No analysis of the benefit increases was performed by a professional actuary, the specialized financial analysts who estimate pension costs. When Gov. On December 18th, 2019, Governor Pritzker officially signed Public Act 101-0610 into law, which then took effect on January 1st, 2020. B. Pritzker, who signed the bill into law. Please e-mail[emailprotected]with your query. Yes, it uses the language, technically true, that it was the people of Illinois who, in voting for the constitution, restricted the General Assembly from making any such changes, rather than acknowledging that those people were rather powerless to evaluate any such individual provision agreed to by the delegates drafting the constitution once it was put up for a vote. Ultimately, the combination of unknown costs for the benefit increases and uncertain savings from consolidation means taxpayers should be wary of any potential benefits of this bill. Click here to read the full issue brief. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. 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. 1970, art. Illinois 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. Illinois effort to fix ailing local pensions faces legal hurdle A 2019 law championed by Gov. 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. t 312.346.5700 f 312.896.2500, Springfield Office | Illinois Policy Committee: House Education and the Workforce: Related Items: The original savings estimate was based largely on a different buyout plan; the enacted plan surfaced in the last days of the spring 2018 legislative session and was not vetted by pension actuaries before being approved by lawmakers. The IPOPIF team will remain diligent in our interactions with local police plans to assist them in transferring funds to the IPOPIF consolidated fund.. Litigation. In 2015 the Illinois Supreme Court struck down subsequent legislation that would have reduced the benefits of current State employees and retirees. Senate Bill 616 would consolidate the assets of Illinois 649 public safety funds, not including those in Chicago, into two new funds, one for police and one for fire. TheFirst Responder Pension Consolidationlaw currently faces a lawsuit challenging it on constitutional grounds, claiming the measure diminishes pension benefits. This site is protected by reCAPTCHA and the Google Privacy Policy PABF's authority, duty, and responsibility is governed by state statute and administered by the Retirement Board of Trustees ("The Board") in compliance with Act 5 of the Illinois Pension Code.The Fund was first created in 1887 through an act of the Illinois legislature. A History of Pension Enactments. "The Illinois Police Officer's Pension Investment Fund is pleased that the Illinois Appellate Court . The Illinois Supreme Court ordered the consolidation of lawsuits filed by cannabis dispensary license applicants in an attempt to resolve multiple claims challenging the fairness of the licensing . 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 plaintiffs dropped their motion to certify class status. I usually do not take this long to enter rulings on a case even of this size and with this sort of consequence, Kane County Circuit Court Judge Robert K. Villa said at a Monday hearing. But consolidation is a small step for a tiny portion of Illinois pension problem. With the changes in the bill just enacted, the cap would grow at full inflation instead. (In fact, on only four topics were voters given the ability to vote individually, vs. an all-or-nothing up-or-down vote: cumulative voting for the legislature, election of judges, capital punishment, and the vote for 18 year olds. 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. t 312.346.5700 f 312.896.2500, Springfield Office | Illinois Policy 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 legal limbo brought about by the case has resulted in some local Article 3 pensions plans choosing to not transfer funds as mandated by the Act until a ruling is announced, Richard White, the funds executive director, said in a statement. The league stated it is confident it will beat the legal challenge. Unfortunately, we know there is no political will, on the part of those currently in power. The Act does nothing more than require one type of government-created pension fund to transfer assets to another type of government-created pension fund. B. Pritzker, who signed the bill into law. 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. As indicated by the discussion above, determining when or if Tier 2 benefits will violate IRS rules is not simple. 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 plaintiffs claim 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 the consolidation has infringed upon. However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. 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.. Protected by Google ReCAPTCHA. Rock Island Alderman Mark Poulos, Ward 6, has been appointed as a temporary trustee to the Illinois Police Officers' Pension Investment Fund by Gov. In 2013, Illinois passed legislation which aimed to reduce pension liabilities, but various groups representing the affected employees filed suit, and the Supreme Court overturned the legislation in a 2015 decision. A recent report commissioned by the Illinois Public Pension Fund Association, which opposes consolidation, underscores that point. 