On one hand, good government groups and business executives are backing the state treasurer’s plan to narrow control of pension investments made on behalf of public employees. On the other hand, pension managers oppose the idea because of its potential cost and market losses.
Treasurer Alexi Giannoulias said the intent is to save money and to address ethical violations exposed during the federal probe surrounding Tony Rezko (see Operation Board Games background). The proposal would need approval from the General Assembly, which has been cool to various “consolidation” proposals after Gov. Rod Blagojevich merged many state agency functions in his first term. But Giannoulias said now is the time, considering the state’s need to free up some cash and to regain the public’s trust.
In a Chicago news conference Monday morning, Giannoulias pitched his “complete overhaul” of the state’s five pension systems for teachers, lawmakers, judges, state workers and university employees. He wants to merge three boards that oversee investments of those five pension systems and replace them with a single new fund, the Illinois Public Employees’ Retirement System. He shortened it to ILPERS.
Giannoulias said the consolidation could cost about $25 million upfront, but it also would save up to $80 million each year. According to his numbers, that includes $12 million saved from reduced administrative functions and up to $70 million saved from fewer fees paid to private investment firms.
The Teachers Retirement System disagrees and pegs the cost of moving assets much higher at “hundreds of millions of dollars.” In a statement, TRS also said a consolidated investment board could make the systems less accountable to members and more vulnerable to influence of elected officials and “investment experts.”
Sen. Bill Brady, a Bloomington Republican who serves as minority spokesman of the Senate Pensions and Investments Committee, doesn’t buy the estimated savings without seeing more details. He added that the state could save money by improving coordination between the five pension systems without consolidating them. However, he said he would have to give Giannoulias’ proposal a fair shake. “We cannot afford not to look at every possible efficiency and savings,” he said.
Sen. Jeff Schoenberg, an Evanston Democrat who has sponsored similar pension reforms last year, questioned whether a single board would erase a system of checks and balances. He explained in his new blog: “I’m skeptical that bigger always means better when it comes to governing public finance. … Folding all the state retirement systems into one board doesn’t necessarily mean more accountability.”
He also questioned whether the creation of a mega-fund would translate into fewer opportunities for investment firms owned by women and minorities. Giannoulias’ spokesman said those concerns would be addressed in the upcoming legislation (it could be filed this month, according to spokesman Scott Burnham).
Schoenberg said he would welcome the chance to continue working on legislation that stalled last year. It would include similar ethics reforms, including prohibiting board members and their family members from working for firms that do business with the state. In other words, he supports most but not all of the plan.
“I would put consolidation in the icebox because it is likely to face difficult sledding in the legislature,” he said on his cell phone Monday.
Laurence Msall, president of the Civic Federation of Chicago, described Giannoulias’ legislation as “loaded with common-sense, realistic change that needs to happen,” including ongoing training and work experience requirements for the 13 new board members. As someone who has led reform efforts to curb Illinois pension debt, Msall spoke to the fears of existing state employees and retirees. During the news conference, he said: “No pensioneer, no retiree, not even existing state employees who are not yet retired, their benefits are not going to be changed as a result of this. That is a part of a challenge going forward for the state of Illinois, but it’s not addressed in this legislation.”
Cindi Canary, director of the Campaign for Political Reform and a force behind the state’s upcoming pay-to-play ban on state contractors, lauded the proposal’s demand for higher ethical standards and stricter disclosure requirements for board members. “This is a critically important first step and a model [of] how we try to do government differently and how we try to do government for the people,” she said during the news conference.
Other supporters include Jay Stewart of the Better Government Association and Ralph Martire of the Center for Tax and Budget Accountability, both based in Chicago. And Blagojevich issued a statement saying the administration supports increasing efficiency and transparency of state government pension systems, "provided that all efforts are made to ensure the diversity among investment managers and protect the interest of annuitants."