The plaintiffs claimed that they had a contractual and enforceable right to exclusively manage and control their investment expenditures and income, including interest dividends, capital gains and other distributions on investments, which they said the consolidation infringed upon. The state constitutions pension clause bars any diminishment or impairment of promised benefits. The lawsuit contends that pension member benefits are being impaired because the transition costs are being covered by loans through the Illinois Finance Authority that the two new consolidated funds must repay. Consolidation: Attorney Mancini . This is via the pension protection clause, Article XIII, General Provisions, Section 5, Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.. Litigation. As a refresher, Illinois' 1970 constitution is one of only in two in the nation which explicitly guarantee that state and local employees have a right to pension benefits based on the formula. Tier 2 members of the Teachers Retirement System, which covers public school teachers outside of Chicago, pay9% of their salary for pension benefits, the same as Tier 1 members. Justice Robert McLaren wrote the panels opinion, issued Feb. 7; Justices Susan Hutchinson and Ann Jorgensen concurred. . A husband or wife of a deceased police officer or firefighter will now be eligible for two-thirds of the deceaseds accrued pension benefits, regardless of how long the person worked before their death. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. Illinois Gov. We hope you find our website helpful! However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. No plaintiff has any right to direct the investment of the monies held by the funds or direct that they receive any different course of payments (either in amount or frequency) beyond that established by statute and the funds. The latest example involved pension buyouts, which were budgeted to reduce General Funds contributions by more than $400 million in FY2019 but ended up saving about $13 million that year. In fact, the Court even proposed that a reamortization schedule would have been sufficient to avoid a funding burden (p. 20) that is, rejecting the notion that there is any particular urgency to funding pension liabilities at any particular level at any particular point in time. The legislation proposes that the salary cap grow by 3% or the inflation rate, whichever is less. In 1991, the collective ratio was at 75.65% and peaked at 77.31% in 1999. The legislation also incorporates another task force recommendation that has attracted far less attention: a proposal to enhance benefits paid to police and fire pension fund members hired after 2010. Illinois More than $13 billion in debt was owed to local downstate public safety pension plans through 2020, according to Illinois Department of Insurance data. Attorney Atwell replied that there currently is a consolidation lawsuit and until the court rules, he would hold off at this time. Senate Bill 616 requires that contribution changes due to changes in actuarial assumptions be phased in over three years. It added that if all of the plans complete the transfer, there will be more than $4 billion in assets in the IPOPIF consolidated fund by the end of June. Updates on Pension Consolidation Lawsuit 2) Update on Sean Madden Disability Application . XIII, 5. What do you think? In addition, the 1970 constitution, and its drafters, cared not in the least for pension funding, only that the benefits are paid out to retirees; and the legislature, in its 2013 benefits-reduction legislation, was not making the case that it could not pay benefits which were due, but that the burden placed on the state budget of prefunding those benefits was too great. The plaintiffs claimed that they had a contractual and enforceable right to exclusively manage and control their investment expenditures and income, including interest dividends, capital gains and other distributions on investments, which they said the consolidation infringed upon. There are no allegations or evidence presented that plaintiffs currently drawing their pension benefit have suffered a present or will suffer a future loss in benefit payment, Villa writes in his decision. of the board members. For more than a decade, the Civic Federation has strongly supported consolidation of hundreds of police and fire department pension funds across Illinois to improve investment returns and reduce administrative costs. In other words, the key words that the Court emphasizes are diminished or impaired, not enforceable contractual relationship.. 