Two local pension board presidents are raising concerns about a proposal to consolidate hundreds of police and fire pension funds.
The Bloomington and Normal police and fire pension funds are among more than 650 across the state, overseen by nearly 3,300 trustees. The Illinois Municipal League (IML), which represents cities in Springfield, has proposed legislation that would consolidate those funds to hopefully generate greater investment returns and eliminate duplicative administrative costs.
Police Pension Fund Presidents Mark Kotte (Normal) and Paul Swanlund (Bloomington) are both opposed to the idea. Kotte, a retired Normal police officer who’s served on the pension board for 30 years, said he’s concerned about the loss of local control. Kotte and Swanlund say they have a special incentive to oversee the funds responsibly because their own retirement—and their co-workers’—is at stake.
“Honestly, just to be somewhat blunt, the state has not managed their money well,” Kotte said. “I would be very nervous to turn over the $14 billion or so that we’re talking about (in those 650+ pension funds) to the state, which has mismanaged its five (pension) funds. I don’t want to see us fall into that position.”
State Sen. Pamela Althoff, R-McHenry, has proposed five different bills that would achieve various degrees of pension fund consolidation. The Illinois Municipal League points to the Illinois Municipal Retirement Fund (IMRF) as an example of how a consolidated pension fund can work. IMRF, overseen by a single statewide board, provides pension benefits to non-uniformed local government employees.
"The current public safety pension system is unaffordable for local taxpayers and unsustainable for future benefit recipients. We can and should do better, and that starts with consolidating municipal public safety pension funds," said IML Executive Director Brad Cole.
A look at the size of the Bloomington and Normal police and fire pensions. The 2016 data is from the state Commission on Government Forecasting and Accountability:
Kotte said he’s also concerned about how much it would cost for police and fire pension funds to divest their assets in preparation for any consolidation.
If lawmakers want to help police and fire pension funds, Kotte said, they should relax restrictions on how their assets can be invested. Currently, the funds can’t be more than 65 percent invested in equities, such as stocks, leaving the rest in lower-performing fixed-income investments such as Treasury bills, said Kotte.
“If we could go higher into equities, we could make more money,” he said. “But we’re not allowed to shift like a private investor, or a large corporation, or IMRF. We’re locked in.”
The Illinois Municipal League says individual police and fire pension boards oftentimes lack the medical and financial expertise needed to make disability, pension benefit and investment decisions. A single statewide board would do better, IML argues.
Swanlund, a detective with Bloomington Police, disagrees.
He had to complete 32 hours of training led by finance professionals and attorneys. Their boards also get regular help from investment advisors.
It’s a big responsibility. Swanlund’s board is responsible for $66.5 million in assets for 124 active officers and 68 retirees.
“Understanding the lingo is the biggest hurdle to get over. It was a lot. You’re getting exposed to a lot,” Swanlund said. “It’s a huge responsibility that I know everyone on our board takes very, very seriously. We’re talking about not just a lot of money, but taxpayer money. We want to make sure we’re investing wisely and using it properly.”
The stakes are high for Bloomington-Normal taxpayers too. For the city’s share of your property tax bill, about one-third of it goes to cover police and fire pensions. That’s around $8 million a year for Bloomington, and $4.3 million for Normal.
Currently, the four Bloomington and Normal police and fire pension funds are between 50 and 56 percent funded. That’s the value of the fund’s assets divided by its total liabilities. State law requires the funds to be 90 percent funded by 2040.
Bloomington and Normal hope to exceed that threshold, Swanlund and Kotte said.
“They’ve done a really job good," Swanlund said. “I have to commend the Bloomington City Council, the mayor, and all the people in (administration) who worked to set that goal. It’s a lofty goal, but it’s important. They realize they can’t kick that can down the road to future council members.”
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