Former Highland Park Mayor: 'State Needs to Consolidate Local Police and Fire Pension Funds'

Most local governments in Illinois maintain separate police and fire pension funds. This is costly to taxpayers and has typically led to lower levels of funding. Conversely, most municipal employees (non-public safety) are in the Illinois Municipal Retirement Fund (IMRF). The IMRF is a multiple employer agent plan, serving 3000 governments, with 410,000 active and retired employees. Each municipality has a separate account managed by the plan including investments and administration of benefits. The latter refers to the administrative processes required for monitoring the funds and paying out benefits to retirees.

Because of economies of scale the cost of administration is lower in a multiple employer plan than that of a single employer plan. There are also benefits to size when purchasing investments in that demand created by a $36 billion dollar portfolio versus one that is $10 to even $100 million has more influence over the returns it can command from the market.

Most importantly is the fact that multiple employer agent plans require a contractual payment from the member municipalities. That payment when aggregated with other members is what is actuarially required to pay benefits and put aside resources for future retirees. It enforces discipline over each member municipality to fund its pensions. Conversely, a municipality has the flexibility to defer contributions to an individual plan. This flexibility has led many funds to be underfunded to the tune of 50% or lower. The IMRF is currently funded at 88%.

The state should create and mandate participation in a multiple employer agent pool for police and fire. Short of that they should take a page from other states and require participation if funding levels are 50% or below. This will provide relief to taxpayers and make sure that current and future retirees receive their benefits when due.

Michael D. Belsky
Mayor of Highland Park (2003-2011)
Senior Fellow
Executive Director
Center for Municipal Finance
University of Chicago
Harris School of Public Policy