300 S. Riverside Plaza | 1650 | Chicago, IL 60606 These pensions are primarily funded through the states second-highest in the nation property taxes, diverting taxpayer dollars from improving cities core services. With the changes in the bill just enacted, the cap would grow at full inflation instead. a group of Police Fund last year Arguing mandated consolidation, the lawsuit to block . In 1922, the laws governing police pensions were significantly restructured and re-codified forming the statutory basis . Senate Bill 616 reinstates the Tier 1 benefit for these surviving spouses. When Gov. No Reproduction Without Prior Authorizations. The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. The main distinction between the case at bar and the aforementioned cases, Villa writes, is that those cases involved traditional voters rights claims such as procedural due process, equal protection, constitutional vagueness, improper delegation of legislative authority, and other guarantees found in the United States and Illinois Constitutions.. InCarbondale, 290% of the citys property tax collections go to pensions. Mayor Lori Lightfoot says she will run for second term. In DeKalb, police and fire pension costs use up about20%of general fund revenue, up from 10% in 2014, said city manager Bill Nicklas. 3) Increase final average salary. cost of the Tier 2 benefit in FY2019 was 7.1%, holds great significance for first responders, An Inventory of Local Governments in Illinois: Municipalities, Inventory of Local Governments in Illinois, Illinois Criminal Justice System Agency Budget Requests for Fiscal Year 2022, An Inventory of Local Governments in Illinois: Townships, An Inventory of Local Governments in Illinois, The Graduated Income Tax Proposal: An Issue Brief, John D. and Catherine T. MacArthur Foundation. An Illinois Circuit Court judge has denied a lawsuit that sought to stop the consolidation of the states 650 firefighter and police officer pension funds, rejecting the plaintiffs claims that a law enacting the move violated the states constitution. In addition, they must ensure that the financial impact of any proposed Tier 2 changes is fully evaluated by pension actuaries and publicly disclosed before any action is taken by the General Assembly. The General Assembly created Tier 2 in 2010 to reduce the State's overwhelming pension obligations by significantly lowering benefits for new workers. This effort also proved unsuccessful. If successful, the lawsuits outcome would apply to every downstate police and firefighter pension fund in Illinois. Click here to read the full issue brief. The Illinois Municipal League filed a support brief through Clark Baird Smith, of Rosemont, and the Associated Firefighters of Illinois did so through Asher, Gittler & DAlba, of Chicago. The Firefighters Pension Investment Fund applauded the court ruling, saying in a statement that it will continue to implement the transition process, which is required to be completed by June 30. . Youre invited to comment at JaneTheActuary.com! The state's pension consolidation task force reported doing so could earn the funds an extra $2.5 billion altogether over the next five years. These pensions are primarily funded through the statessecond-highestin the nation property taxes, diverting taxpayer dollars from improving cities core services. . Copyright 2023 Ottosen DiNolfo Hasenbalg & Castaldo, Ltd. | Web Design & Hosting: B Square Web. Simply put, plaintiffs do not own the funds that the Act requires to be transferred to the new statewide police and firefighter pension investment funds. "We also have transfers scheduled for June 1 and June 24. 10 N. Dearborn St., Suite 800, Chicago, Illinois 60602 The law is aimed at easing shortfalls in Illinois local public safety pensions by merging more than $16 billion in assets from the 650 retirement plans into two funds, one for police and one for firefighters. It also represented one of the rare actions taken by the state to help local governments on the pension front. The local boards also did not have any say in the actual method of funding; contribution requirements were set in the Pension Code.. The wage base is adjusted each year by the change in the national average wage index. Discovery shareholder, having accepted . Amid the worst pension crisis in the nation, lawmakers voted in bipartisan fashion to improve pension benefits for downstate police officers and firefighters without performing the necessary financial analysis to estimate the cost. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Your email address will not be published. In Peoria, Mayor Rita Ali recently called on state leaders to fix pension costs on which the city willnever catch up, not in our lifetimes.. Handing out increased pension benefits without accounting for or offsetting the long-term cost is largely how Illinois got into its pension crisis to begin with. 1970, art. Pritzker is certainly overselling the benefits, calling the move a huge bipartisan step, which is concerning given Illinois politicians long history of ignoring the root cause of the pension crisis. Problems include: Statewide, pensions obligations consumed nearly 30% of all government spending. The local funds are already required to pay the costs of administration of the local funds, and plaintiffs do not cite any evidence to show that the costs of administration of the new funds, even including startup costs, would be any greater, McLaren wrote. As the plaintiffs articulate one example, a retired-beneficiary participant previously had the benefit of a 2.1% vote (1 out of 47) for the one beneficiary selected member of his pension fund, and thus, effectively a 0.43% say regarding the Boards selection of an investment manager or