures rounded / approximate using most recently available reports. *

The big dog with clout in investing pension funds is CALPERS with around $351B net under management. They get to cut deals for investment fee discounts.

By comparison, IMRF is $41B, TRS is $51B, SURS is $20B, and SRS (SERS, JRS & GARS) is $18B. I don’t know what the total of all the Illinois police and fire funds would be. But if you add up what we know about, that is $130B of potential clout if coordinated, but probably not enough to get the same level of discounts CALPERS does.

This is not to say the State couldn’t get some savings, but as I noted earlier, we are talking about maybe saving nickels and dimes in the overall scheme. It’s not going to bail out the pension funds by itself. Over enough time, maybe you could carve up to $5B off the pension debt.

Not that we shouldn’t be maximizing all investments, but there is no jar of magic beans …

Comment by RNUG Wednesday, Feb 6, 19 @ 5:13 pm
This is a great idea. About time.

Comment by Soccermom Wednesday, Feb 6, 19 @ 6:17 pm
BEAR 3 -
Filan proposed something along these lines, Cellini (and others) got it killed to keep their scheme going at TRS.

Comment by Anyone Remember Wednesday, Feb 6, 19 @ 7:44 pm
There was an informative interview with Peoria’s Mayor Ardis, and city managers from Normal, Peoria and Galesburg back in September 2018 talking about pensions and how downstate municipalities are being buried by pensions. They spoke about this kind of plan.

At the least it would save administrative costs associated with managing the pensions’ investments, according to Jim Ardis.

Anyway, here’s the interview. https://www.wtvp.org/at-issue/

Comment by Rust Belt Betty Wednesday, Feb 6, 19 @ 9:03 pm
–At the least it would save administrative costs associated with managing the pensions’ investments, according to Jim Ardis.–

Unfortunately, it won’t reimburse the Peoria taxpayers for the costs of police raids, arrests, lawyer fees, court time and a $125K settlement for Ardis’ hysterical freakout and abuse of power over a silly twitter parody account.

https://www.nytimes.com/2015/09/05/us/peoria-settles-suit-over-parody-twitter-account-that-mocked-mayor.html

Comment by wordslinger Wednesday, Feb 6, 19 @ 9:20 pm
if the local goverments would have payed there fair shares over the years we would not be in this condition

Comment by piegon Friday, Feb 8, 19 @ 4:13 pm