How legal fight over public safety pension consolidation is costing taxpayers

Illinois taxpayers are bearing the financial brunt of a prolonged legal fight to consolidate nearly 650 public safety pension plans into two large retirement systems for police and firefighters.

The consolidation process - designed to save taxpayers money and reduce municipal pension debt - was mandated by a 2020 state law and targeted for completion by the end of June of this year. But a lawsuit filed by several suburban and downstate police and fire pension boards, as well as individual beneficiaries, in early 2021 delayed that process, mostly on the police side.

Because the lawsuit named the state as a defendant, along with the boards of the two new statewide pension systems, Illinois Attorney General Kwame Raoul's office has been involved with the litigation since the outset.

A Kane County judge recently ruled in favor of consolidation, but the local pension systems that filed suit appealed the decision, so the case is ongoing.

"While we have incurred some legal costs, the attorney general's office has really taken the lead throughout the lawsuit," said Bill Atwood, executive director of the new statewide Firefighters' Pension Investment Fund.

A spokeswoman for Raoul said his office couldn't comment on the case because it is under appeal. A dollar amount spent by Raoul's office for the dozens of hearings and motions required since the lawsuit was filed was not immediately available.

Atwood said the firefighters' pension agency has paid nearly $140,000 to its own lawyers since the suit was filed in February 2021. Those costs are covered by the pension system, which is funded by employee contributions, investment income and municipal tax dollars.

Firefighters began the consolidation despite the lingering lawsuit. Only four of the 292 local firefighter pension plans have yet to transfer funds to the consolidated system; two are plaintiffs in the lawsuit.

But barely 60% of the 357 local police pension funds are consolidated so far, according to Richard White, executive director of the Illinois Police Officers' Pension Investment Fund. Most of the fund transfers took place after the judge's ruling in May.

"The litigation did have a chilling effect on the progress of consolidation," White said.

The new police retirement system also had to hire attorneys to fight the lawsuit, which White estimates has cost that agency in the neighborhood of $48,000 so far.

Most of the plaintiffs in the lawsuit were police pension boards, current or retired police officers, records show. Police pension boards in Arlington Heights, Aurora, Elgin, Elmhurst, Villa Park and Wood Dale were among the plaintiffs, according to court records.

None has transferred funds to the consolidated system yet.

"It's hard to put a number on the cost this delay may have on the fund, but the pension board made that decision independent of the village," said Arlington Heights Village Manager Randy Recklaus. "This is delaying all the benefits we believe we would be getting from consolidation."

Calls for comment to the plaintiffs' attorney were not returned.

In the lawsuit, plaintiffs complained about ceding local control of the fund to the statewide board, but the circuit court judge disagreed that the changes would hurt beneficiaries.

The judge also ruled the new funds would not diminish any benefits or be used for other purposes.

"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," Judge Robert Villa wrote. "Finally, there is no argument or evidence presented that the monies transferred from the local funds to the new funds are being used for different public use."

In fact, the local pension boards will remain intact and still would oversee determination of retirement, injury and death benefits.

Experts argue consolidation ultimately will save employees and taxpayers millions of dollars annually through economy of scale. Administrative costs and investment fees are expected to sharply decline.

"We anticipate a reduction of $34 million a year alone on investment fees," Atwood said. "The bottom line is it's much cheaper to manage a single $7.5 billion portfolio than 296 funds that add up to $7.5 billion."

Experts say the savings ultimately will require less local property tax revenue to fund pensions and reduce pension debt. The longer the local pension systems hold out from consolidating, the longer it will take to reap those benefits.

A hearing is scheduled for next month on the appeal, but a decision could be months away, officials said.