Maybe thats because state lawmakers take a problem they arent sure exists, apply a solution they dont know will work and never determine the cost. Because the existing plans are already better funded, theyre able to diversify their investments more, enabling higher returns. The Court also rejected the use of the states police power to reduce pensions, that is, the notion that the greater need to provide basic services could justify reducing pensions, noting that other provisions in the constitution included wording qualifying the promises made as subject to affordability, but that the pension protection wording was absolute. These pensions are primarily funded through the states second-highest in the nation property taxes, diverting taxpayer dollars from improving cities core services. It added that if all of the plans complete the transfer, there will be more than $4 billion in assets in the IPOPIF consolidated fund by the end of June. As indicated by the discussion above, determining when or if Tier 2 benefits will violate IRS rules is not simple. Pension Crisis Overview Presentation. The legal limbo brought about by the case has resulted in some local Article 3 pensions plans choosing to not transfer funds as mandated by the Act until a ruling is announced, Richard White, the funds executive director, said in a statement. t 217.528.8800 f 312.212.5277 e info@illinoispolicy.org, Copyright 2023 Illinois Policy | Illinois' comeback story starts here. Plaintiffs are individual active and retiree/beneficiaries of the local funds: they have no right to the investments held by the funds; rather, they are entitled only to present or future payments from the funds, McLaren wrote. While Pritzker said the measure would cut costs and improve returns for recipients, three dozen current employees and retirees, along with 18 local retirement plans, filed the lawsuit in February. The police and fire funds satisfy this test because of the relatively high multiplier of 2.5% that is applied to final average salary to determine the pension benefit. Consolidation Lawsuit Update . A pension consolidation task force Thursday released a report that recommends the state combine roughly 650 suburban and Downstate police and fire pension funds to try to increase efficiency and lower costs while also increasing pension benefits. This is clearly a faster rate than the current formula of the lesser of 3% of one-half of the inflation rate, but it does not match the national average wage index used to calculate growth in the Social Security wage base. The Illinois Municipal League, which has advocated for pension consolidation for the past decade, also supports Pritzkers plan. JB Pritzker signed Senate Bill 1000, which amended the Illinois Pension Code to create the Police Officers' Pension Investment Fund and the Firefighters' Pension Investment Fund, built through the consolidation of more than 650 otherwise independent downstate and suburban funds. J.B. Pritzker championed toconsolidateabout 650 local police and firefighter pension funds from across Illinois under state management by mid-2022. However, many of the local pension leaders remain hesitant or are even refusing to merge until they learn the outcome of litigation to block Pritzkers law. In fact, the Court even proposed that a reamortization schedule would have been sufficient to avoid a funding burden (p. 20) that is, rejecting the notion that there is any particular urgency to funding pension liabilities at any particular level at any particular point in time. The task force estimated that the consolidated funds could generate an additional $820 million to $2.5 billion in investment returns over five years, or $164 million to $500 million per year. "The Illinois Police Officer's Pension Investment Fund is pleased that the Illinois Appellate Court . Some pension experts warned as early as 2010 that the new benefit structure was so low that it might force certain government employees to participate in the Social Security system. The constitution itself was ratified by vote of 57%, with a turnout of 37% of voters in a special election in December, which all makes it a bit insulting for the Court to proclaim that it was the People of Illinois who asserted their will in this manner.). Since Tier 2 applies to nearly all pension funds across the State, there could be a move to simply apply the same changes to all funds statewide, also without first determining whether the changes are the minimum necessary so as not to impose additional fiscal hardship on already struggling governments. Theres been confusion among the stakeholders over the litigations impact should the court overturn the legislation, which would also impact the firefighters fund. Pensionable salary cap: The Tier 2 pensionable salary cap currently increases at one-half of CPI or 3%, whichever is less. https://www.ai-cio.com/news/court-rejects-legal-challenge-to-illinois-pension-consolidation/, Daily Treasury Par Yield Curve Rates 28 Feb 2023, The Inflationary Effects of Sectoral Reallocation, Daily Treasury Par Yield Curve Rates 23 Feb 2023, On the Limitations of Dataset Balancing: The Lost Battle Against Spurious Correlations, Years of life lost to COVID-19 in 81 countries, Daily Treasury Par Yield Curve Rates 22 Feb 2023, Daily Treasury Par Yield Curve Rates 17 Feb 2023, Daily Treasury Par Yield Curve Rates 16 Feb 2023, CalPERS Refusal to Put Clearly Insolvent Long-Term Care Insurance Plan in Bankruptcy Increases Harm to Policyholders and Makes Board and Responsible Executives Liable. The General Assembly created Tier 2 in 2010 to reduce the States overwhelming pension obligations by significantly lowering benefits for new workers. The State was able to book immediate savings on its statutorily required pension contributions, which depend on future benefit levels. Illinois has nations worst pension debt. Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. By cutting down on duplicative administrative costs and pooling investment assets to get better returns an important source of income for pension funds consolidated pension systems are more efficient. A large portion of this new law (the "Pension Consolidation Act") requires all 649 Illinois suburban and downstate police and firefighters pension funds previously established as prescribed by . Since then, the Firefighters Pension Investment Fund (FPIF) and the Illinois Police Officers Pension Investment Fund (IPOPIF) have geared up to receive those investment funds and go to work. The only real way to fix the pension crisis once and for all and strike a balance between protecting taxpayers, retirees and vulnerable Illinoisans who rely on government services is with a constitutional amendment to allow for structural pension reform. These estimates came from comparisons to existing Illinois pension plans that are more consolidated, but these other plans also have different benefit formulas. (The other is New York.) Simply put, plaintiffs do not own the funds that the Act requires to be transferred to the new statewide police and firefighter pension investment funds. Senate Bill 616 requires that contribution changes due to changes in actuarial assumptions be phased in over three years. Report of the Illinois Pension Laws Commission 272 (1917). This committee has developed an enviable record in exposing and investigating fraud as some of the largest companies in this country, including Enron and WorldCom. A court ruling as soon as December will determine the fate of a 2019 law Gov. 1970, art. Thank you, Mr. Chairman, for holding this very important hearing on the fraud that nearly brought down the $4 billion HealthSouth Corporation. The quotation referencing $15 million plus interest is misleading, at best.. Once the trial court issues its ruling, the case will likely be appealed by the losing party. J.B. Pritzker signed a bill to consolidate local police and firefighter pensions from across downstate Illinois, but beneficiaries are suing because the state is notorious for poor pension management. The local boards were entrusted with investing the contributions so that payments could be made to participants. The law is aimed at easing shortfalls in Illinois local public safety pensions by merging more than $16 billion in assets from the 650 retirement plans into two funds, one for police and one for firefighters. Illinois' consolidation of suburban and downstate police firefighter pension fund assets cleared a second legal hurdle but it could take a decision from the Illinois Supreme Court to clear the path for full participation in the plan. January 21, 2020. I dont think many of us trust the government of Illinois to handle our money given their history, said Jim Kayes, president of the DeKalb Police Pension Fund board, which is among the plaintiffs. a group of Police Fund last year Arguing mandated consolidation, the lawsuit to block . See, e.g., Report of the Illinois Public Employees Pension Laws Commission of 1949, 10 (1949) (revenues allocated to pension funds have not kept pace The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. In 2019, the Illinois General Assemblypassed a billthat allows for the consolidation of 650 police and firefighter pensions in order to pool their funds into two statewide funds for investment purposesone for police and one for firefighters. But it seems about time for a deep dive into a narrow question: what did the Illinois Supreme Court have to say about pensions? The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. Funding public-employee pension systems is perhaps the most vexing emergency facing Illinois taxpayers. Public Safety Pension Infographic. The three main parts of the pension benefit formula are illustrated below. The new Police Officers Pension Investment Fund sought legislation during the spring session to push off the deadline by a year but it stalled. Arlington Heights Police Pension Fund, et al. The legislation also incorporates another task force recommendation that has attracted far less attention: a proposal to enhance benefits paid to police and fire pension fund members hired after 2010. Justice Robert McLaren wrote the panels opinion, issued Feb. 7; Justices Susan Hutchinson and Ann Jorgensen concurred. Illinois Gov. At some point, even with the high multiplier, Tier 2 police and fire benefits might not meet the alternative IRS standards, but the analysis does not suggest the timing of any potential violation. Yes, it uses the language, technically true, that it was the people of Illinois who, in voting for the constitution, restricted the General Assembly from making any such changes, rather than acknowledging that those people were rather powerless to evaluate any such individual provision agreed to by the delegates drafting the constitution once it was put up for a vote. The law creates the. Dec 29, 2021. . There were several matters about the operation of the legislature and governor that have been knocked around that this court was, I believe, was wisely waiting for some guidance and was provided none.. In the task force report, the cost is estimated at $70 million to $95 million over five years, or $14 million to $19 million per year, but there is no supporting documentation for the estimate. It