What Happened?
Last month, 24 mayors and village presidents asked the Illinois General Assembly to reform public safety pensions that continue to strain city budgets and rack up unfunded liabilities. Mayors in downstate Illinois are expressing concern over how firefighter and police pension plans are drawn up, demanding to play a bigger role in determining the details.
Goal
Illinois municipal pension funds outside of the city of Chicago have generated significant unfunded liabilities since the onset of the economic recession. In 1987, future payment obligations for pension funds in downstate Illinois totaled $300 million for fire and $400 million for police. In the 1990s, many cities were funded at 90 percent or more of the payment obligations. As of 2012, those totals have jumped to $3.5 billion for fire and $4.8 billion for police.
An Illinois law passed in 2011, however, calls for all municipal pension funds to return to a minimum of 90 percent balanced by 2040. Currently, most cities are reporting both police and fire pension systems funded closer to 50 percent.
Mayors and village presidents have struggled to balance budgets while living up to pension agreements with police and fire. Many city leaders argue certain perks given to police and firefighters in their pension benefits are creating significant costs that the cities cannot accommodate. Controversial perks include:
- 3 percent compounded cost of living increases placed on police and firefighter pensions
- Police and fire employees who have dedicated more than 20 years of service are subject to a different formula that increases pension benefits upon retirement
- Survivor benefits: surviving spouses receive 100 percent of the retiree’s pension if they pass away
Unfortunately, local government has limited control over public safety pension benefit payouts. The state of Illinois controls benefits with mandates. Local governments are then tasked with developing strategies to keep the systems funded.
To solve the unfunded liabilities problem, downstate mayors are calling for a lower cost of living adjustment and increasing the retirement age for police and firefighters. Chicago funds are in worse shape than downstate municipalities’ and city leaders are developing legislation to reform the public safety system. Downstate mayors would like to be involved in that process. If the aforementioned perks are not dealt with, many city managers anticipate having to increase taxes and/or make significant cuts to meet the pension obligations.
Florida Reform Success
Largo commissioners have spent the last two years negotiating with local police and firefighter unions on changes to the public safety pension system benefits. Largo was able to talk police and fire union leaders into reducing their benefits and contributing more toward the pension plan. Without these changes, Largo would not be able to pay out benefits to public safety retirees in the future.
Under the changes, new employees will have to work 25 years before they are eligible for their pension, up from 23 years. When an employee reaches 55 or 62 years old, they will be eligible to retire with 10 years of service guaranteed. Future retirees will have their salaries from the last five years averaged and then multiplied by 2.75 instead of 3.25 as it is done currently.
Pension Problems Everywhere
Gov1 has stayed abreast of pension concerns sweeping the nation, as well as the unique solutions being proposed by municipal leaders to cut down on unfunded liabilities.