Illinois taxpayers are bearing the financial brunt of a protracted legal fight to consolidate nearly 650 public safety pension plans into two large pension systems for police and firefighters.
The consolidation process — designed to save taxpayers money and reduce municipal pension debt — was mandated by a 2020 state law and was to be completed by the end of June this year. But a lawsuit filed by several suburban and downstate police and fire pension boards, as well as individual beneficiaries, in early 2021 delayed that process, mostly on the police side.
Because the lawsuit named the state as a defendant, along with counsel for the two new statewide pension systems, the office of Illinois Attorney General Kwame Raoul has been involved in the litigation for the beginning.
A Kane County judge recently ruled in favor of consolidation, but the local pension systems that filed suits have appealed the ruling, so the case is ongoing.
“Although we incurred legal costs, the attorney general’s office really took the lead throughout the trial,” said Bill Atwood, executive director of the new city-wide firefighters’ retirement investment fund. the state.
A spokeswoman for Raoul said his office could not comment on the case as it is on appeal. A dollar amount spent by Raoul’s office for the dozens of hearings and motions required since the lawsuit was filed was not immediately available.
Atwood said the firefighters’ pension agency has paid nearly $140,000 to its own attorneys since the lawsuit was filed in February 2021. Those costs are covered by the pension system, which is funded by employee contributions. , investment income and municipal taxes.
Firefighters began consolidation despite the lingering lawsuit. Only four of the 292 local firefighter pension plans have yet to transfer funds to the consolidated system; two are plaintiffs in the lawsuit.
But barely 60% of the 357 local police pension funds are consolidated to date, according to Richard White, executive director of the Illinois Police Officers’ Pension Investment Fund. Most of the transfers of funds took place after the judge’s decision in May.
“Litigation has had a chilling effect on consolidation progress,” White said.
The new police pension system has also had to hire attorneys to fight the lawsuit, which White says has cost that agency about $48,000 so far.
Most of the plaintiffs in the lawsuit were police pension boards, current or retired police officers, depending on the records. Arlington Heights, Aurora, Elgin, Elmhurst, Villa Park and Wood Dale police pension boards were among the plaintiffs, according to court records.
None have yet transferred funds to the consolidated system.
“It is difficult to quantify the cost this delay may have on the fund, but the pension board made this decision independently of the village,” Arlington Heights Village Superintendent Randy Recklaus said. “It delays any benefits we think we’ll get from consolidation.”
Requests for comments directed to plaintiffs’ counsel were not returned.
In the lawsuit, the plaintiffs complained about ceding local control of the fund to the state board, but the circuit court judge disagreed that the changes would harm beneficiaries. .
The judge also ruled that the new funds would not diminish any benefits or be used for other purposes.
“No allegation or evidence has been presented that claimants who are currently receiving their pension benefits have suffered a current loss or will suffer a future loss in the payment of benefits,” Judge Robert Villa wrote. “Finally, there is no argument or evidence presented that funds transferred from local funds to new funds are being used for a different public purpose.”
In fact, local pension boards will remain intact and still oversee the determination of pension, injury and death benefits.
Experts say consolidation will ultimately save employees and taxpayers millions of dollars a year through economies of scale. Administrative costs and investment costs are expected to fall sharply.
“We’re projecting a reduction of $34 million a year in capital costs alone,” Atwood said. “At the end of the day, it’s much cheaper to manage a single portfolio of $7.5 billion than 296 funds totaling $7.5 billion.”
Experts say the savings will ultimately require less local tax revenue to fund pensions and reduce pension debt. The longer local pension systems take to consolidate, the longer it will take to reap these benefits.
A hearing is scheduled for next month on the appeal, but a decision could take months, officials said.