recommended that additional introductory language be added specifying that the rights conferred thereunder were [s]ubject to the authority of the General Assembly to enact reasonable modifications in employee rates of contribution, minimum service requirements and the provisions pertaining to the fiscal soundness of the retirement systems.. It also represented one of the rare actions taken by the state to help local governments on the pension front. XIII, 5. The practical effect is that many employees will see a boost in their initial pension check on retirement, which serves as the basis for subsequent annual increases. Shortly thereafter, a member of the Pension Laws Commission sent a follow-up letter to Delegate Green requesting that he read a statement into the convention record expressing the view that the new provision should not be interpreted as reflecting an intent to withdraw from the legislature the authority to make reasonable adjustments or modifications in respect to employee and employer rates of contribution, qualifying service and benefit conditions, and other changes designed to assure the financial stability of pension and retirement funds and that [i]f the provision is interpreted to preclude any legislative changes which may in some incidental way diminish or impair pension benefits it would unnecessarily interfere with a desirable measure of legislative discretion to adopt necessary amendments occasioned by changing economic conditions or other sound reasons. . The health of some individual funds, however, are far weaker with ratios only in the teens. Governor JB Pritzker, too, has claimed that theres nothing to be done except to find more money, and Chicago Mayor Lori Lightfoots vaguely worded statements about the matter dont amount to anything more, either. The firefighters consolidation had more widespread support among funds when the 2019 legislation was being debated while some police funds and pension associations opposed it. Handing out increased pension benefits without accounting for or offsetting the long-term cost is largely how Illinois got into its pension crisis to begin with. Illinois is home to the nation's worst pension crisis, leaving taxpayers on the hook for $317 billion in unfunded pension liabilities for the five statewide retirement systems. . This includes 2,826 general purpose governments and 6,097 special purpose governments During a series of State appropriations hearings held by the Illinois General Assembly in both the House and Senate this spring, State agency leaders discussed their budget requests included in Governor Pritzkers We welcome any questions and feedback about the content of this blog. Up to now, neither the Governors task force nor supporters of Senate Bill 616 have publicly provided actuarial reviews showing the cost of the Tier 2 changes for the affected police and fire funds. Meanwhile, the asset consolidation process is proceeding. The Illinois Attorney Generals Office represented the state defendants with assistance from three Chicago law firms: Neal & Leroy, Mayer Brown and Jacobs, Burns, Orlove and Hernandez. In 2019, the Illinois General Assembly passed Public Act 101-0610, which required downstate police and firefighter local pension funds assets to be consolidated into statewide funds for investment purposes. B. Pritzker, who signed the bill into law. Copyright 2023 Ottosen DiNolfo Hasenbalg & Castaldo, Ltd. | Web Design & Hosting: B Square Web. In December 2019, Gov. Protected by Google ReCAPTCHA. Rather, the Illinois Supreme Court says that the constitution-writers intentionally gave pensions an elevated level of protection beyond what the U.S. Constitution requires via this clause. 802 South 2nd Street | Springfield, IL 62704 White Paper from the Pension Fairness for Illinois Communities Coalition Consolidation: The Benefits to IL Taxpayers. Appointment of DOI Security Administrator: . Since our last newsletter, on November 10, 2021 the Our website provides a portal to the web based Annual Statement Filing System and gives you easy access to a variety of information regarding your pension benefits. JB Pritzker himself, that those future accruals are guaranteed under the contracts clause of the United States Constitution, or by applying basic principles of justice and fairness, so that an amendment could never actually accomplish its purpose. The firefighters fund is further along in the consolidation process and expects to meet the deadline. In fact, the text cites multiple attempts to provide some alternate language to the constitutions blanket statement, which did not succeed: We note, moreover, that after the drafters of the 1970 Constitution initially approved the pension protection clause, a proposal was submitted to Delegate Green by the chairperson of the Illinois Public Employees Pension Laws Commission, an organization established by the General Assembly to, inter alia, offer recommendations regarding the impact of proposed pension legislation. While consolidation cuts down on duplicative administrative costs and pools investment assets for larger returns, downstate police and fire pension debt is only about5%of total state obligations. Gov. . 