Earlier this month, the Illinois legislature voted to consolidate almost 650 suburban and downstate police and fire pension funds into just two.
Gov. J.B. Pritzker’s top priority in the fall veto session, proponents of the bill say it will increase investment returns and lower costs.
“The consolidation of these into two funds could result into greater returns of $820 million to $2.5 billion just over the next five years, and more after that. They could earn billions over the next 20 years,” Pritzker said on Nov. 14.
But how exactly will the consolidation impact Illinois’ beleaguered finances?
Dan Hynes, Illinois’ deputy governor for budget and economy, served on a task force set up by Pritzker earlier this year to study the feasibility of pension consolidation.
“The single most impactful step that the State can take to address the underfunding of downstate and suburban police and fire pension funds is to consolidate the plans’ investment assets,” the task force wrote in a report published in mid-October.
The legislation comes as Illinois continues to struggle with an ongoing pension crisis.
“The unfunded pension liability is in excess of $100 billion, which is a massive amount,” Hynes said. “The more problematic thing is that it’s costing our annual state budget over $9 billion a year and growing.”
But even with that backdrop, the consolidation bill will increase pension benefits for so-called Tier 2 first responders. Those are employees who have been hired since 2011 and currently receive lesser benefits than Tier 1 workers hired before 2011.
In its report, the state task force said these additional benefits are necessary to avoid potentially violating federal law.
“There have also been significant concerns that the slower Tier 2 pensionable salary cap growth and revised final average salary calculation will be in violation of the ‘safe harbor’ standard of the Internal Revenue Code and Social Security Administration,” the report states.
But some critics and commentators have suggested the benefits were instead included to convince skeptical police and fire unions to sign on to consolidation.