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. Article XIII, Section 5, of the Illinois Constitution, commonly known as the Pension Protection Clause, provides that [m]embership 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. Ill. Const. 10 N. Dearborn St., Suite 800, Chicago, Illinois 60602 Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. Further updates will be provided as they become available. J.B Pritzker is expected to sign the legislation. The only real way to fix the pension crisis once and for all and strike a balance between protecting taxpayers, retirees and vulnerable Illinoisans who rely on government services is with a constitutional amendment to allow for structural pension reform. 1970, art. 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. Unions and other Tier 2 critics are also concerned about the relatively low benefits provided to new employees. This includes 2,826 general purpose governments and 6,097 special purpose governments During a series of State appropriations hearings held by the Illinois General Assembly in both the House and Senate this spring, State agency leaders discussed their budget requests included in Governor Pritzkers We welcome any questions and feedback about the content of this blog. Copyright 2023 Ottosen Britz Kelly Cooper Gilbert & DiNolfo, Ltd. However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. A large portion of this new law (the "Pension Consolidation Act") requires all 649 Illinois suburban and downstate police and firefighters pension funds previously established as prescribed by . Similarly, there is no evidence that those still employed will suffer a similar fate when they eventually retire. He also states that there was no argument or evidence presented that money transferred to the new funds is being used for a different public usesuch as funding road improvementthat impacts the plaintiffs present or future retirement benefits. By collecting data from the largest public pension systems in the state and centralizing it into our new Illinois Public Pensions Database, the Better Government Association aims to bring greater clarity to . The Newsletter Bringing the Legal System to Light. The report, prepared by Chicago-based Anderson Economic. a group of Police Fund last year Arguing mandated consolidation, the lawsuit to block . We hope you find our website helpful! The Illinois Supreme Court may decide to review the case thereafter. DeGette. 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. Appointment of DOI Security Administrator: . The analysis must consider the pension multiplier as well as the growth in the pensionable salary cap. The panel explained the amendment allows the Illinois Finance Authority to lend up to $7.5 million to each of the new statewide funds, and if borrowed, it would be repaid with interest. In other words, the key words that the Court emphasizes are diminished or impaired, not enforceable contractual relationship.. Illinois plans to consolidate its 650 police and fire pension funds in the suburbs and downstate. This site is protected by reCAPTCHA and the Google Privacy Policy Opinions expressed by Forbes Contributors are their own. More than $13 billion in debt was owed to local downstate public safety pension plans through 2020, according to Illinois Department of Insurance data. The Illinois Police Officers' Retirement Investment Fund told lawmakers at a committee hearing that some individual funds resisted transferring their assets due to ongoing litigation challenging the constitutionality of the law. Additionally, Tier 2 reduced the final average salary on which a pension is based from the average of the highest four of the last five years of service to the average of the highest eight of the last ten years of service. Salaries can grow beyond the cap, but the portion that is used to calculate pension benefits cannot. Brian Granato Mike Pritchard, Sr. . FPIF recently notified local funds of their asset transfer dates which begin October 1, 2021. Updates on Pension Consolidation Lawsuit 2) Update on Sean Madden Disability Application . . 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. Previously, employees hired after 2011 needed to work at least 10 years and vest before survivor benefits were available. However, the Municipal Leagues analysis points to an alternative IRS rule for retirement systems that do not satisfy the safe harbor rules. Kane County Circuit Court Judge Robert Villa granted summary judgement to the state, prompting an appeal to the Illinois Second District Appellate Court. That is because the average wage index increased faster than the CPI-based formula used to calculate the Tier 2 cap. B. Pritzker, who signed the bill into law. The health of some individual funds, however, are far weaker with ratios only in the teens. A state appeals panel has affirmed a ruling that the Illinois state constitution holds no barrier to a law consolidating hundreds of local police and firefighter pension boards into two statewide funds. 