2019 consolidation legislation. Challenging the amendment directly, plaintiffs also argued it violates the state constitutions takings clause regarding public use of private property. Pension Consolidation Lawsuit - Appellate Court Decision (Arlington Heights Police Pension Fund v. Pritzker) Research indicates that consolidation can be a lose/win proposition. This effort also proved unsuccessful. Illinois Police Officers Pension Investment Fund 1) Review and possible approval of IPOPIF Exhibit A Resolution . John D. and Catherine T. MacArthur Foundation. Nathan Woodside/Lewis & Clark Community College. starts here. J.B. Pritzker would merge about 650 local police and firefighter pensions, but a lawsuit. Patrick Andriesen, Illinois Policy Institute, Woman sues Granite City QuickTrip over parking lot slip, fall, Madison County civil docket Feb. 27-Mar. Police and fire pension costs for DeKalb, Illinois, use up about 20% of general fund revenue, up from 10% in 2014, city manager Bill Nicklas said in an interview. In addition, the 1970 constitution, and its drafters, cared not in the least for pension funding, only that the benefits are paid out to retirees; and the legislature, in its 2013 benefits-reduction legislation, was not making the case that it could not pay benefits which were due, but that the burden placed on the state budget of prefunding those benefits was too great. JB Pritzker's task force released its report proposing consolidation of the states' police and fire pension funds, which at present are managed individually by the . The Illinois Supreme Court found that the plaintiff had a substantive and vested right to apply for military service credit because there was no limit on applying for such credit when he joined the pension fund. candidate seeks $12M from Preckwinkle, 4th Ward Dems for alleged defamatory mailers, Judge says franchisors also liable in suits claiming biomertric scan violations; Ruling could make businesses more vulnerable to suits, UIC law prof can continue part of lawsuit regarding reaction to his allegedly racially insensitive test question, IL high court: Concerns over 'absurd,' 'annihalitive' payouts no reason to limit damage claims under IL biometrics law, Appeals panel agrees IL police and firefighter pension consolidation doesn't violate state constitution, IL Supreme Court: Chicago didn't violate state law by charging fees to owners of impounded vehicles, Appeals panel: Chicago must force telecom companies to hire union labor to upgrade their equipment on city-owned poles. | Illinoiscourts.gov. The plaintiffs claimed that they had a contractual and enforceable right to exclusively manage and control their investment expenditures and income, including interest dividends, capital gains and other distributions on investments, which they said the consolidation infringed upon. Consolidation has even been previously considered for Illinois' pension systems before (in 2003, 2009, and 2012). document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Your email address will not be published. Any increase in actual returns will be partly due to the consolidated funds ability to invest in riskier investments. If the court sides with the plaintiffs and overturns the legislation the appeal would go directly to the Illinois Supreme Court due to the constitutional question at hand. The report, prepared by Chicago-based Anderson Economic. This plan falls far short of eliminating even the $11 billion of debt held by these plans. comeback The Social Security wage base is the maximum amount of salary subject to Social Security tax. With the changes in the bill just enacted, the cap would grow at full inflation instead. The three changes intended to bring Tier 2 benefits in line with safe harbor restrictions are as follows: 1) Expand survivor benefits. However, the Municipal Leagues analysis points to an alternative IRS rule for retirement systems that do not satisfy the safe harbor rules. The plaintiffs also argued the consolidation impaired their benefits because it required the local funds to pay up to $15 million, plus interest, to transition, operate and administer the new funds. But consolidation is a small step for a tiny portion of Illinois pension problem. Phone: 312-201-9066 | Email: [emailprotected] Pritzker is certainly overselling the benefits, calling the move a huge bipartisan step, which is concerning given Illinois politicians long history of ignoring the root cause of the pension crisis. A Tier 2 public safety employees final average salary, which serves as the basis for calculating monthly and annual pension payments at the end of a career, will now be based on the highest four out of the last five years rather than the highest eight of the last 10. J.B. Pritzker. On appeal, the plaintiffs argued Judge Villa erred by finding the amendment didnt violate the state constitutions pension protection clause. Total downstate police and fire pension debt is only about 5% of Illinois total public pension debt. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. The Illinois Municipal League was founded in 1913 and has worked continuously for the benefit of municipalities. An Illinois Circuit Court judge has denied a lawsuit that sought to stop the consolidation of the states 650 firefighter and police officer pension funds, rejecting the plaintiffs claims that a law enacting the move violated the states constitution. If the court agrees with Attorney General Kwame Raouls office which is representing the state, the plaintiffs would appeal through a routine appeals process. The task force report said the following changes were intended to address concerns about the fairness of Tier 2 and to avoid running afoul of IRS regulations: The first change, involving benefits paid to surviving spouses, is not expected to affect many individuals and reportedly holds great significance for first responders. Depend on future benefit levels pension benefit formula are illustrated below the bill just enacted the... 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