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

Legislation introduced a few weeks ago could merge Illinois’ fire and police pension funds into the Illinois Municipal Retirement Fund (IMRF), in an effort to save on administrative costs and assist the pensions in securing enough funding to pay out their benefits.

“Pension boards currently are governed by about 3,300 pension board trustees from over 650 funds that require training, have their own investment managers, business managers, attorneys, actuaries and accountants,” Mount Prospect Mayor Arlene Juracek said. “Consolidation into the [Illinois Municipal Retirement] Fund as proposed in House Bill 1567 will increase investment returns, significantly reduce administrative costs, and mitigate the property tax burden, all while not encroaching on constitutional protections.”

President of the Illinois Public Pension Fund Association James McNamee opposed consolidation into the IMRF during a recent hearing on the matter, citing that many of these local police and fire pensions are underfunded relative to the IMRF.

The pensions are about 55 percent funded on average, officials said during the meeting. Consolidation could potentially save them about $35 million to $50 million on an annual basis. The IMRF is approximately 98.2% funded as of December 31^st 2017, in large part due to a rule that requires municipalities to prioritize their contributions to the fund over other matters.

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The bill represents a years-long continuation of lawmakers’ investigation into consolidating the pensions into the IMRF. A task force was formed in February by Governor J.B. Pritzker for the sole purpose of studying the feasibility of consolidating local pensions into the municipal fund, and is tasked with reporting their recommendation by July 1.

Transition costs from merging the pensions is also a big part of the debate. Sean Smoot of the Police Protective and Benevolent Association said “There are upfront costs and we have a lot of funds that will be burdened by them. This is going to cost some real money. It could take 15 to 20 years to recover it.”

He proposed that respective funds should be left whether to decide if they want to merge with IMRF. “It’s their money, it should be their vote,” Smoot said.

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Tags: Firefighters, Illinois, Liabilities, Pensions, police, underfunded

The US Department of Treasury and Internal Revenue Service (IRS) last month decided to allow retirees to receive a lump-sum payment in lieu of receiving benefits under a traditional payment practice, a controversial decision that reverses a 2015 rule that banned the practice. And at least two senators are questioning the long-term implications of the decision.

Democratic Sens. Patty Murray of Washington and Ron Wyden of Oregon sent a letter to the IRS and the Treasury asking them to answer a set of questions by April 12 that would illuminate the origination, analysis, and process behind the move.

In the letter, the senators argued that offering retirees a lump-sum payment in lieu of the traditional payment plan could hinder a beneficiary’s financial status in the long term. While the buyout option allows companies who sponsor pension plans to improve their balance sheet and reduce their total liabilities, the senators say “they also transfer their risk to retirees that the retirees might outlive their savings.”

“The complex actuarial formulas used to determine the immediate value of the lifetime pension benefit also often leaves retirees who accept a lump sum offer with less money than they may have received otherwise,” the letter states.

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Allowing retirees to receive lump-sum payments was banned by the Obama administration in 2015, after the US Government Accountability Office produced a report that states the documents provided to retirees explaining the buyout process were at times absent of significant information, leaving retirees unaware of the full breadth of the trade-offs involved in the choice they were given. “The underlying issues in the 2015 GAO report prompted the effective prohibition of the practice, and these issues have yet to be resolved,” the two senators opined in the letter.

The ruling by the IRS and Treasury Department on the matter stated that the two “will continue to study the issue of retiree lump-sum windows. Until further guidance is issued, the IRS will not assert that a plan amendment providing for a retiree lump-sum window program causes the plan to violate [the law].”

The questions posed to the federal agencies in the letter are:

When was the decision made to allow lump-sum buyout offers to retirees in pay status again? Who made this decision?
What prompted this decision? Was this decision made following meetings or correspondence with groups, individuals, or organizations? If so, identify the groups, individuals, and organizations.
Were any reports, analysis, or data considered or produced by Treasury or IRS in making this decision? If so, provide such reports, analysis, and data.
Has Treasury, IRS, or other parts of the Trump administration discussed any of the concerns that prompted Notice 2015-49?
Does Treasury, IRS, or other parts of the Trump administration have any plans to address the concerns that prompted Notice 2015-49?
What information will the Treasury and IRS look for as it “continue(s) to study the issue of retiree lump-sum windows” as announced in Notice 2019-18?