Chicago Sues State Comptroller over Pension Intercepts

City funds have been diverted to local pensions over alleged unpaid contributions.

The city of Chicago is suing the Illinois state comptroller’s office, as well as the boards of various municipal pension funds, to stop the interception of state grant money based on the funds’ claims that the city owes them additional pension contributions.

The pension funds being sued include the Chicago Policeman’s Annuity and Benefit Fund, the Municipal Employees Annuity and Benefit Fund, and the Laborers’ Annuity and Benefit Fund.

In court documents, the city said the funds falsely certified that they are owed additional contributions, and that the state comptroller has accepted those certifications as true and started to intercept funds that would have otherwise been paid to the city programs that support children, the elderly, and the homeless.

“The comptroller’s continued interception of these grant funds creates a significant threat that certain unallocated city funds intended for future risks and unanticipated shortfalls will be depleted and unavailable when needed,” said the city in its complaint. “This could lead to cuts in services and a reduction in personnel if there are not enough unallocated funds to respond to an emergency or other unexpected budget shortfall.”

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Under the Illinois Pension Code, Chicago has certain obligations to finance the city’s pension funds each year. The purpose of the annual funding obligation for each fund is to increase their overall assets to 90% of their actuarial liabilities by some time during the middle of this century.

For each of the funds, the financing provision includes a “grant intercept” clause that states that if the city fails to pay the required contributions for more than 90 days after the payment due date, then the funds, after giving notice to the city, certify to the state comptroller the amounts of the delinquent payments. The comptroller must then deduct and deposit the certified amounts into the fund.

In the lawsuit, the city also claimed it wasn’t given a hearing by the state comptroller to dispute the pension funds’ determinations, which the city said is contrary to the comptroller office’s rules and regulations, and against state law.

“The comptroller’s interception of the grant funds without a final determination following a hearing before an impartial tribunal as to the city’s obligation to pay the alleged debt is also a denial of due process” under the Illinois Constitution, said the city. “The city has suffered and will continue to suffer irreparable harm as a result of the funds’ false certifications and the comptroller’s acceptance of those certifications.”


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Oregon Democrats Offer Pension Peace Treaty to Revolting Republicans

Newly proposed pension reform offers a new path to funding the troubled PERS.

Oregon Democrats unleashed a pension reform bill this month that in very small ways compares to Gov. Kate Brown’s “Robin Hood” solution that would essentially pin higher taxes on wealthier entities in the state and redistribute the earnings amongst its relatively poorly funded pension plans. 

The new move was provoked after a walk-out from state Republicans, who argued they wouldn’t address any new education funding that doesn’t address the state’s public employees’ retirement system (PERS), which is spiraling into more than $25 billion in debt. The Republicans have repeatedly maintained a choreographed absence from the state Capitol in protest of the pension’s dire situation, encouraging Democrats to prioritize the issue.

The proposed bill would redirect 2.5% of the 6% that employees pay to their 401(k) plans to help fund PERS, which stands at about 80% funded today. It would lead to less funds for individual pension accounts, but would simultaneously mitigate the amount that school districts and other public employers contribute to the retirement plan.

The redirect would only apply to members who earn $30,000 or more in a year, and would be indexed in future years.

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The plan earned a swift rebuttal from unions. President of the Oregon Education Association John Larson said, “Oregon educators have shown time and time again that they will stand up for their students. If lawmakers turn their backs on educators and cut retirements, we will see them in court.”

Under current circumstances, contribution rates are projected to increase until 2035. Employers can expect a 5.5% rate hike in 2021, an obstacle that Democrats said could be averted with the adoption of their plan.

Under Brown’s proposed plan, funds would be sourced from the income tax kicker rebates, which she claims disproportionately benefit wealthy Oregonians. She said she would give everyone the first $100 of the rebate and retain the rest. Transferring surplus funds from the state-owned insurance company was an additional proposal she put on the table.

Sponsors of the plan didn’t respond to requests for comment.

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