Governor JB Pritzker signed a bill to consolidate pensions for local police and fire departments across the state of Illinois, but beneficiaries are suing because the state is notorious for poor pension management.
A court ruling in December will determine the fate of a 2019 law advocated by Governor JB Pritzker to consolidate some 650 local police and fire department pension funds from across Illinois under state administration by mid-2022.
A constitutional challenge is currently being brought against the First Responder Pension Consolidation Law, alleging that the measure will reduce pension benefits. The law aims to address shortfalls in Illinois local public safety pensions by pooling more than $ 16 billion in assets from its 650 retirement plans into two funds, one for the police force and one for the fire department
While Pritzker said the move would cut costs and improve returns for recipients, three dozen current employees and retirees and 18 local retirement plans filed the lawsuit in February. They are trying to keep local control over pension management.
“I don’t think many of us trust the Illinois government to manage our money given its history,” said Jim Kayes, president of the DeKalb Police Pension Fund Board, a plaintiff.
Illinois is home to the country’s worst pension crisis, burdening taxpayers for $ 317 billion in uncovered pension liabilities for the five nationwide pension systems.
According to data from the Illinois Department of Insurance, by 2020 more than $ 13 billion in debt was owed to local public safety pension plans in the lower state.
These pensions are mainly funded by the nation’s second highest property taxes, which deduct tax money from improving cities’ core services. The problems include:
- In DeKalb, police and fire service pension costs consume about 20% of the general fund’s revenue, up from 10% in 2014, said city manager Bill Nicklas.
- In Carbondale, 290% of the city’s property tax revenue goes to pensions.
- In Peoria, Mayor Rita Ali recently called on heads of state to set pension costs that the city will never catch up, “not in our lifetime”.
Nationwide, pension obligations consumed nearly 30% of all government spending.
Nicklas and several other city guides are relieved that their pensions are being consolidated, to find that the underfunded plans are putting a strain on budgets and creditworthiness, adding to a slowed economic recovery from the pandemic.
The Illinois Municipal League, which has been campaigning for pension consolidation for ten years, also supports Pritzker’s plan. The league said it was confident that it would meet the legal challenge.
“We are already showing savings and increased earning potential and are proving the benefits that have been predicted and needed from this consolidation,” said Brian Cole, executive director of the league.
However, many of the local pension funds remain hesitant or even refuse to band together until they learn the outcome of a lawsuit to block the Pritzker Act.
While consolidation reduces duplicate administrative costs and bundles fixed assets for higher returns, the lower state’s police and fire department debt account for only about 5% of total government liabilities.
The only real way to resolve the pension crisis once and for all – and strike a balance between protecting taxpayers, retirees, and vulnerable Illinois residents who rely on government services – is through a constitutional amendment that allows for structural pension reform.