An editorial piece from PoliticsEarly&Often examines municipal pension funds across Cook County:
There are 217 police and fire pension funds scattered throughout suburban Cook County. These taxpayer-supported systems, with combined assets nearing $5 billion, aim to offer reliable retirement incomes to public safety workers and their families. However, a thorough analysis by the Better Government Association (BGA) reveals that many of these local police and fire pension funds are teetering on the brink of financial collapse. This situation not only jeopardizes the retirement security of public safety workers but also poses a significant threat to the fiscal stability of several municipalities.
Experts suggest that rescuing these troubled funds might necessitate tax increases, budget cuts, or a combination of both. Already, some public safety organizations are considering privatizing services or merging with neighboring departments to reduce personnel expenses and mitigate future pension payouts. Regardless of the approach taken, taxpayers should brace themselves for a heavier financial load due to the severe pension shortfall. Overall, the unfunded liabilities for police and fire pension funds in suburban Cook County amount to a staggering $3.3 billion, according to BGA's review of the latest municipal pension data.
A shocking 58—or roughly a quarter—of these systems have less than half the necessary funds, meaning they possess fewer than 50 cents for every dollar owed in long-term benefits. Typically, a minimum of 80% funding is regarded as healthy. A state law passed in 2010 mandates that these pension plans reach 90% funding by 2040.
With such low funding levels, these systems lack the buffer needed to absorb investment losses. They may be forced to sell off assets to cover benefit payments, increasing the likelihood that some systems could deplete their reserves entirely. In such scenarios, taxpayers might end up footing the bill for any shortfall. The legal framework surrounding whether municipalities and pension funds can declare bankruptcy to shed financial obligations remains largely uncharted territory.
This pension crisis compounds existing financial challenges faced by pension funds for state and county employees, as well as the city of Chicago. Each of these entities has been working towards legislative solutions to address their respective shortfalls.
While the combined unfunded liabilities of these larger pensions exceed $100 billion—far surpassing the suburban Cook County shortfall—the predicament of police and fire pensions presents a more immediate and severe fiscal challenge for smaller and mid-sized municipalities. These smaller entities have limited options to increase revenue or cut costs to bridge the pension gap.
Blame for the problems at the municipal level, where discussions about solutions have been scarce, varies depending on who you ask. Some point to chronic underfunding, poor investment returns, overly generous benefits, and even potential instances of inappropriate pension enhancements.
Statewide, there are 660 police and fire retirement systems outside Chicago. State law mandates that towns with 5,000 or more residents and employing at least one full-time police officer or firefighter establish and manage pension systems for these workers. Fire protection districts must also create pension funds if they have at least one full-time firefighter.
In suburban Cook County alone, there are 121 police pension funds, 80 fire pension funds, and 16 separate fire protection district pension funds. Collectively, these systems serve 5,900 annuitants, with another 8,500 police and firefighters potentially eligible for pensions in the future.
The BGA conducted an extensive review of each system's finances by examining documents and reaching out to every pension agency or municipality. Their findings revealed that 204, or 94%, of these systems fall below the 80% funding threshold.
Other key findings include:
- The fire pension funds in Blue Island, Cicero, and Melrose Park have just 32 cents for every dollar owed, the lowest among systems with at least $2 million in assets.
- On the police side, Blue Island, Burnham, Summit, and Willow Springs ranked among the lowest, each possessing less than 30 cents for every dollar owed.
- Until recently, the Stone Park police fund had only seven cents for every dollar owed. The village issued a $2 million bond in April, essentially borrowing to pay its pension debts. Its funding ratio now stands at an estimated 23%, according to the fund's attorney.
- A search of municipal and state records uncovered examples of alleged pension sweetening in Alsip, Blue Island, and the Pleasantview Fire Protection District. For instance, in Alsip, two police officers retired shortly after receiving "longevity bonuses" of over $20,000 each. Over their lifetimes, these bonuses could result in total additional pension payments of $1.8 million, according to a BGA analysis.
- From 2010 to 2013, the total annual required contributions for Harvey's police and fire funds were $10.1 million. State records show, however, that the south suburb paid just $140 during that four-year period.
The Illinois Department of Insurance oversees pension funds statewide, but historically, there was little the agency could do if public safety workers received last-minute pension boosts or municipalities failed to meet their obligations. The department could impose modest civil penalties, but such fines were rarely enforced. In short, there has been minimal oversight up to this point. However, consequences may soon follow.
The state law enacted by legislators in 2010 also allows pension funds to intercept (in increasingly higher amounts) sales taxes, grants, and other revenues owed to towns by the state if the required contributions aren't made. While this measure doesn't take effect until 2016, its impact is already being felt, though not necessarily in ways that rank-and-file police and firefighters might appreciate.
North Riverside is considering privatizing its fire department partly due to concerns that the village might go bankrupt if it couldn't afford its pension obligations and state revenues were intercepted, says North Riverside Village Attorney Burt Odelson.
The BGA discovered that at least three other Cook County suburbs—Chicago Ridge, Forest View, and McCook—are exploring or have already chosen cost-saving alternatives to a municipal-run fire department. Rising pension costs and fears that vital state revenues could be garnished have driven these towns to this decision. Chicago Ridge and Forest View are weighing the advantages of joining a fire protection district or paying a neighboring town to provide emergency services, among other options.
Meanwhile, McCook has decided to shut down its fire department and hire a private company. Starting August 4, employees of New Lenox-based Kurtz Paramedic Service Inc. will handle firefighting and emergency responses, says McCook Mayor Jeff Tobolski, noting that this move is expected to save around $600,000 annually.
This situation highlights the complex interplay between municipal finances, pension obligations, and the broader implications for local governments and their citizens.
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