Required fields are marked *. Problems include: Statewide, pensions obligations consumed nearly 30% of all government spending. The Illinois Police Officers' Pension Investment Fund told lawmakers during a committee hearing that some individual funds have resisted moving their assets because of pending litigation. Discovery shareholder, having accepted . The local funds are already required to pay the costs of administration of the local funds, and plaintiffs do not cite any evidence to show that the costs of administration of the new funds, even including startup costs, would be any greater, McLaren wrote. story manager" with respect to a pension fund or retirement system established under this Code if the person: (1) is a fiduciary appointed by the board of trustees of the pension fund or retirement system in accordance with Section 1-109.1; (2) has the power to manage, acquire, or dispose of any asset of the retirement system or pension fund; January 21, 2020. In 2015 the Illinois Supreme Court struck down subsequent legislation that would have reduced the benefits of current State employees and retirees. Public Safety Pension Infographic. The salary cap under Tier 2 and the Social Security wage base were the same in 2011$106,800but the Tier 2 cap for 2019 is $114,952, while the Social Security wage base is $132,900. They are seeking to maintain local control over pension management. Its all, I suppose, a trick of assuming that there is a singular People of Illinois who, through their ratification of the constitution, promised to pay future benefits when they come due, rather than recognizing that the People of 1970 (presumably quite unknowingly) restricted future generations of Illinoisians by forcing them to make these payments without limitation. Amid the worst pension crisis in the nation, lawmakers voted in bipartisan fashion to improve pension benefits for downstate police officers and firefighters without performing the necessary financial analysis to estimate the cost. Phone: 312-201-9066 | Email: [emailprotected] 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. Chicago Office | Illinois Policy The plaintiffs claim 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 the consolidation has infringed upon. 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The difference might be accounted for by the proposed change in the calculation of final average salary, which lowers the required multiplier under IRS rules. The law creates the. What do you think? 3, Motorist sues over crash with vehicle stolen from East St. Louis store, Wrongful death suit alleges resident at Alton nursing home received negligent care, Insurer seeks to deny coverage of suit alleging crash evidence was destroyed, Don't assume more funding makes schools better, Illinois torched business and common sense with its biometric privacy law, Illinois forward 2024: A sustainable state budget plan, Illinois tries to 'cancel' DeSantis as Pritzker, Chicago mayoral contenders play the de-platforming game. J.B. Pritzker. But the panel said the complaint contained no argument as to how that requirement would specifically diminish their eventual benefits. J.B. Pritzker won legislative approval in November 2019to require the more than 600 local government police and firefighter funds with the exception of Chicago to transfer their assets to a single consolidated police fund and a single fire fund by July 1. DeGette. 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. State law restricts the securities that the existing police and fire funds are allowed to hold. . 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. Gov. "The Illinois Police Officer's Pension Investment Fund is pleased that the Illinois Appellate Court . Opinions expressed by Forbes Contributors are their own. The league stated it is confident it will beat the legal challenge. 1970, art. We are already showing savings and increased earning ability, proving the benefit that was predicted and is needed by this consolidation, said league Executive Director Brian Cole. The consolidation of downstate police and fire pension fund investment assets continues in earnest. Nicklas and some other city leaders are relived to see their pensions consolidated, noting the underfunded plans weigh on budgets and credit ratings, contributing to a slowed economic recovery from the pandemic. In 2019, the Illinois General Assembly passed a bill that 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. 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. That is because the average wage index increased faster than the CPI-based formula used to calculate the Tier 2 cap. But it seems about time for a deep dive into a narrow question: what did the Illinois Supreme Court have to say about pensions? Worth Police Pension Fund 7112 W. 111th Street Worth, IL 60482 . The Illinois Police Officers' Pension Investment Fund told lawmakers during a committee hearing that some individual funds have resisted moving their assets because of pending litigation. 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. However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. Benefits for new workers were not protected by a provision of the Illinois Constitution that bans impairment of pension benefits for existing Tier 1 retirement system members. The legislation proposes that the salary cap grow by 3% or the inflation rate, whichever is less. We are already showing savings and increased earning ability, proving the benefit that was predicted and is needed by this consolidation, said league Executive Director Brian Cole. A limit was also imposed on the amount of earnings used to calculate final average salary. The People ex rel. (In fact, on only four topics were voters given the ability to vote individually, vs. an all-or-nothing up-or-down vote: cumulative voting for the legislature, election of judges, capital punishment, and the vote for 18 year olds. and Terms of Service apply. This is a much narrower claim than some have made, including Gov. A separate law passed in December 2010 extended Tier 2 to public safety funds. J.B Pritzker is expected to sign the legislation. 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. Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. While benefits would continue to be managed by local boards, some police funds and their advocacy organizations resisted the change and a group ofpolice funds early last yearsued to block the implementation, arguing the mandated consolidation equates to a benefit cut. The General Assembly created Tier 2 in 2010 to reduce the State's overwhelming pension obligations by significantly lowering benefits for new workers. 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. . House Committee Meeting Hide Overview . 