On pensions, bigger is better, says J.B.

Task force sees efficiency, greater returns in combining 649 pension funds into two for police and firefighters

Gov. Pritzker says pension funds will gain billions by consolidating 649 funds statewide into just two for police and firefighters. (One Illinois/Ted Cox)

By Ted Cox

CHICAGO — Trust a billionaire to know that bigger is better when it comes to money making money.

Gov. J.B. Pritzker cheered the findings of his Pension Consolidation Feasibility Task Force Thursday in suggesting that 649 separate pension funds for Illinois police officers and firefighters be combined into just two to gain bureaucratic efficiency and a greater return on investment.

“The current system of investing 649 small funds is failing, and taxpayers are paying a high price,” Pritzker said in a news conference in the Blue Room of the Thompson Center in downtown Chicago.

Pritzker pointed out that 649 pension funds for cops and firefighters in separate jurisdictions across the state “means 649 portfolio-management systems, 649 sets of management fees, and duplicative administrative costs.”

In addition, it’s well known that bigger investment funds typically return bigger gains over time. Pritzker cited the report’s findings that, compared to the massive Illinois Municipal Retirement Fund, the funds were squandering 2 percent of the projected returns a year. Over a combined total of almost $15 billion, he said, that adds up to losses of $1 million a day — a missed opportunity in which taxpayers are expected to make up the gap.

“It’s the taxpayers who are forced to pick up the tab,” Pritzker said.

“If we don’t do this, taxpayers will be asked to pay more.”

Former Illinois Senate Minority Leader Christine Radogno (One Illinois/Ted Cox)

Pritzker said that combining the funds would gain at least $820 million and as much as $2.5 billion over the next five years and “billions more over the net 20 years.”

Lt. Gov. Juliana Stratton said it “puts the needs of retirees and taxpayers first.” She called it “the first step in redesigning a new future for our retirees, our taxpayers, and our state.”

Pritzker too granted that it was just the first measure to address the state’s overall pension obligation — recently estimated at $133 billion and rising — but he called it “a dramatic step forward” in addressing “a problem that is bedeviling our cities and our taxpayers all across Illinois,” namely “unfunded pension liabilities for local governments and the surging property-tax burdens that they create.”

“The status quo is both unacceptable and unsustainable,” said former Chicago Board Options Exchange Chairman Bill Brodsky, one of three co-chairs on the bipartisan task force appointed in the first days of Pritzker’s administration earlier this year.

“If we don’t do this, taxpayers will be asked to pay more,” said former Illinois Senate Minority Leader Christine Radogno, chairwoman on the task force. Associated Fire Fighters of Illinois President Pat Devaney was the other chairman and expressed his support for the proposal, which Pritzker said would be prepared with legislation he hoped to pass during the General Assembly’s fall veto session.

Without minimizing the overall pension problem, Pritzker said, “These are the things we were able to get done immediately.”

Pritzker warned that money managers, portfolio managers, and various levels of bureaucrats would no doubt resist, saying, “Entrenched financial interests that profit off of the current system will attempt to derail this process.” But he said the potential gains to the pension funds were too big to be missed.

“It will help improve the futures of the retired workers who rely upon them,” he said, “and it will alleviate part of the property-tax burden that’s plaguing homeowners and renters all across the state.”