Ill. Const. The practical effect is that many employees will see a boost in their initial pension check on retirement, which serves as the basis for subsequent annual increases. In 1991, the collective ratio was at 75.65% and peaked at 77.31% in 1999. Illinois Police Officers Pension Investment Fund 1) Review and possible approval of IPOPIF Exhibit A Resolution . The state constitutions pension clause bars any diminishment or impairment of promised benefits. To the extent that growth in the pensionable salary cap is an issue, it remains to be seen whether Senate Bill 616 solves the problem. 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. An Illinois Circuit Court judge refused a trial which sought to stop the consolidation of the state's 650 fire and police pension funds, rejecting the plaintiff's claims that a law enacting the decision violated the state constitution.. 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. Our goals are to ensure Pension Fund integrity and to educate participants about retirement and disability benefits. 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. What do you think? Lawsuit Challenges Pension Asset Consolidation by John E. Motylinski In 2019, the Illinois General Assembly passed Public Act 101-0610, which required downstate police and firefighter local pension funds' assets to be consolidated into statewide funds for investment purposes. Senate Bill 616 reinstates the Tier 1 benefit for these surviving spouses. The Illinois Municipal League, which has advocated for pension consolidation for the past decade, also supports Pritzkers plan. The report, prepared by Chicago-based Anderson Economic. Surviving spouse benefit: Tier 2 eliminated pension benefits for spouses of public safety workers whose deaths occurred before the end of the ten-year period for pension benefit vesting and whose deaths were not duty-related. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. t 312.346.5700 f 312.896.2500, Springfield Office | Illinois Policy Illinois Passes Police, Fire Pension Consolidation Bill, Illinois Group Wants Municipal Pension Consolidations, New Illinois Law Authorizes $1 Billion in Pension Obligation Bonds and Extends Buyout Option, Tags: court ruling, Firefighters Pension Investment Fund, Illinois, J. In 2019, the Illinois General Assembly passed a bill that allows for the consolidation of 650 police and firefighter pensions in order to pool their funds into two statewide funds for investment purposesone for police and one for firefighters. of the board members. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. 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. 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. . On February 23, 2021, eighteen police and firefighter pension funds, as well as individual active and retired members of these funds, filed a complaint against Governor Pritzker, the two new consolidated pension investment funds, and others in the Kane County Circuit Court. and Terms of Service apply. t 217.528.8800 f 312.212.5277 e info@illinoispolicy.org, Copyright 2023 Illinois Policy | Illinois' comeback story starts here. I write about retirement policy from an actuary's perspective. 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. The Illinois Supreme Court found that the plaintiff had a substantive and vested right to apply for military service credit because there was no limit on applying for such credit when he joined the pension fund. 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. In the end, my reading of this decision says that the Court gave Illinois voters a roadmap to pension reform: there is only one path forward, that of an amendment, but it is at the same time, it is a travelable path, achievable if there is sufficient political will or grassroots support. Plaintiffs are individual active and retiree/beneficiaries of the local funds: they have no right to the investments held by the funds; rather, they are entitled only to present or future payments from the funds, McLaren wrote. That provision compares the employees actual accrued pension benefit with the accrued benefit under a safe harbor formula. 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. In DeKalb, police and fire pension costs use up about20%of general fund revenue, up from 10% in 2014, said city manager Bill Nicklas. Will be used in accordance with our terms of service & privacy policy. story At some point, even with the high multiplier, Tier 2 police and fire benefits might not meet the alternative IRS standards, but the analysis does not suggest the timing of any potential violation. Since our last newsletter, on November 10, 2021 the There were several matters about the operation of the legislature and governor that have been knocked around that this court was, I believe, was wisely waiting for some guidance and was provided none.. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. 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. Challenging the amendment directly, plaintiffs also argued it violates the state constitutions takings clause regarding public use of private property. A History of Pension Enactments. Once the trial court issues its ruling, the case will likely be appealed by the losing party. The statement was not read and no action was taken during the convention to include language allowing a reasonable power of legislative modification (p 21 - 22). Protected by Google ReCAPTCHA. But being able to vote for board members, or have a local board control investments, he added, is not of the same nature and essentiality as the ability to participate in the fund, accumulate credited time, or receive health care, disability and life insurance coverage. Consolidation has even been previously considered for Illinois' pension systems before (in 2003, 2009, and 2012). While the governors task force publicly stated the enhancements would cost $14 million to $19 million more per year, this number was not backed up by any public data or methodology to justify it. However, the Municipal Leagues analysis points to an alternative IRS rule for retirement systems that do not satisfy the safe harbor rules. If the court agrees with Attorney General Kwame Raouls office which is representing the state, the plaintiffs would appeal through a routine appeals process. As a result, Tier 2 members paid about 1.9% of their salary to subsidize Tier 1 benefits. 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. However, choosing who invests funds does not guarantee a particular outcome for benefit payments. The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. Therefore, legislation that diminishes these benefits will usually be struck down. The first thing that the Court makes clear in its decision is that the 1970 constitution bound Illinoisians to provide undiminished and unimpaired pensions to every state or local worker ever hired with such a promise, with no room for any changes whatsoever. Illinois' Fraternal Order of Police is among the groups opposed to the idea. Police Officers' Pension Investment Fund. The task force also noted that these estimated costs are minor compared to increases in investment returns projected to be earned by the consolidated funds compared with the 649 existing police and fire funds. 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. The legislation raises the formula to the lesser of full CPI or 3%. 