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DOES YOUR MUNICIPALITY HAVE A PENSION PROBLEM?
Public Safety Pension Debt -- An Emerging Public Policy Problem
“Unfortunately, however, the pension systems for all Illinois municipal police and firefighters, even including Chicago, are not financially sound. Even more worrisome, their pensions are becoming less secure with each passing year. Illinois police officers and firefighters, especially the younger ones, ought to be worried about the fiscal health of their pension funds. As the nation learned when New York City went bankrupt in the 1970s, employee pension funds are not exempt from the negative changes that accompany municipal bankruptcy.”
“Illinois Police Officers And Fire Fighters: How Good Are Their Pensions?”
James M. Banovetz and Dawn S. Peters
NIU Center for Governmental Studies
Why Pension Reform?
The Illinois Municipal League published a study in February of 2007 that thoroughly examined the fiscal condition of the downstate and suburban police and firefighter pension funds. The study found an alarming growth in debt among municipal police and fire pension funds. This growth in pension debt threatens the availability of the necessary funds to cover the retirement promises made under Illinois statute to municipal firefighters and police officers. The monumental problems facing municipal governments in Illinois are as follows:
- Current benefit levels are guaranteed by the Illinois Constitution and cannot be reduced. Pension benefits awarded by the General Assembly must therefore be funded using available local revenues.
- Municipal officials are finding it difficult to pay for the growing pension debt within existing budgets. State statute prevents many municipalities from levying for adequate revenues to contribute toward their pension liabilities.
- Municipal governments have seen the fees they pay the state for pension regulatory services increase dramatically while the overall regulatory staffing and service levels have declined. Inadequate regulation of billions of pension dollars is a ticking time bomb.
- The State of Illinois publishes an annual study of the fiscal conditions of all state and local pension funds except two – the downstate and suburban police and firefighter pension funds. This neglect of by the state of two local multi-billion dollar pension systems prompted the IML to undertake its own study to inform municipal officials, legislators and the public about the financial condition of these systems.
- Unlike the Illinois Workers’ Compensation Act, the downstate and suburban police and firefighter pension systems do not include provisions to protect against fraudulent disability claims. Municipalities are not even given statutory authority to be involved in pension decisions and therefore have no standing before their own pension boards. A dangerous wall of separation has been constructed between municipalities and their pension funds with only a mail slot big enough to accept municipal pension payments remaining.
- The downstate and suburban police and firefighter pension funds have no statutory provisions protecting funds from illicit arrangements whereby pension fund trustees personally profit from decisions made by money managers hired to provide investment advice.
- The downstate and suburban police and firefighter pension funds have no statutory provisions establishing minimum registration and disclosure standards for key professional and contractual services they contract with to advise them.
- Legislators who vote on legislation proposing to increase police and fire pension benefits are provided inadequate information regarding how pension bills will financially impact municipalities and taxpayers. They are only provided with a statewide “blended average” derived from old data that fails to produce any useful information on how pension legislation might impact individual municipalities.
- Municipal taxpayers are kept in the dark regarding the financial decisions and benefit awards made by their downstate and suburban police and fire pension funds.
A Resource For Common Action
The IML Public Policy Pension Page is intended to serve as a leading resource to educate municipal officials, state leaders and the residents of Illinois’ cities, villages and towns about the looming challenge to achieve and maintain financial stability within Illinois’ municipal public safety pension funds. Achieving pension fund stability will also insure that scarce municipal budgetary resources are available to meet other important obligations of growing communities with diverse needs. Concerned parties can utilize the site to take action toward: 1) promoting good stewardship of pension fund resources; 2) providing responsible regulatory oversight; 3) protecting against potential abuses; and 4) expanding public involvement and accountability. Working together, Illinoisans can guarantee that the pension promises made to our police officers and firefighters are kept.
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