advisor. However, [a]s a result of Public Act 101-0610, he will only have the benefit of a 1/8,830 vote (1 out of 8,830) for the one beneficiary-selected member of the nine-person Permanent Board of the Firefighters Pension Investment Fund, which equates to just a 0.0013% say regarding the Permanent Boards selection of an investment manager or advisor. The plaintiffs also claim that their vested benefits have been diminished because the consolidation law requires each downstate pension fund to ultimately bear all costs of transition, up to $15,000,000, plus interest.. Some Republican lawmakers who voted against the bill raised the lack of a cost estimate during legislative debates, including Sen. Jason Barickman, R-Bloomington. Illinois effort to fix ailing local pensions faces legal hurdle A 2019 law championed by Gov. and Terms of Service apply. It is supposed to cut administrative costs and raise investment returns but rating agencies consider it a positive credit step because municipal budgets are strained by rising payment demands that have forced some to raise taxes, cut services, issue pension obligation bonds, and sell off assets. Research indicates that consolidation can be a lose/win proposition. 300 S. Riverside Plaza | 1650 | Chicago, IL 60606 The difference might be accounted for by the proposed change in the calculation of final average salary, which lowers the required multiplier under IRS rules. Illinois plans to consolidate its 650 police and fire pension funds in the suburbs and downstate. Report of the Illinois Pension Laws Commission 272 (1917). In the recent case challenging the consolidation, the plaintiffs follow the example of Buddell by maintaining that Public Act 101-0610 has similarly deprived their vested pension benefits. The analysis must consider the pension multiplier as well as the growth in the pensionable salary cap. Committee: House Education and the Workforce: Related Items: 992, H.R. However, that process may be interrupted if a court issues an order staying the transfer of assets. To qualify for exemption from Social Security coverage, government workers must receive a retirement benefit from their public pension plan that is at least equal to the benefit they would receive under Social Security. Illinois police, firefighters push back on state control of pensions, In DeKalb, police and fire pension costs use up about, In Peoria, Mayor Rita Ali recently called on state leaders to fix pension costs on which the city will. Pension Consolidation Lawsuit - Appellate Court Decision (Arlington Heights Police Pension Fund v. Pritzker) According to a legal analysis commissioned by the Illinois Municipal League, Tier 2 does not satisfy the safe harbor rules because the pensionable salary cap has not increased as fast as the Social Security wage base. Phone: 312-201-9066 | Email: [emailprotected] One concern is that these benefit enhancements were not truly necessary, but were used as a political bargaining chip to convince police and fire unions to support the legislation. Plaintiffs rights to receive benefit payments are not impacted by these transfers.. J.B. Pritzker on Wednesday signed into law the consolidation of 649 downstate and suburban police and fire pension plans into two new pension funds. Previously, employees hired after 2011 needed to work at least 10 years and vest before survivor benefits were available. The law creates the. Recently, however, the consolidation encountered its first legal challengea class action lawsuit claiming Public Act 101-0610 unconstitutional. If Tier 2 benefits do not meet the safe harbor tests, either the benefits might have to be increased or employees might have to pay 6.2% of their salary to Social Security, matched by an equal employer contribution. I dont think many of us trust the government of Illinois to handle our money given their history, said Jim Kayes, president of the DeKalb Police Pension Fund board, which is among the plaintiffs. Opinions expressed by Forbes Contributors are their own. Some pension experts warned as early as 2010 that the new benefit structure was so low that it might force certain government employees to participate in the Social Security system. The IRS has issued rules, known as safe harbors, for determining if plans meet the minimum benefit standard. Although the panel agreed the protection clause covers more than just the payment of pension money, it said past Illinois Supreme Court rulings invoking the clause involved benefits that directly impacted the participants eventual pension benefit, McLaren wrote. If funds who delayed their transfer wish to transfer after the May 20 court ruling, we will accommodate them as we are able, White said. This plan falls far short of eliminating even the $11 billion of debt held by these plans. Its the sort of thing that seems very nit-picky but is actually very relevant to the situation in Illinois. Our website provides a portal to the web based Annual Statement Filing System and gives you easy access to a variety of information regarding your pension benefits. Police Officers' Pension Investment Fund. The Illinois Municipal League was founded in 1913 and has worked continuously for