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. Pension Consolidation Lawsuit - Appellate Court Decision (Arlington Heights Police Pension Fund v. Pritzker) Tier 2 workers receive annual benefit increases upon retirement of 3% or one-half of the rise in the Consumer Price Index (CPI), whichever is less, on a simple-interest basis. Illinois Public Pensions Database. Arlington Heights Police Pension Fund, et al. B. Pritzker, Lawsuit, Pension Consolidation, Robert Villa, Ray Dalio Is Now Ranking Economies by Their Strengths and Weaknesses, 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 /. This site is protected by reCAPTCHA and the Google Privacy Policy B. Pritzker, who signed the bill into law. An Illinois Circuit Court judge hasdenied a lawsuitthat 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. The funded health of the public safety pension funds has tumbled over the years. We are already showing savings and increased earning ability, proving the benefit that was predicted and is needed by this consolidation, said league Executive Director Brian Cole. However, each of these claims revolve around the same general premise. The legislation proposes that the salary cap grow by 3% or the inflation rate, whichever is less. starts here. FPIF recently notified local funds of their asset transfer dates which begin October 1, 2021. and Terms of Service apply. The ruling states that voting is not currently a benefit under the pension clause of the state constitution, pointing out that the courts have yet to hold that the right to vote for pension fund board members falls within the protections of the Pension Clause. It also rules that the takings clause claim cant be tied to real property as required under Illinois law. t 217.528.8800 f 312.212.5277 e info@illinoispolicy.org, Copyright 2023 Illinois Policy | Illinois' comeback story starts here. The plaintiffs dropped their motion to certify class status. These pensions are primarily funded through the states second-highest in the nation property taxes, diverting taxpayer dollars from improving cities core services. The IRS has issued rules, known as safe harbors, for determining if plans meet the minimum benefit standard. 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. Required fields are marked *. 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. Illinois Pension Consolidation Act. 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.. Copyright 2023 Ottosen DiNolfo Hasenbalg & Castaldo, Ltd. | Web Design & Hosting: B Square Web. Illinois Gov. Illinois effort to fix ailing local pensions faces legal hurdle A 2019 law championed by Gov. 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 Social Security wage base is the maximum amount of salary subject to Social Security tax. On June 25, 2021, the Defendants filed motions to dismiss the Plaintiffs amended complaint, and the court has given the Plaintiffs until August 4, 2021, to respond to these motions. Problems include: Nicklas and some other city leaders are relived to see their pensions consolidated, noting the underfunded plans weigh on budgets and credit ratings, contributing to a slowed economic recovery from the pandemic. lawsuit filed by a handful of . White Paper from the Pension Fairness for Illinois Communities Coalition Consolidation: The Benefits to IL Taxpayers. But the panel said the complaint contained no argument as to how that requirement would specifically diminish their eventual benefits. manager" with respect to a pension fund or retirement system established under this Code if the person: (1) is a fiduciary appointed by the board of trustees of the pension fund or retirement system in accordance with Section 1-109.1; (2) has the power to manage, acquire, or dispose of any asset of the retirement system or pension fund; starts here. 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. 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.. But consolidation is a small step for a tiny portion of Illinois pension problem. However, the cost of the Tier 2 benefit in FY2019 was 7.1% of salary, compared with 21.6% for Tier 1 benefits. 300 S. Riverside Plaza | 1650 | Chicago, IL 60606 The fund said it has $6.9 billion in assets under management. However, it should be noted that these increased returns are not guaranteed. H.R. Rock Island Alderman Mark Poulos, Ward 6, has been appointed as a temporary trustee to the Illinois Police Officers' Pension Investment Fund by Gov. When Gov. 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 wage base is adjusted each year by the change in the national average wage index. House Committee Meeting Hide Overview . The enhancements to Tier 2 benefits for employees hired after 2011 were part of a bill to consolidate the states roughly 650 public safety pension funds into just two funds, one each for police and fire. Municipalities have until July 1 to transfer all assets from their locally managed pension funds . Updates on Pension Consolidation Lawsuit 2) Update on Sean Madden Disability Application . A limit was also imposed on the amount of earnings used to calculate final average salary. If successful, the lawsuits outcome would apply to every downstate police and firefighter pension fund in Illinois. As indicated by the discussion above, determining when or if Tier 2 benefits will violate IRS rules is not simple. 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. Patrick Andriesen, Illinois Policy Institute, Woman sues Granite City QuickTrip over parking lot slip, fall, Madison County civil docket Feb. 27-Mar. 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. John D. and Catherine T. MacArthur Foundation. In recent years, the State has frequently rushed to enact pension changes without actuarial evaluation and public disclosure of their financial impact. 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. 1970, art. Consolidating scores of local firefighter and police pension funds could save Illinois taxpayers between $820 million and $2.5 billion in the next five years, according to a report published Thursday by a state task force that's been studying the issue since January. While consolidation cuts down on duplicative administrative costs and pools investment assets for larger returns, downstate police and fire pension debt is only about 5% of total state obligations. 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. Copyright 2022 The Civic Federation Later still, the plaintiff tried to apply for military service credit, but was denied because he had not applied before the deadline. 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. Any increase in actual returns will be partly due to the consolidated funds ability to invest in riskier investments. A legal memo from the Illinois Municipal League had pointed to the pensionable salary cap as a particular area of concern for potential safe harbor violations, because the current salary cap of roughly $115,000 is less than the Social Security wage base of $132,900. 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. The other two changes are designed, at least in part, to address the safe harbor concerns. No Reproduction Without Prior Authorizations. 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. "The Illinois Police Officers Pension Investment Fund (IPOPIF) is pleased that the court has indicated a date on which a written ruling will be issued. 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