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. Although some union leaders supported the move, dozens of police and firefighter pension boards and individual members sued the state and the new funds to stop the consolidation. Copyright 2023 Ottosen DiNolfo Hasenbalg & Castaldo, Ltd. | Web Design & Hosting: B Square Web. t 217.528.8800 f 312.212.5277 e info@illinoispolicy.org, Copyright 2023 Illinois Policy | Illinois' comeback story starts here. 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. 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. Although Judge Robert Villa writes in the ruling that the consolidation undeniably diminished the weight of each individuals board member vote, he also holds that traditional voting rights claims are not at issue. This decision recapped not merely the 2013 decision, but included more extensive commentary on Illinois pensions, citing, for example, 1917 and 1957 reports characterizing state and local pension plans as in a condition of insolvency, and a 1969 overall funded status of 41.8%. Illinois' consolidation of suburban and downstate police firefighter pension fund assets cleared a second legal hurdle but it could take a decision from the Illinois Supreme Court to clear the path for full participation in the plan. 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. By cutting down on duplicative administrative costs and. The courts decision rests on its interpretation of what constitutes a benefit., The case Arlington Heights Police Pension Fund et al v. Jay Robert Pritzker et al argues that benefits are damaged because the law strips plaintiffs of their autonomy and their authority.. 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. He projected the consolidation could yield an extra $2.5 billion in investment returns over five years after the law took effect Jan. 1, 2020. The move is intended to help improve the financial stability of the pension funds and ease pressure on local governments to raise taxes to fund those pensions. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Your email address will not be published. Funding public-employee pension systems is perhaps the most vexing emergency facing Illinois taxpayers. The Illinois Police Officer's Pension Investment Fund told lawmakers during a committee hearing that some individual funds have resisted transferring their assets because of a pending lawsuit challenging the constitutionality of the 2019 consolidation law. 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. J.B. Pritzker championed to consolidate about 650 local police and firefighter pension funds from across Illinois under state management by mid-2022. John D. and Catherine T. MacArthur Foundation. 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. The General Assembly created Tier 2 in 2010 to reduce the States overwhelming pension obligations by significantly lowering benefits for new workers. . 993 AND H.R. With the litigation pending, many police funds have held off on moving their assets and the courts decision will come just a month ahead of the deadline, although funds dont face any punitive actions for missing the deadline. 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. Later still, the plaintiff tried to apply for military service credit, but was denied because he had not applied before the deadline. When Tier 2 was created, public attention was focused on rectifying Illinois worst-in-the-nation pension crisis and assisting local pension funds in distress. Your email address will not be published. Similar warnings were issued by the Illinois Public Employees Pension Laws Commission in biennial reports it published between 1947 and 1969. Report of the Illinois Pension Laws Commission 272 (1917). 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. They are seeking to maintain local control over pension management. 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. As reported in prior RDL newsletters, on February 23, 2021, a lawsuit was filed in Kane County challenging the Pension Consolidation Act. 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.. The Newsletter Bringing the Legal System to Light. The Illinois Municipal League, which has advocated for pension consolidation for the past decade, also supports Pritzkers plan. No Reproduction Without Prior Authorizations. Governor JB Pritzker, too, has claimed that theres nothing to be done except to find more money, and Chicago Mayor Lori Lightfoots vaguely worded statements about the matter dont amount to anything more, either. Shortly thereafter, a member of the Pension Laws Commission sent a follow-up letter to Delegate Green requesting that he read a statement into the convention record expressing the view that the new provision should not be interpreted as reflecting an intent to withdraw from the legislature the authority to make reasonable adjustments or modifications in respect to employee and employer rates of contribution, qualifying service and benefit conditions, and other changes designed to assure the financial stability of pension and retirement funds and that [i]f the provision is interpreted to preclude any legislative changes which may in some incidental way diminish or impair pension benefits it would unnecessarily interfere with a desirable measure of legislative discretion to adopt necessary amendments occasioned by changing economic conditions or other sound reasons. . There, the plaintiff joined the pension fund in 1969. Illinois Gov. Thank you, Mr. Chairman, for holding this very important hearing on the fraud that nearly brought down the $4 billion HealthSouth Corporation. 