Retiree bonuses cost taxpayers millions
Every July, thousands of Illinois Municipal Retirement Fund pensioners find a little something extra in their mailboxes in addition to their monthly pension checks.
In 2013, those little somethings added up to a big bill for taxpayers -- $41,054,552.
It's called the "13th Payment," and it's essentially a bonus paid to retirees for simply living another year and outliving other retirees.
The average bonus for the 119,539 IMRF beneficiaries in 2013 amounted to a little more than $343, but it reached as high as $7,659 for former Illinois Association of Park Districts President Ted Flickinger. Last year, there were 8,985 other beneficiaries who received bonus payments of $1,000 or more, according to a Daily Herald analysis of 10 years' worth of IMRF data received through an open records request.
Former Naperville City Councilman Richard Furstenau was confused when he first got his $82.67 bonus check.
"I have never heard of anything like it," he said. "I made some calls and most of the legislators I spoke with knew nothing about it. It's absurd and should be stopped tomorrow."
Furstenau recently received paperwork outlining how much he can expect from the bonus pool this year. His share is likely to go down as more beneficiaries begin to collect pensions each year.
The bonuses are funded by charging the nearly 3,000 government agencies throughout the state with IMRF-eligible employees 0.62 percent of those employees' annual salaries. That money is pooled together in a special bonus fund and paid out every July to the retirement system's beneficiaries, IMRF officials said.
The bonus amount each beneficiary receives is based on the amount of his or her June pension and its relation to the total amount of pensions paid that month. So, if a beneficiary's June pension was 1 percent of all the pensions paid by IMRF that month, that person would receive 1 percent of the bonus pool.
In reality, no IMRF beneficiary has a pension that valuable. Flickinger's $233,000 annual pension is only 0.02 percent of all IMRF pensions, and his is the highest amount in the system.
"Retiring from a career in the public sector shouldn't mean you get to win a little lottery jackpot every year," said Madeleine Doubek, chief operating officer of Chicago-based Reboot Illinois, a voter-advocacy digital media group. "More than a few people are going to think any type of taxpayer-funded bonus for someone no longer working that is above and beyond their monthly pension is ridiculous."
Critics also argue that annual contributions by government agencies to the bonus pool aren't equitable to a taxpayer's obligations.
For instance, McHenry County paid $396,750 toward the bonus pool in 2013, but the county's former employees collected only $285,364 in bonuses. That amounts to $111,386 of McHenry County taxes going to fund bonuses for employees who never worked for the county.
Meanwhile, former DuPage County employees received a combined $1,308,231 in bonuses in 2013, but county taxpayers there covered only $970,856. That means $337,375 in bonuses came from taxpayers outside that county.
"We need to take a look at this," said DuPage County Board Chairman Dan Cronin. "This is a concern to me and it doesn't seem fair on its face."
Several suburban school districts are also heavy contributors to the bonus fund. Elgin Area District U-46 taxpayers spent $349,082 last year and its former employees received only $294,709.
"I don't want to penalize our retirees who have given service to the district and taught and cared for our children, but my main concern has to be the children in the classroom," said U-46 school board member Traci O'Neal Ellis. "There's so much more that $350,000 could be doing."
The IMRF bonus program was a mystery to even some of the state's most well-versed pension experts.
State Rep. Elaine Nekritz has been immersed in the pension reform debate for the better part of the last two years. The Northbrook Democrat said IMRF was not much of a concern to legislators when reform measures were being bandied about because the system doesn't rely on state funding and state law mandates that it receive proper funding amounts. The other statewide retirement systems don't have that protection. However, Nekritz said the issue deserves a closer look.
"Can we take a look at it and see if it's something we can impact? Yes," she said. "But IMRF is a well-funded system and I don't hear a lot of complaints from municipalities about the cost of IMRF."
Critics argue there's no motive for anyone in these governments to question the practice because they'll eventually benefit from it.
"This is the proverbial fox watching the hen house," Doubek said. "No one who's benefiting from these bonuses has an incentive to tell anyone about it. Until the economy crashed, I don't think many people were paying attention to any of this pension stuff and we're all having our eyes opened."
Insiders are among those benefiting the most. That includes former IMRF Chief Investment Officer Walter Koziol, who received the 23rd-highest bonus last year of $4,570. And if municipalities wanted the legislature to enact changes, they'd likely push for it through their lobbying arm, the Illinois Municipal League. Kenneth Alderson, the former head of IML, received the second-highest bonus in 2013 at $6,024. Both agencies are funded in large part through tax dollars.
"It's indefensible," said state Rep. Jack Franks, a Marengo Democrat. "It's a backdoor (cost-of-living increase), which the citizens are paying for through their property taxes."
That was the exact intent of the program, IMRF officials said.
The bonus program came about as part of a compromise in the early 1990s among labor unions and IMRF employers when statewide retirement systems for teachers, state workers and other public employees started compounding cost-of-living adjustments for their retirees, which dramatically increased annual payouts. Meanwhile, IMRF retirees simply had 3 percent of their original pensions added to their payouts every year.
"Compounding the COLAs was the cause," said Louis Kosiba, IMRF's current executive director. "Once one pension system got it, the interested parties would push for an expansion of that concept to other groups. The fact of the matter is interest groups have been continuously tweaking the system to enhance benefits."
But when the legislature passed pension reforms last year that eliminated compounded COLAs for the statewide systems, how did IMRF's bonus program miss scrutiny?
"The legislature didn't ask for any input from any of the systems," Kosiba said. "The point is they never went to anybody asking what they should do. They just did this unilaterally, and yes, they didn't think about this. There's no doubt in my mind."
Since the pension reforms passed by the legislature last year are now being challenged in court, critics say a law addressing the IMRF bonuses could easily be added to the mix. Opponents of the pension reform measures argue the changes would violate the state's Constitution.
"I don't think anyone expected we'd be giving bonuses out to people who are no longer working," Doubek said. "It's my hope that a lot of taxpayers would agree that changes to the Constitution ought to be allowed when things like this are discovered and don't pass the smell test."