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Gov. Pritzker report recommends consolidating pension funds

SPRINGFIELD, Ill. (AP) — Gov. J.B. Pritzker plans to push legislation this month to combine municipal fire and police pensions into two massive funds.

Pritzker unveiled a task force report Thursday in Chicago. It recommends combing 649 pension accounts outside of Cook County into two totaling more than $14 billion in assets. The Democrat says the larger balance would boost returns as well as reduce administrative costs.

The report contends the combined pool would generate up to $2.5 billion extra in returns in five years.

The General Assembly returns to Springfield on Oct. 28.

Pritzker wants the task force to continue studying tougher pension problems — nine Chicago and Cook County funds with a funding gap of $44 billion and six statewide funds that are short by $131 billion.

Statement from Governor JB Pritzker’s office:

The Pension Consolidation Feasibility Task Force issued a report to Governor J.B. Pritzker Thursday recommending that the state take action in the veto session to consolidate the nearly 650 suburban and downstate police and fire pension plan assets into two new statewide systems, which could generate as much as $1 million a day in additional returns for the funds and help stabilize pensions and protect the retirement security of our brave first responders.

The consolidated funds would total more than $14 billion in assets, generating an additional $820 million to $2.5 billion in investment returns alone over the next 5 years and an additional $3.6 to $12.7 billion in investment returns alone over the next 20 years, based on the performance of the statewide municipal employees’ fund.

The two consolidated funds – one for police and one for fire – would pool assets to lower administrative costs and gain access to better investment opportunities, improving performance and easing the growing pressures on local property taxes to pick up the tab when funds underperform.

“Under the current arrangement, Illinois’ suburban and downstate police and firefighter pension funds are underperforming by nearly one million dollars per day. That’s not just a missed opportunity – that’s a hole these funds are digging deeper every year – and then municipalities have to ask taxpayers to fill the hole,” said Governor J.B. Pritzker. “We’ll be proposing legislation this fall to consolidate the assets of the 649 suburban and downstate pension funds into two statewide funds. This consolidation will improve the financial health of the plans and help secure the future for the retired workers who rely on them – and it will alleviate some of the property tax burden plaguing homeowners and renters across our state.”

Because most of the existing 650 funds are so small – nearly half have less than $10 million in assets – returns on their investments have been significantly lower than other pension systems. Currently, the array of smaller funds each pay higher administrative fees and see significantly lower investment returns than larger pension plans in Illinois, averaging 2% less annually during the past 10 years than the statewide municipal employees’ fund.

With regard to the two new funds, the task force also recommends that the state make some changes to Tier 2 beneficiaries’ plans to address future concerns about the safe harbor standard of the Social Security Administration and Internal Revenue Code, as well as avoiding substantial and sudden future costs to municipalities resulting from non-compliance.

In the future, the task force could consider consolidating the benefit administration of the suburban and downstate police and fire pensions, as well as the advantages of further consolidation of other state and local benefit plans, including Chicago’s funds.

Governor Pritzker established the task force less than a month into office, on Feb. 11, 2019. Former Chicago Board Options Exchange Chairman and CEO William J. Brodsky, Associated Fire Fighters of Illinois President Pat Devaney and former Illinois Senate Minority Leader Christine Radogno co-chaired the 10-member committee.

The full report by the Pension Consolidation Feasibility Task Force as submitted to the governor is below.

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News 3 Staff

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