Plan to Merge Strapped Illinois Local Pension Plans Raises Doubts

The state, facing a big shortfall in its own retirement programs, tries to eke out savings from municipal plans.

Illinois, straining under huge pension funding shortfalls, is turning to a consolidation of 650 suburban and downstate police and fire municipal pension funds. But questions linger about how effective the maneuver will be.

The hope is that the efficiencies of a combo will save $850 million to $2.5 billion over five years. On the surface, that makes a lot of sense: Tiny municipal pension plans lack the expertise and heft to invest cheaply and well.

The plan by Governor J.B. Pritzker is being billed as a good step to revamping the public worker retirement system. Last month, Pritzker called the proposal “momentous achievement in state history.” The plan, which has gradually enlisted the support of police officers and firefighters, now goes before the state legislature, which just returned for the fall session. Plenty of other plans in the state, such as in Chicago and those aiding state workers, have big problems, too. So the small-municipality plan is just a start. 

Trouble is, there’s some doubt that the local-pension consolidation will be very effective. Wirepoints, a research organization that covers Illinois government, believes that any savings will be overwhelmed by the weaknesses of the pension systems.

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“The proposal doesn’t reform how Illinois hands out retirement benefits. And it doesn’t change the fact that cities are hamstrung by state control of the pension rules,” wrote Wirepoints analysts Ted Drabowski and John Klingner.  “So, while the savings could be meaningful for the public safety funds, it won’t end Illinois’ pension crisis or its worsening trajectory,”

Past attempts at shrinking the shortfalls in the state’s various pension programs have fallen flat. An initiative in the summer to save the state an estimated $423 million this year fell far short of their goal, with only $13.1 million saved. The state offered buyouts to its workers, but few takers emerged.

Moody’s Investors Service warned earlier this year that attempts to tackle the state’s pension debt would be futile without making major cuts. It said that “a failure to adopt mitigating strategies soon will greatly increase the state’s risk that these rising costs will become unaffordable” without “severe” reductions.

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