Appointment of DOI Security Administrator: . 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. 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. . 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. Nathan Woodside/Lewis & Clark Community College. In Illinois, there is a rich body of law concerning interference with pension rights and benefits. Police Officers' Pension Investment Fund. 10 N. Dearborn St., Suite 800, Chicago, Illinois 60602 Lawmakers justified the changes by pointing to potential violations of a provision of federal law known as safe harbor. The Internal Revenue Code requires state and local government employees to either receive Social Security or be part of a retirement system that is at least as generous. This site is protected by reCAPTCHA and the Google Privacy Policy About a month ago, Gov. 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. 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 the legislation is upheld, the police funds are expected to move forward with the transfer process during the appeal. The quotation referencing $15 million plus interest is misleading, at best.. Municipalities have until July 1 to transfer all assets from their locally managed pension funds . 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. Click here to read the full issue brief. It is supposed to cut administrative costs and raise investment returns but rating agencies consider it a positive credit step because municipal budgets are strained by rising payment demands that have forced some to raise taxes, cut services, issue pension obligation bonds, and sell off assets. Public Safety Pension Infographic. On appeal, the plaintiffs argued Judge Villa erred by finding the amendment didnt violate the state constitutions pension protection clause. The Newsletter Bringing the Legal System to Light. Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. In general, the main Tier 2 benefit changes were an increase in the retirement age to qualify for full benefits and a reduction in annual automatic benefit increases. While Pritzker said the measure would cut costs and improve returns for recipients, three dozen current employees and retirees, along with 18 local retirement plans, filed the lawsuit in February. 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. Its a simple ruling: you cant do anything which has the effect of reducing existing or future benefits (and the guarantee of a future Cost of Living Adjustment is included in such promises) so long as this phrase exists in the Illinois constitution. White Paper from the Pension Fairness for Illinois Communities Coalition Consolidation: The Benefits to IL Taxpayers. Earlier this week, I griped that an Illinois State Senator, Heather Steans, had claimed that the state had solved its pension problem except for the pesky issue of legacy costs. . The plaintiffs dropped their motion to certify class status. Kane County Circuit Court Judge Robert Villa granted summary judgement to the state, prompting an appeal to the Illinois Second District Appellate Court. Phone: 312-201-9066 | Email: [emailprotected] 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. Illinois Supreme Court Justices all stand before, swearing in ceremonies for Justice Lloyd Karmeier as the chief justice of the Illinois Supreme Court Monday, Oct. 31, 2016, in Springfield, Ill. (AP Photo/Seth Perlman), Chicago Mayor Lori Lightfoots vaguely worded statements, Illinois 1970 constitution is one of only in two in the nation, overturned the legislation in a 2015 decision. These pensions are primarily funded through the statessecond-highestin the nation property taxes, diverting taxpayer dollars from improving cities core services. Any increase in actual returns will be partly due to the consolidated funds ability to invest in riskier investments. 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. . story An Illinois Circuit Court judge has denied a lawsuit that sought to stop the consolidation of the states 650 firefighter and police officer pension funds, rejecting the plaintiffs claims that a law enacting the move violated the states constitution. Chicago Office | Illinois Policy Since Tier 2 applies to nearly all pension funds across the State, there could be a move to simply apply the same changes to all funds statewide, also without first determining whether the changes are the minimum necessary so as not to impose additional fiscal hardship on already struggling governments. Consolidation: Attorney Mancini . 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. Heres the key text: The pension protection clause clearly states: [m]embership in any pension or retirement system of the State *** shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired. (Emphasis added [in the decision text].) A History of Pension Enactments. Court Rejects Legal Challenge to Illinois Pension Consolidation, Ray Dalio Is Now Ranking Economies by Their Strengths and Weaknesses, Pension Risk Transfers: What to Watch Out For, Kentucky Retirement System Trustees Say It Is Not Subject to State's Anti-ESG Law, Sequoia Capital, Thoma Bravo, Paradigm Sued for Touting FTX, Ohio STRS Loses 9.52% in 2022, Board Rejects Neville Vote of Confidence. State law restricts the securities that the existing police and fire funds are allowed to hold. Final average salary: Senate Bill 616 restores the higher Tier 1 level based on the average of the highest four of the last five years, instead of the average of the highest eight of the last ten years. 300 S. Riverside Plaza | 1650 | Chicago, IL 60606 . of the board members. The governing board is comprised of Mayors and Village Presidents. . 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. 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. Villa set May 20 as the next hearing date and said he would have a written ruling ready by that date. Illinois Federation of Teachers, AFT, AFL-CIO vs. Lindberg, 60 Ill.2d 266 (1975) 3 Felt vs. Board of Trustees, 107 Ill.2d 158 (1985) 5 Schroeder vs. Morton Grove Police Pension Board, 219 Ill. App.3d 697 (1991) 7 McNamee vs. State of Illinois, 173 Ill.2d 433 (1996) 9 The People ex rel. 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. That could be a boost for communities being squeezed by pension costs. According to a legal analysis commissioned by the Illinois Municipal League, Tier 2 does not satisfy the safe harbor rules because the pensionable salary cap has not increased as fast as the Social Security wage base. ; Justices Susan Hutchinson and Ann Jorgensen concurred. B. Pritzker, who signed the bill into law. However, in February 2021 18 police and firefighter pension funds, including active and retired members, filed a complaint against Illinois Governor J. By: Matthew J. Schueler. comeback 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 . 