As Illinois state lawmakers get ready to return for the fall legislative session, a group representing municipal governments said pension consolidation should be at the top of the agenda, but one public finance analyst said the real solution to the state’s pension problem is ditching defined-benefit plans such as pensions and moving to defined-contribution plans such as 401(k) plans.
Illinois state government pensions funds, with more than $134 billion in unfunded liabilities, are the most underfunded in the country. Local governments have also been struggling with the pension plans they fund have for police and fire employees.
The cost of funding local police and fire pension funds have been squeezing out other services that taxpayers expect from municipal governments. Illinois has the second-highest property taxes in the country.
Illinois Municipal League Executive Director Brad Cole said consolidating police and fire pensions is a must.
“The concept of consolidation is based around returning higher investment returns into those funds, eliminating some of the redundant administrative costs and just maximizing the efficiency of the operation of those 650-plus funds from around the state,” he said.
Cole said he wants lawmakers to address the issue during the six days they are in Springfield for the fall legislative session in October and November. The Illinois Municipal League has proposed a consolidation of public safety pensions funds to resemble the Illinois Municipal Retirement Fund, “which is the second-largest and best-funded pension system in the state,” according to a fact sheet the league produced.
Gov. J.B. Pritzker has said he’s open to the idea of consolidation as a way to increase investment returns.
Wirepoints President Ted Dabrowski, a public finance analyst, agreed, but said policymakers must go further.
“Consolidation by itself is not the solution,” Dabrowski said. “What we need to do is we need to fix the core problem of pension funds and it’s a very difficult discussion and a very difficult topic, but we need to move from what are defined benefits from our local governments into defined contributions.”
Cole said changing from pensions to 401(k)-style retirement plans wouldn't happen anytime soon.
“We want to see some progress in the near term. I don’t know if there will ever be progress on moving away from defined benefit plans to defined contribution plans,” Cole said. “That would have to be on a larger scale if it was.”
Dabrowski said switching from defined benefit plans to defined contribution plans would give taxpayers certainty about the cost of public retirement plans year to year and keep growing pension costs from crowding out funds for other vital municipal services. He also said public workers should prefer 401(k)-style plans.
“It’s portable, it’s theirs,” Dabrowski said. “I think that’s a big difference when you talk about a government that’s been very corrupt and very prone to not properly funding pensions. Really, [elected officials have] destroyed the retirement security of government workers.”