the benefit of municipalities. In recent years, the State has frequently rushed to enact pension changes without actuarial evaluation and public disclosure of their financial impact. House Committee Meeting Hide Overview . Villa set May 20 as the next hearing date and said he would have a written ruling ready by that date. Because the existing plans are already better funded, theyre able to diversify their investments more, enabling higher returns. https://www.ai-cio.com/news/court-rejects-legal-challenge-to-illinois-pension-consolidation/, Daily Treasury Par Yield Curve Rates 28 Feb 2023, The Inflationary Effects of Sectoral Reallocation, Daily Treasury Par Yield Curve Rates 23 Feb 2023, On the Limitations of Dataset Balancing: The Lost Battle Against Spurious Correlations, Years of life lost to COVID-19 in 81 countries, Daily Treasury Par Yield Curve Rates 22 Feb 2023, Daily Treasury Par Yield Curve Rates 17 Feb 2023, Daily Treasury Par Yield Curve Rates 16 Feb 2023, CalPERS Refusal to Put Clearly Insolvent Long-Term Care Insurance Plan in Bankruptcy Increases Harm to Policyholders and Makes Board and Responsible Executives Liable. The decision asserts, in short, that the delegates knew full well that pensions were not properly funded, and intentionally made the choice to guarantee pensions by means of obliging future generations to pay, no matter what, rather than funding them as they are accrued. Further updates will be provided as they become available. The task force estimated that the consolidated funds could generate an additional $820 million to $2.5 billion in investment returns over five years, or $164 million to $500 million per year. JB Pritzker signed Senate Bill 1000, which amended the Illinois Pension Code to create the Police Officers Pension Investment Fund and the Firefighters Pension Investment Fund, built through the consolidation of more than 650 otherwise independent downstate and suburban funds. The Illinois Police Officers' Pension Fund Investment Board is now accepting resumes and RFP's for the following positions: Executive Director General Legal Counsel Administrative Services Please visit this link https://bit.ly/2vXYd8R for the full job description and details on RFP's. The Civic Federation urges the Governors Office and sponsors of Senate Bill 616 to demonstrate the need for the specific Tier 2 enhancements in the legislation. J.B Pritzker is expected to sign the legislation. They are seeking to maintain local control over pension management. As a refresher, Illinois 1970 constitution is one of only in two in the nation which explicitly guarantee that state and local employees have a right to pension benefits based on the formula in effect at hire, without reduction, until retirement. . Later still, the plaintiff tried to apply for military service credit, but was denied because he had not applied before the deadline. The salary cap under Tier 2 and the Social Security wage base were the same in 2011$106,800but the Tier 2 cap for 2019 is $114,952, while the Social Security wage base is $132,900. Failure to comply with IRS rules could result in a significant taxpayer cost if local governments were forced to make retroactive contributions to Social Security, a concern noted by Pritzkers task force on pension consolidation. The unfunded liabilities of Illinois suburban and downstate public safety pensionsrose to $13 billion in the last yearof compiled results reported to the state, soaring over a 29-year climb that underscores the deep strains on local government budgets. I dont think many of us trust the government of Illinois to handle our money given their history, said Jim Kayes, president of the DeKalb Police Pension Fund board, which is among the plaintiffs. The law is aimed at easing shortfalls in Illinois local public safety pensions by merging more than $16 billion in assets from the 650 retirement plans into two funds, one for police and one for firefighters. The multiplier is the percentage of final average salary earned per year of service. Five years later, the Illinois General Assembly amended the Pension Code to limit military service credit to those who applied before September 1, 1974. Over time, the reduced benefits are expected to slow the growth in unfunded liabilities as new employees are hired and fewer members remain in the old benefit tier. The Illinois Police Officers' Pension Investment Fund told lawmakers during a committee hearing that some individual funds have resisted moving their assets because of pending litigation. The new Police Officers Pension Investment Fund sought legislation during the spring session to push off the deadline by a year but it stalled. The Courts decision emphasizes over and over again that what binds the General Assembly and the people of Illinois are the key words of Article 13, Section 5, the benefits of which shall not be diminished or impaired. Its a simple ruling: you cant do anything which has the effect of reducing existing or future benefits (and the guarantee of a future Cost of Living Adjustment is included in such promises) so long as this phrase exists in the Illinois constitution. That is because the average wage index