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. J.B. Pritzker announced his support for a plan for the state to combine roughly 650 suburban and Downstate police and fire pension funds last month, the Illinois Fraternal Order of . Later still, the plaintiff tried to apply for military service credit, but was denied because he had not applied before the deadline. Unions and other Tier 2 critics are also concerned about the relatively low benefits provided to new employees. Mayor Lori Lightfoot says she will run for second term. Gov. The ruling states that voting is not currently a benefit under the pension clause of the state constitution, pointing out that the courts have yet to hold that the right to vote for pension fund board members falls within the protections of the Pension Clause. It also rules that the takings clause claim cant be tied to real property as required under Illinois law. The quotation referencing $15 million plus interest is misleading, at best.. These pensions are primarily funded through the states second-highest in the nation property taxes, diverting taxpayer dollars from improving cities core services. A recent report commissioned by the Illinois Public Pension Fund Association, which opposes consolidation, underscores that point. 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.. The case of Buddell v. Board of Trustees, State University Retirement System of Illinois, 118 Ill. 2d 99, 101 (1987) is a prime example of such an improper legislative diminution of pension benefits. From this, the Illinois Supreme Court has held that public employees have an inviolable contractual right to their vested pension benefits, which cannot be diminished or impaired. The panel rejected the argument the local funds have an established property right in assets or funding levels. . But being able to vote for board members, or have a local board control investments, he added, is not of the same nature and essentiality as the ability to participate in the fund, accumulate credited time, or receive health care, disability and life insurance coverage. In the end, my reading of this decision says that the Court gave Illinois voters a roadmap to pension reform: there is only one path forward, that of an amendment, but it is at the same time, it is a travelable path, achievable if there is sufficient political will or grassroots support. The three changes intended to bring Tier 2 benefits in line with safe harbor restrictions are as follows: 1) Expand survivor benefits. story This is via the pension protection clause, Article XIII, General Provisions, Section 5, Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.. 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. Report of the Illinois Pension Laws Commission 272 (1917). 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. . Pension Crisis Overview Presentation. The Illinois Police Officers' Retirement Investment Fund told lawmakers at a committee hearing that some individual funds resisted transferring their assets due to ongoing litigation challenging the constitutionality of the law. | 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. The Illinois Supreme Court ordered the consolidation of lawsuits filed by cannabis dispensary license applicants in an attempt to resolve multiple claims challenging the fairness of the licensing . In December 2019, Gov. Police Officers' Pension Investment Fund. Illinois effort to fix ailing local pensions faces legal hurdle A 2019 law championed by Gov. With the changes in the bill just enacted, the cap would grow at full inflation instead. PABF's authority, duty, and responsibility is governed by state statute and administered by the Retirement Board of Trustees ("The Board") in compliance with Act 5 of the Illinois Pension Code.The Fund was first created in 1887 through an act of the Illinois legislature. One concern is that these benefit enhancements were not truly necessary, but were used as a political bargaining chip to convince police and fire unions to support the legislation. No Reproduction Without Prior Authorizations. These pensions are primarily funded through the statessecond-highestin the nation property taxes, diverting taxpayer dollars from improving cities core services. The funded health of the public safety pension funds has tumbled over the years. The report, prepared by Chicago-based Anderson Economic. A group of police funds last year sued to block the implementation arguing the . Over time, the reduced benefits are expected to slow the growth in unfunded liabilities as new employees are hired and fewer members remain in the old benefit tier. The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. The lawsuit contends that pension member benefits are being impaired because the transition costs are being covered by loans through the Illinois Finance Authority that the two new consolidated funds must repay. 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. 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. The governing board is comprised of Mayors and Village Presidents. The move is intended to help improve the financial stability of the pension funds and ease pressure on local governments to raise taxes to fund those pensions. The State was able to book immediate savings on its statutorily required pension contributions, which depend on future benefit levels. The unfunded liabilities of Illinois suburban and downstate public safety pensionsrose to $13 billion in the last yearof compiled results reported to the state, soaring over a 29-year climb that underscores the deep strains on local government budgets. Illinois 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. Because the existing plans are already better funded, theyre able to diversify their investments more, enabling higher returns. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. The lawsuit said the law violated the state's pension protection clause, the contracts clause and the takings clause of the Illinois Constitution by terminating "plaintiffs' authority to. In general, the main Tier 2 benefit changes were an increase in the retirement age to qualify for full benefits and a reduction in annual automatic benefit increases. 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. In 1991, the collective ratio was at 75.65% and peaked at 77.31% in 1999. Protected by Google ReCAPTCHA. 300 S. Riverside Plaza | 1650 | Chicago, IL 60606 Gov. 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. For Tier 1 public safety workers hired before 2011, surviving spouses were already eligible to receive a portion of the deceaseds pension regardless of how many years of service an employee had. 