Audit Finds Illinois Police, Firefighter Pensions Lack Proper Oversight

A report from the auditor general of Illinois found that the state’s Department of Insurance did not perform examinations of the 656 police and firefighters pension funds every three years as required by law.

The audit found that 383 of the pensions, or 58%, were examined only once by the Public Pension Division of Illinois’ Department of Insurance between 2004 and 2018, and that 230 of the pensions, or 35%, were only examined twice during the same 14-year period. And only two of the pensions were examined three times in that time. All 656 pensions should have been examined at least four times between 2004 and 2018.

The auditor general recommended the Department of Insurance perform the pension fund examinations every three years as required by law, and that the director appoint a chief internal auditor and ensure a full-time program of internal auditing is in place. It also said that if another agency is used to supplement internal audit functions, the department should obtain written approval of the governor for these services and ensure such services are provided in accordance with the law.

Additionally, the auditor general suggested the department implement policies and procedures to track internal audit costs, maintain documentation that adequately tracks the costs of the department’s internal audit function, and ensure other agencies providing services are only reimbursed for allowable costs. And it said the department should not grant another agency the authority to process payroll against the department’s appropriations unnecessarily or without implementing and documenting proper controls.

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The Illinois Municipal League (IML), a statewide advocacy group, has been calling for the consolidation of the hundreds of statewide police and firefighter pension funds.

“Consolidating these funds could streamline investments and benefit decisions and eliminate unnecessary, redundant administrative costs,” IML said in a release in February, “ensuring more money is available to fund pension benefits without reducing benefits.”

One of the proposals recommended by IML is a single downstate fund modeled on the Illinois Municipal Retirement Fund (IMRF), which it said is the second-largest and best-funded pension system in the state. IML said that consolidating funds would create efficiencies and streamline services to ensure financial contributions from taxpayers and employees go toward the pensions, rather than overhead or administrative expenses.

“Consolidating smaller pension funds into larger funds has been shown to generate greater investment returns,” Michael Inman, president of the IML board of directors, said in a release. “Additionally, consolidation will relieve some of the burden placed on taxpayers.”

New Illinois Bill Would Consolidate more than 650 Police and Fire Pensions

Tags: Department of Insurance, Illinois, Illinois Municipal League, Pension

The UK’s Department for Works and Pensions has issued guidance outlining how the Guaranteed Minimum Pensions (GMP) conversion legislation might be used to resolve the GMP inequality issue for pensions plans.

The GMP is the minimum pension that an occupational pension contracted out of the Additional State Pension between April 1978 and April 1997 on a salary-related basis has to provide to its members. It allows employers that offered defined benefit plans to contract out their staff and pay a reduced rate of National Insurance Contributions. In exchange for the lower rates, the companies promised that their pension would meet a minimum standard of benefits.

But in October, the UK’s High Court ruled that pension plans must equalize guaranteed minimum pensions for men and women. The UK government has long recognized that GMPs create an inequality in the total overall pension men and women in similar circumstances receive. Experts estimate the ruling could cost pension providers £10 billion to £20 billion in payouts.

The guidance was produced with the assistance of an industry working group in order to assist occupational pension plans that have yet to address inequalities in pension benefits due to GMPs. It describes how pensions could use the GMP conversion legislation to achieve equality going forward.

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The government has said that there is not one method by which pensions should equalize benefits, adding that it is for the trustees of each plan to decide the methodology that is most appropriate for them.

Included in the guidance is a 10-stage process that results in the adjustment of an individual’s benefits to compensate for GMP inequalities as well as conversion of all of the individual’s GMP.

“This guidance is a useful first step to assist trustees and their advisers who may be thinking of using the GMP conversion legislation to resolve the GMP inequality issue,” said David Everett, a research partner at UK consulting firm Lane Clark & Peacock. “However, more needs to be done, by both the DWP, HMRC [HM Revenue and Customs], and the courts before much needed clarity is achieved on how to operate this approach in practice.”

The DWP said it is still considering additional changes to the GMP conversion legislation to clarify certain issues, and will update its guidance periodically to reflect any changes in legislation or material developments in case law.

UK Industry Group to Advise on GMP Equalization

Tags: Department for Works and Pensions, Guaranteed Minimum Pensions, Pension, UK