increased faster than the CPI-based formula used to calculate the Tier 2 cap. Gov. Illinois Pension Consolidation Act. In 2019, the Illinois General Assembly passed a bill that allows for the consolidation of 650 police and fire pensions to consolidate their funds into two . Chicago Office | Illinois Policy The step is now being considered by the General Assembly following recommendations in October 2019 by Governor J.B. Pritzkers task force on pension consolidation. The consolidation of Illinois' suburban and downstate police pension fund assets has picked up speed since a May court ruling upholding the law's constitutionality, but a pending appeal. However, choosing who invests funds does not guarantee a particular outcome for benefit payments. While benefits would continue to be managed by local boards, some police funds and their advocacy organizations resisted the change and a group ofpolice funds early last yearsued to block the implementation, arguing the mandated consolidation equates to a benefit cut. (The other is New York.) Illinois is home to the nation's worst pension crisis, leaving taxpayers on the hook for $317 billion in unfunded pension liabilities for the five statewide retirement systems. starts here. Up to now, neither the Governors task force nor supporters of Senate Bill 616 have publicly provided actuarial reviews showing the cost of the Tier 2 changes for the affected police and fire funds. The Social Security wage base is the maximum amount of salary subject to Social Security tax. However, the Municipal Leagues analysis points to an alternative IRS rule for retirement systems that do not satisfy the safe harbor rules. Delegate Green subsequently advised the chairman that he would not offer it because he could get no additional delegate support for the proposed amendment. . In other words, lawmakers responded to a problem they had not confirmed existed with changes they had not confirmed would fix the problem, without knowing how much the changes would cost. Unions and other Tier 2 critics are also concerned about the relatively low benefits provided to new employees. But consolidation is a small step for a tiny portion of Illinois pension problem. The police funds ended 2019 at 54.98% and firefighters were at 54.35%. It recommended that additional introductory language be added specifying that the rights conferred thereunder were [s]ubject to the authority of the General Assembly to enact reasonable modifications in employee rates of contribution, minimum service requirements and the provisions pertaining to the fiscal soundness of the retirement systems.. Illinois Illinois is home to thenations worst pension crisis, leaving taxpayers on the hook for $317 billion in unfunded pension liabilities for the five statewide retirement systems. Elected officials never sought formal guidance from the Internal Revenue Service. By: Matthew J. Schueler. The 22-page complaint alleges the consolidation violates three provisions of the Illinois Constitution: (1) the Pension Protection Clause; (2) the Contracts Clause; and (3) the Takings Clause. The State was able to book immediate savings on its statutorily required pension contributions, which depend on future benefit levels. Ill. Const. 2) Increase pensionable salary cap. If the legislation is upheld, the police funds are expected to move forward with the transfer process during the appeal. From this, the Illinois Supreme Court has held that public employees have an inviolable contractual right to their vested pension benefits, which cannot be diminished or impaired. While Pritzker said the measure would cut costs and improve returns for recipients, three dozen current employees and retirees, along with 18 local retirement plans, filed the lawsuit in February. Public Safety Pension Infographic. The plaintiffs are seeking to certify the lawsuit as a class action. In Illinois most public employees, including teachers and public safety workers (but excluding most members of the State Employees Retirement System), do not have to pay into Social Security. Such actions are likely to generate long-term savings. Copyright 2023 Asset International, Inc. All Rights Reserved. According to The Wrap, a lawsuit was filed in New York last week on behalf of the Collinsville Police Pension Board, which is an Illinois-based Warner Bros. The funded health of the public safety pension funds has tumbled over the years. Three dozen current employees and retirees, along with 18 local retirement plans, filed a lawsuit in February in Illinois circuit court saying the consolidation violates the state. However, many of the local pension leaders remain hesitant or are even refusing to merge until they learn the outcome of litigation to block Pritzkers law. The firefighters fund is further along in the consolidation process and expects to meet the deadline. JB Pritzker signed Senate Bill 1000, which amended the Illinois Pension Code to create the Police Officers' Pension Investment Fund and the Firefighters' Pension Investment Fund, built through the consolidation of more than 650 otherwise independent downstate and suburban funds. 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