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. J.B. Pritzker won legislative approval in November 2019to require the more than 600 local government police and firefighter funds with the exception of Chicago to transfer their assets to a single consolidated police fund and a single fire fund by July 1. As a refresher, Illinois' 1970 constitution is one of only in two in the nation which explicitly guarantee that state and local employees have a right to pension benefits based on the formula. The lawsuit alleged that the consolidation violates two provisions of the Illinois Constitution: the pension protection clause and the takings clause. The league stated it is confident it will beat the legal challenge. Copyright 2023 Ottosen Britz Kelly Cooper Gilbert & DiNolfo, Ltd. 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. a group of Police Fund last year Arguing mandated consolidation, the lawsuit to block . The analysis must consider the pension multiplier as well as the growth in the pensionable salary cap. The initial legislation, which affected most public pension funds in the State, was introduced on March 24, 2010 and passed the same day. The police and fire funds satisfy this test because of the relatively high multiplier of 2.5% that is applied to final average salary to determine the pension benefit. A recent report commissioned by the Illinois Public Pension Fund Association, which opposes consolidation, underscores that point. When Gov. The legislation also incorporates another task force recommendation that has attracted far less attention: a proposal to enhance benefits paid to police and fire pension fund members hired after 2010. Mayor Lori Lightfoot says she will run for second term. 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. 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. 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. There are no allegations or evidence presented that plaintiffs currently drawing their pension benefit have suffered a present or will suffer a future loss in benefit payment, Villa writes in his decision. Nearly $10 billion of assets are managed by local police funds that eventually would be transferred if the consolidation is upheld. Police and fire pension costs for DeKalb, Illinois, use up about 20% of general fund revenue, up from 10% in 2014, city manager Bill Nicklas said in an interview. 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 enhancements to Tier 2 benefits for employees hired after 2011 were part of a bill to consolidate the states roughly 650 public safety pension funds into just two funds, one each for police and fire. 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. Meanwhile, the asset consolidation process is proceeding. "We also have transfers scheduled for June 1 and June 24. Over time, the reduced benefits are expected to slow the growth in unfunded liabilities as new employees are hired and fewer members remain in the old benefit tier. Tier 2 workers receive annual benefit increases upon retirement of 3% or one-half of the rise in the Consumer Price Index (CPI), whichever is less, on a simple-interest basis. Link: https://www.ai-cio.com/news/court-rejects-legal-challenge-to-illinois-pension-consolidation/. What the grassroots Illinoisians think about it is another question. We are already showing savings and increased earning ability, proving the benefit that was predicted and is needed by this consolidation, said league Executive Director Brian Cole. Justice Robert McLaren wrote the panels opinion, issued Feb. 7; Justices Susan Hutchinson and Ann Jorgensen concurred. 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. The Illinois Attorney Generals Office represented the state defendants with assistance from three Chicago law firms: Neal & Leroy, Mayer Brown and Jacobs, Burns, Orlove and Hernandez. Copyright 2022 The Civic Federation 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.. J.B Pritzker is expected to sign the legislation. A legal memo from the Illinois Municipal League had pointed to the pensionable salary cap as a particular area of concern for potential safe harbor violations, because the current salary cap of roughly $115,000 is less than the Social Security wage base of $132,900. Patrick Andriesen, Illinois Policy Institute, Woman sues Granite City QuickTrip over parking lot slip, fall, Madison County civil docket Feb. 27-Mar. Rock Island Alderman Mark Poulos, Ward 6, has been appointed as a temporary trustee to the Illinois Police Officers' Pension Investment Fund by Gov. The task force also noted that these estimated costs are minor compared to increases in investment returns projected to be earned by the consolidated funds compared with the 649 existing police and fire funds. manager" with respect to a pension fund or retirement system established under this Code if the person: (1) is a fiduciary appointed by the board of trustees of the pension fund or retirement system in accordance with Section 1-109.1; (2) has the power to manage, acquire, or dispose of any asset of the retirement system or pension fund; The consolidation of downstate police and fire pension fund investment assets continues in earnest. Terms & Conditions | Privacy Policy 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 General Assembly created Tier 2 in 2010 to reduce the State's overwhelming pension obligations by significantly lowering benefits for new workers. The amendment doesnt mandate those loans, nor is there evidence it reduces available funding to pay promised benefits. Illinois has nations worst pension debt. Consolidation of downstate police and fire pension funds made sense by itself, the Illinois Policy Institute previously stated. This plan falls far short of eliminating even the $11 billion of debt held by these plans. The creation of two new consolidated pension funds in Illinois is providing plan executives with a rare opportunity to build defined benefit plan investment programs from scratch. 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. 993 AND H.R. Unions and other Tier 2 critics are also concerned about the relatively low benefits provided to new employees. 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 are seeking to certify the lawsuit as a class action. Will be used in accordance with our terms of service & privacy policy. The Illinois Supreme Court found that the plaintiff had a substantive and vested right to apply for military service credit because there was no limit on applying for such credit when he joined the pension fund. Consolidating scores of local firefighter and police pension funds could save Illinois taxpayers between $820 million and $2.5 billion in the next five years, according to a report published Thursday by a state task force that's been studying the issue since January. The state's pension consolidation task force reported doing so could earn the funds an extra $2.5 billion altogether over the next five years. A court ruling as soon as December will determine the fate of a 2019 law Gov. 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. 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