SPRINGFIELD – A bill to consolidate 649 suburban and downstate police and firefighter pension funds into just two cleared the Illinois House Wednesday after negotiators agreed to remove language that just a day earlier had prompted local government officials to withdraw their support.

At issue were four words in a 216-page bill that the Illinois Municipal League said would have stripped cities, counties and other municipal governments of the ability to intervene in, or even review, administrative proceedings that determine whether a particular individual would be eligible for retirement, disability or death benefits provided under those plans.

Under amendments the House made to Senate Bill 1300, the investment assets of those 649 pension plans will be combined into two large funds – one for law enforcement officers and one for firefighters – but only for investment purposes. The individual plans will continue to operate their own administrative boards to make local determinations.

By combining the funds into larger pools, however, supporters say the funds will generate greater earnings – estimated at $850 million to $2.5 billion over five years – reducing the need for local governments to raise property taxes to keep the funds solvent. It is also expected to save those pension plans millions of dollars each year in investment management fees, legal fees and other administrative costs.

The 649 funds have combined assets of an estimated $14.3 billion, according to a report from the task force that Gov. J.B. Pritzker formed in February to study the feasibility of consolidation. But they also have combined unfunded liabilities of $11.5 billion.

Those plans cover police and firefighters in all municipalities with populations of more than 5,000, except the city of Chicago.

One of the difficulties many of those funds have is that they are so small, a large portion of their assets must be kept in investments to be quickly converted to cash – money market funds, government securities and certificates of deposit, for example – and generate little, if any, earnings.

According to the task force report, from 2004 through 2013, the suburban and downstate pension plans reported combined average annual returns of just 5.61 percent. That compared to 7.62 percent for the Illinois Municipal Retirement Fund, and 6.73 percent for the Illinois State Board of Investments, which manages investments for a number of Illinois’ statewide retirement funds.

The bill also contains provisions enhancing benefits of a group known as Tier 2 employees. Those are employees hired after Jan. 1, 2011, when a new system was implemented that raised the minimum retirement age, required at least 10 years of service before an employee was fully vested, and provided for substantially smaller benefits than those for Tier 1 employees.

The bill passed out of the House by a vote of 96-14, with three members voting “present.” It now goes to the Senate, which needs to take only a single vote to concur with the House changes before sending it to Gov. Pritzker.

After the vote, Pritzker hailed the House’s action as a “huge bipartisan step” toward easing property tax burdens in downstate and suburban communities.

“Consolidating these small funds means that they could improve their investment returns by as much as $2.5 billion over the next five years,” Pritzker said. “While this effort has been more than a half century the making, today’s progress would not have been possible without Rep. Jay Hoffman’s guidance in the House, and I look forward to the Senate moving forward on a measure that has earned the support of local municipalities, firefighters and police officers.”

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