Governor Signs Pension Consolidation Bill

Governor Signs Pension Consolidation Bill

Gov. J.B. Pritzker signed a measure Wednesday to consolidate 649 downstate police and fire pension funds into two funds in an effort to boost investment returns and ease pension costs for municipalities and taxpayers.


Outside of Chicago, those 649 funds have about $12 billion in combined unfunded pension liabilities. The average funding ratio for those funds was about 55 percent. Some local governments’ entire share of property taxes goes directly into pensions. In some municipalities, it’s not enough.


The new law passed this fall and takes effect immediately. It was the product of the governor’s task force on pension consolidation, which produced a report before the fall session.


“This pension task force was really looking specifically at how to consolidate the investment returns for purposes of investment returns and came up with some really good ideas in order to get there,” Pritzker said.


Local pension boards will continue to make decisions on benefits, the governor said.


“Those will be made at the local level by the people who sit on those local boards,” Pritzker said. “Those local boards are not going to be making investment decisions however, and that’s really, again, how we’ll bring billions of dollars into the system.”


The Illinois Municipal League, a group that lobbies state government on behalf of local governments, supported the bill.


“This is a good first step forward on the complicated and comprehensive issue of pension reform,” Illinois Municipal League Executive Director Brad Cole said.


Statewide police and firefighter groups also backed the measure.


However, concerns remain for some in local government.


Last week, Springfield Alderman Joe McMenamin said the measure would take away from cities the ability to set an expected rate of return for pension investments.


“It’s going to be set by the state,” McMenamin said. “Now we don’t know if they’re going to be more conservative, which I hope they will be, or more loose with their rate of return suggestions.”


If pension investments come in lower than the estimated rate of return when cities budget for annual pension payments, taxpayers are on the hook for the difference.


McMenamin also warned that past pension fixes haven’t always been successful.


“This latest consolidation is not light at the end of the tunnel, in fact, it might be the opposite of light at the end of the tunnel for all we know,” McMenamin said.


Critics of the measure said it would increase benefits for Tier II pensions adding to costs. The governor’s office said the estimated cost is up to $95 million, but projected investment gains from consolidation could generate between $820 million to $2.5 billion by maximizing investment returns.