Effort to consolidate police, fire pension boards gets mixed response

April 28--To save local governments money, some legislators and activists are calling for police and firefighter pensions to be combined into one big fund, but police and fire unions remain skeptical of the savings.

Currently, each community has its own fund paid into locally, with its own individual pension board, a system that Mark Fowler, executive director of the Northwest Municipal Conference, feels is starting to fall apart.

"In 2000, most of the northwest municipal conference police and fire pension funds were 100 percent funded," he said. "Over the next decade we saw funding levels declining, despite contributing increased amounts to the pension funds, exposing structural flaws in those pension funds."

Fowler argued that the amount of local trustees and employees for each pension board is unwieldy and expensive.

Instead he is advocating for a single board and a single fund for all downstate communities, such as the system recommended in House Bill 5013, sponsored by Rep. Ryan Spain, R-Peoria. This larger pool could open up pension funds to many larger, more lucrative investment opportunities, meaning more interest and more money earned.

Spain's bill is still in committee, casting doubt on its chances for passage this session.

"Consolidation allows for greater investment returns that smaller funds are not able to achieve through current statute," said Fowler.

For instance, some market funds require significant minimum investments, which a smaller pension fund can't access without putting all of its eggs into one basket, said Matt Strom, an actuary with Segal Consulting.

"Maybe the minimum threshold's $100 million. If you have a fund that's got $5 billion, that's just one of your diversified portfolio. Whereas, if you have a fund of $120 million that's going to be your whole portfolio and that wouldn't make sense," he said.

However, police and fire union representatives argue that the negatives outweigh the positives.

Pat Devaney with the Associated Fire Fighters of Illinois pointed to a 2012 study by the Commission on Government Forecasting and Accountability that raised some concerns about consolidation.

"Although the report acknowledged fee savings and increased earnings for funds with asset levels under $10 million due to the current investment levels, it also discovered significant transition costs that would take up to 11 years to recoup in a consolidation model," Devaney said.

Part of that is due to some investments that can't be moved easily from how they operate. Sometimes they're locked in for five years or dish out penalties for moving.

Devaney also said local boards provide a personal touch that's better and more efficient than one large board reviewing all applications.

"Considering applications for disability is a tedious, time-consuming process outlined in statute that involves reviewing numerous medical reports, opinions and doctor depositions and attending numerous hearing dates," he said. "I can assure you the (local) pension fund trustees closely scrutinize each application to ensure participants only receive the benefits they are entitled under the statues."

To improve the system, legislators could remove some of the bureaucratic hurdles to save money, according to Andrew Bodewes of the Fraternal Order of Police. One example he gave was getting rid of a requirement that multiple actuaries need to give a similar analysis of a fund to governments and the pension board.

"There's no reason to pay three of them to do what the division of insurance could do," he said.

Bodewes said other regulations, such as a limitation on what kind of funds they can invest in, could be eliminated if the goal is more efficiency.

"We can get some of those things in place and if that doesn't get us to the lowest cost of retirement for police officers then we can talk about consolidation," he said. "But otherwise we're setting ourselves up for 20 more years of 'oh we tried to fix it but we couldn't."

Contact Maximilian Kwiatkowski: 788-1530, [email protected], twitter.com/MSFKwiat.

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