Oak Park officials hope state pension consolidation leads to greater investment returns, local tax relief

Jan. 14--With Illinois planning to consolidate local fire and police pension funds into two statewide pools, local officials are hoping for greater investment returns and possible property tax relief for residents.

The new funds, signed into law by Gov. J.B. Pritzker on Dec. 18, will consolidate about 650 public safety pension funds. The municipalities impacted include most towns outside of Chicago. The bill does not address pensions for state workers or teachers.

The significantly larger fund should increase investment returns by allowing access to a wider range of investment options, officials said. It should also help alleviate residents' property tax hikes, which otherwise pay for the pension funds' rising costs.

"That was the hope of the state legislature in doing this," Oak Park Village Manager Cara Pavlicek said. "The Illinois Municipal League was a strong supporter of this. We're still going to be required to levy on property taxes for the pension obligations of our firefighters and police. I think in the coming years, this will ultimately be a positive. If the rate of return increases and administration costs decrease, every dollar helps."

Within that larger state fund, Pavlicek said the village will continue to have its own Oak Park police and fire accounts to keep track of its local obligations.

According to Oak Park finance director Steve Drazner, the village's police pension fund is funded at a 52.4 percent level, while its fire pension fund sits at 39.6 percent. In total, both funds have about $149 million in them.

"We expect both of those numbers to increase," Drazner said. "In 2018, we had a bad December [for investments]. This year, we had a pretty good year with the stock market, so I would expect everything to increase."

Drazner said the larger pot of money at the state level should be a benefit to all municipalities who are contributing.

"We're talking about billions instead of just millions," Drazner said. "We can assume the rate of return is going to go up."

A state task force earlier this year issued a report concluding that "each day the funds remain separate, they collectively forfeit $1 million in potential investment returns."

The report estimates the larger pension funds could collect additional investment returns of $820 million to $2.5 billion.

Pavlicek said the village expects to transition its funds to the new state-run organization by either the 2022 or 2023 fiscal year.

"In our 2021 budget, we think things will continue as we've done them in the past," Pavlicek said. "Usually, the state agency in charge will issue rules and regulations and they will give us all kinds of deadlines. This is going to be a huge transfer of funds with a lot of paperwork for people to be moving these quantities of money."

With the state taking over the pension funds, Pavlicek said Oak Park will continue to have local police and fire boards to handle certain items, such as disabilities and injury cases. She also said current retirees who receive a pension should see minimal changes.

"I think the state did an excellent job to make sure everybody who is currently in a pension is protected," Pavlicek said.

Pavlicek said the change does not affect the state mandate for municipalities to reach a 90 percent pension funding level by 2040, adding Oak Park has been targeting a 100 percent funding levy by that time.

Local municipalities have until July 1, 2022 to transfer assets to the new statewide funds.

Pioneer Press reporter Genevieve Bookwalter contributed to this story.

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