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. In 2013, Illinois passed legislation which aimed to reduce pension liabilities, but various groups representing the affected employees filed suit, and the Supreme Court overturned the legislation in a 2015 decision. XIII, 5. Although Judge Robert Villa writes in the ruling that the consolidation undeniably diminished the weight of each individuals board member vote, he also holds that traditional voting rights claims are not at issue. I write about retirement policy from an actuary's perspective. . If successful, the lawsuits outcome would apply to every downstate police and firefighter pension fund in Illinois. However, as pointed out by the Civic Federation, lawmakers never definitively established that a safe harbor violation existed for Tier 2 public safety workers, nor that the changes in this bill were the minimum necessary to bring the plans into compliance. Will be used in accordance with our terms of service & privacy policy. The local boards also did not have any say in the actual method of funding; contribution requirements were set in the Pension Code.. "No matter the ruling, the case likely will be heard by the Illinois Supreme Court. Any increase in actual returns will be partly due to the consolidated funds ability to invest in riskier investments. The Illinois Municipal League was founded in 1913 and has worked continuously for the benefit of municipalities. Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. The original savings estimate was based largely on a different buyout plan; the enacted plan surfaced in the last days of the spring 2018 legislative session and was not vetted by pension actuaries before being approved by lawmakers. Article XIII, Section 5, of the Illinois Constitution, commonly known as the Pension Protection Clause, provides that [m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired. Ill. Const. While 98% of Illinois pension plans are for 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. That provision compares the employees actual accrued pension benefit with the accrued benefit under a safe harbor formula. The two sides last year laid out arguments seeking a summary judgment. 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. Although some union leaders supported the move, dozens of police and firefighter pension boards and individual members sued the state and the new funds to stop the consolidation. When Tier 2 was created, public attention was focused on rectifying Illinois worst-in-the-nation pension crisis and assisting local pension funds in distress. Plaintiffs rights to receive benefit payments are not impacted by these transfers.. Grayslake Police Pension Fund 10 South Seymour Ave, Grayslake IL 60030-0906 DOI Pension Fund Number POO9600 . The General Assembly created Tier 2 in 2010 to reduce the States overwhelming pension obligations by significantly lowering benefits for new workers. A husband or wife of a deceased police officer or firefighter will now be eligible for two-thirds of the deceaseds accrued pension benefits, regardless of how long the person worked before their death. XIII, 5. Although the panel agreed the protection clause covers more than just the payment of pension money, it said past Illinois Supreme Court rulings invoking the clause involved benefits that directly impacted the participants eventual pension benefit, McLaren wrote. 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. Your email address will not be published. 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. A court ruling as soon as December will determine the fate of a 2019 law Gov. No plaintiff has any right to direct the investment of the monies held by the funds or direct that they receive any different course of payments (either in amount or frequency) beyond that established by statute and the funds. Illinois Second District Appellate Justice Robert McLaren Theres been confusion among the stakeholders over the litigations impact should the court overturn the legislation, which would also impact the firefighters fund. Please e-mail[emailprotected]with your query. 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 aconstitutionalamendment to allow for structural pension reform. 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. 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. 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. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. As a refresher, Illinois 1970 constitution is one of only in two in the nation which explicitly guarantee that state and local employees have a right to pension benefits based on the formula in effect at hire, without reduction, until retirement. Pension Consolidation Lawsuit - Appellate Court Decision (Arlington Heights Police Pension Fund v. Pritzker) Once the trial court issues its ruling, the case will likely be appealed by the losing party. However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. Kane County Circuit Court Judge Robert Villa granted summary judgement to the state, prompting an appeal to the Illinois Second District Appellate Court. With the litigation pending, many police funds have held off on moving their assets and the courts decision will come just a month ahead of the deadline, although funds dont face any punitive actions for missing the deadline. B. Pritzker, who signed the bill into law. Thank you, Mr. Chairman, for holding this very important hearing on the fraud that nearly brought down the $4 billion HealthSouth Corporation. If funds who delayed their transfer wish to transfer after the May 20 court ruling, we will accommodate them as we are able, White said. In Illinois most public employees, including teachers and public safety workers (but excluding most members of the State Employees Retirement System), do not have to pay into Social Security. Copyright 2023 Ottosen Britz Kelly Cooper Gilbert & DiNolfo, Ltd. J.B. Pritzker released a task force report calling for the consolidation of downstate municipal fire and police pension funds and called for quick action by . Chicago Office | Illinois Policy 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. In DeKalb, police and fire pension costs use up about20%of general fund revenue, up from 10% in 2014, said city manager Bill Nicklas. According to a legal analysis commissioned by the Illinois Municipal League, Tier 2 does not satisfy the safe harbor rules because the pensionable salary cap has not increased as fast as the Social Security wage base. As reported in prior RDL newsletters, on February 23, 2021, a lawsuit was filed in Kane County challenging the Pension Consolidation Act. However, that process may be interrupted if a court issues an order staying the transfer of assets. 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. If Tier 2 benefits do not meet the safe harbor tests, either the benefits might have to be increased or employees might have to pay 6.2% of their salary to Social Security, matched by an equal employer contribution. 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