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Illinois Supreme Court will hear consolidated pension funds case

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Illinois

* Background is here if you need it. Pensions & Investments…

The Illinois Supreme Court has agreed to hear arguments regarding the constitutionality of two new consolidated investment funds combining the assets of the state’s municipal police and firefighters’ pension funds.

The decision by the state’s Supreme Court follows the February ruling by an Illinois appellate court that the consolidated funds, the $9 billion Illinois Police Officers’ Pension Investment Fund, Peoria, and the $7.2 billion Illinois Firefighters’ Pension Investment Fund, Lombard, are constitutional.

In that ruling affirming the May 2022 decision by Kane County Circuit Court Judge Robert K. Villa that the law creating the consolidated funds was not unconstitutional under the Illinois Constitution’s pension and takings clauses, the Appellate Court of Illinois, Second District in Elgin, said “while plaintiffs have a constitutional right to receive pension benefits … they have no right to the investments held by the funds; rather, they are entitled only to present or future payments from the funds.”

The February 2021 lawsuit filed in Kane County by the boards of 16 municipal police pension funds and two firefighters pension funds, along with some participants from each fund, alleged the law had violated Illinois Constitution clauses by terminating “plaintiffs’ authority to exclusively manage and control their investment expenditures and income,” according to the original court filing.

* Kane County Circuit Court Judge Robert Villa upheld the consolidated pensions law in May 2022 and an appellate court affirmed the decision earlier this year. Bond Buyer…

Daniel Konicek of Konicek & Dillon represents the police funds.

“We disagree from our standpoint that our people have a vested interest in this because their life savings are involved and they feel their right to vote and control” how their hard-earned contributions are invested is a protected benefit, Konicek said of the court rulings so far.

The plaintiffs argued that benefits are damaged because the law “strips plaintiffs of their autonomy and their authority” on investment decisions. The plaintiffs argued the law violates the pension protection clause, the contract clause and the takings clause of the state constitution.

The state countered that fund management doesn’t enjoy the same status as “benefits” with
constitutional protections.

Circuit court Judge Villa, in his ruling, sided with the state, saying he could not extend the term benefits beyond the reach of prior Illinois Supreme Court cases to find the challenge legislation unconstitutional against the pension clause’s protections.

posted by Isabel Miller
Wednesday, May 31, 23 @ 9:21 am

Comments

How soon will the legislature seek to eliminate the local pension fund boards themselves and make these consolidated funds work like the Illinois Municipal Retirement Fund (IMRF)?

Comment by cover Wednesday, May 31, 23 @ 9:29 am
Apparently those local pension board training sessions in Wisconsin must really be something.

Comment by Anyone Remember Wednesday, May 31, 23 @ 9:50 am
Fully expect the ILSC to uphold / affirm the lower courts.

The legislation changed nothing in terms of benefits for the employees / retirees. The only takings that is occurring is removing some cushy positions / non-pension related benefits from a few people.

Comment by RNUG Wednesday, May 31, 23 @ 11:12 am
I fully agree with RNUG, although as someone who specializes in this area of the law, I must admit that I did not think that the Kanerva decision would come out the way it did.

Comment by Retired SURS Employee Wednesday, May 31, 23 @ 11:41 am
In the minority here, but I appreciate the local pension funds position.
I did see Brad Cole, a lobbyist for Municipal folks, was quoted in the Pensions article. Not sure it is a particularly good idea to have a paid lobbyist on a board where he votes to hire vendors. Apparently Board members have issues with Mr. Cole in that the Police Board members rejected his effort to be elected an officer of that Board.
On simple tasks like preparing investment returns during the Brad Cole term it was reported at the 3/31 meeting that the performance numbers had to be rerun due to pricing issues. Cole is supposed to be a fiduciary for the police members and the fact that under his term of office the vendors and staff can not figure out returns would seem to be a problem.
Of course, I suspect he thinks things are fine, but the lobbyist connection seems odd and the inability to figure how the fund is performing should trouble him.

Comment by Back to the Future Wednesday, May 31, 23 @ 11:55 am
They can’t have it both ways: both (1) guaranteed as to amount of benefit and obligation of the government to pay, and (2) control over how the funds are invested.

Whoever bears the risk, should have the control.

Pick a lane, gents.

Comment by Chris Wednesday, May 31, 23 @ 12:40 pm
Does everyone understand the two underlying issues?

1. These boards want to have their own interpretations to give out more generous benefits than may be due;

2. These boards have few ethical duties/ oversight between board members and investments. if it was transparent, you’d likely see many relationships between both sides. Always a cause for concern.

Comment by Merica Wednesday, May 31, 23 @ 1:42 pm
Merica raises an important point.
Board members and Vendors should have to disclose any financial payments the vendors made to any organization that the Board member is employed by or served as an officer or Detector.
For example, the lobbyist on these boards is working for an organization that offers “Sponsorship Opportunities” on their webpage. If applicable, any votes for vendors that are writing checks should be disclosed if the Board Member is voting to give a contract to that vendor. That kind of disclosure would not prohibit the Biard Member from voting gir a particular vendor , but it would address Merica’s idea.
I don’t mean to be picking on anyone, but transparency in government is a good goal. Unfortunately that will probably never happen in Illinois.

Comment by Back to the Future Wednesday, May 31, 23 @ 2:06 pm
Back to the Future - Brad Cole was integral in negotiating the statute which created the combined investment funds. The statute specifically states that IML will hold a position on the Boards and Brad has been appointed by IML as their representative. This makes absolute sense since he was part of the drafting process and understands the legislation inside/out. He is there to represent municipal interests.

Comment by Anonymous Wednesday, May 31, 23 @ 2:52 pm
Anonymous
I get your point, but isn’t the job of a pension fund trustee to represent the interests of the employees, the retirees and the dependents.
Being a lobbyist for a group would seem to lead to conflicts with basic fiduciary standards.

Comment by Back to the Future Wednesday, May 31, 23 @ 3:29 pm
@9:29am:===make these consolidated funds work like the Illinois Municipal Retirement Fund (IMRF)?===

The IMRF makes employers pay their money into the IMRF pension fund right away. If the other funds were paid the same way, there would be no massive backlog pension debts.

Comment by DuPage Wednesday, May 31, 23 @ 3:55 pm
Does everyone understand the two underlying issues?

1. These boards want to have their own interpretations to give out more generous benefits than may be due;

2. These boards have few ethical duties/ oversight between board members and investments. if it was transparent, you’d likely see many relationships between both sides. Always a cause for concern.

1. Boards follow the known interpretation of the law. They follow the same guidelines that other municipal boards must follow when issuing decisions.
2. Board members are required to submit Statement of Economic Interests on an annual basis.

Comment by Stanley Wednesday, May 31, 23 @ 5:36 pm
== did not think that the Kanerva decision would come out the way it did. ==

I did, but I expected them to decide on strictly contract law, as opposed to invoking the pension clause.

Comment by RNUG Thursday, Jun 1, 23 @ 9:45 am