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. candidate seeks $12M from Preckwinkle, 4th Ward Dems for alleged defamatory mailers, Judge says franchisors also liable in suits claiming biomertric scan violations; Ruling could make businesses more vulnerable to suits, UIC law prof can continue part of lawsuit regarding reaction to his allegedly racially insensitive test question, IL high court: Concerns over 'absurd,' 'annihalitive' payouts no reason to limit damage claims under IL biometrics law, Appeals panel agrees IL police and firefighter pension consolidation doesn't violate state constitution, IL Supreme Court: Chicago didn't violate state law by charging fees to owners of impounded vehicles, Appeals panel: Chicago must force telecom companies to hire union labor to upgrade their equipment on city-owned poles. The IRS has issued rules, known as safe harbors, for determining if plans meet the minimum benefit standard. Officials in more than 650 suburban and downstate Illinois towns need to be laser focused in early 2022 on the implementation of the state's massive investment overhaul of police and firefighter pensions. 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.. The three main parts of the pension benefit formula are illustrated below. See, e.g., Report of the Illinois Public Employees Pension Laws Commission of 1949, 10 (1949) (revenues allocated to pension funds have not kept pace Discovery shareholder, having accepted . Nathan Woodside/Lewis & Clark Community College. Tier 2 employees are subject to a pensionable salary cap that began at $106,800 and has grown since 2011 at half of inflation or 3% per year, whichever is less. A pension consolidation task force Thursday released a report that recommends the state combine roughly 650 suburban and Downstate police and fire pension funds to try to increase efficiency and lower costs while also increasing pension benefits. It also represented one of the rare actions taken by the state to help local governments on the pension front. The lawsuit said the law violated the state's pension protection clause, the contracts clause and the takings clause of the Illinois Constitution by terminating "plaintiffs' authority to. The Court also rejected the use of the states police power to reduce pensions, that is, the notion that the greater need to provide basic services could justify reducing pensions, noting that other provisions in the constitution included wording qualifying the promises made as subject to affordability, but that the pension protection wording was absolute. What do you think? More than $13 billion in debt was owed to local downstate public safety pension plans through 2020, according to Illinois Department of Insurance data. 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. The three changes intended to bring Tier 2 benefits in line with safe harbor restrictions are as follows: 1) Expand survivor benefits. In recent years, the State has frequently rushed to enact pension changes without actuarial evaluation and public disclosure of their financial impact. 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. The state constitutions pension clause bars any diminishment or impairment of promised benefits. 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. The Social Security wage base is the maximum amount of salary subject to Social Security tax. Illinois Public Pensions Database. 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. Consolidation was also proposed in Pennsylvania in 2012 and 2018. They argued the consolidation would strip them of the right to elect local pension board members and for those local boards to control and invest money. 3) Increase final average salary. Benefits for new workers were not protected by a provision of the Illinois Constitution that bans impairment of pension benefits for existing Tier 1 retirement system members. 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. Problems include: Statewide, pensions obligations consumed nearly 30% of all government spending. Arlington Heights Police Pension Fund, et al. However, as pointed out by the Civic Federation, lawmakers never definitively established that a safe harbor violation existed for Tier 2 public safety workers, nor that the changes in this bill were the minimum necessary to bring the plans into compliance. 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. J.B. Pritzker released a task force report calling for the consolidation of downstate municipal fire and police pension funds and called for quick action by The Civic Federations recently released Inventory of Local Governments in Illinois report identified a total of 8,923 units of local government in Illinois. The state judge overseeing the constitutional challenge of Illinois effort to consolidate suburban Chicago and downstate police pension fund assets will render a decision May 20. . 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. 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