Public pension debt at the state and local level is the most serious threat to Illinois’ future.
There have been a few proposals to reform local government pensions (representing about a quarter of Illinois’ total unfunded public pension debt). This year, the Illinois Municipal League made five different police and fire pension reform proposals to the Illinois General Assembly. None have advanced.
One IML proposal would merge the 650-plus separate downstate fire and police pension funds into the Illinois Municipal Retirement Fund. IMRF primarily provides retirement benefits to nonuniformed local government employees. It is the only solvent statewide public pension fund in Illinois, and one of the 10 best managed and best performing public pension systems in North America.
Every downstate Illinois fire and police pension fund had poorer investment returns than IMRF over the past nine years (since the Great Recession, from 2009). In Streator, this meant local fire and police pension funds failed to earn more than $4 million in investment returns for their pensioners during the same period compared to what they would have earned if they were in IMRF.
For Streator, these lost pension earnings represent 26 percent of total police and fire pension assets and nearly 22 percent of aggregate unfunded liabilities. Of course, some local fire and police pension funds in Illinois do better than others, since they are all managed separately, have different investment advisers, separate accountants and use varying financial strategies.
But all of them consistently perform more poorly than IMRF, and when local fire and police pensions under-perform, local taxpayers pay more, pension costs go up, and there is less money available for the other costs of local government. While the loss to Streator taxpayers and pensioners exceeds $4 million, statewide, the total loss of funds from all 650-plus cities since 2009 likely exceeds $2 billion — a compelling reason to combine these small funds.
So, why do the Fraternal Order of Police, the Associated Firefighters of Illinois and other special interest groups oppose merging pension assets with IMRF? If they were merged, it would make pension assets more secure, and it would create less strain on local taxpayers, who ultimately must fund the investment shortfalls.
The answer: 1) These special interest groups do not want close linkages with IMRF because existing police and fire pension benefits, created by the state, are more generous than those provided by IMRF (even though any benefit changes would only apply to future hires); and 2) By retaining local control over 650-plus separate fire and police pension funds, special interests can better control duty-related disability pension decisions and lifetime insurance benefits associated with these injury cases. The IMRF likely will take a narrower view of what constitutes “catastrophic disability.” The special interest “swamp” is just as big a problem in Springfield as it is in Washington.
Mayor, city of Streator