Tag: Illinois

First Ruling on Illinois Pension Reform Law Expected Friday

Illinois capitol

Sangamon County Judge John Belz spent Thursday hearing arguments for and against Illinois’ major pension overhaul.

On Friday, he is expected to release his ruling on the law. If he declares it unconstitutional, the debate could move to the halls of the Supreme Court sooner than later.

More from the Chicago Tribune:

[Judge Belz] could move to hold hearings in the case, or he could declare the measure unconstitutional, which would likely send the matter directly to the state Supreme Court.

Even then, it could take several more months before the justices make a final decision, meaning Rauner may not get the clarity he’s seeking in time to drive cost-saving pension changes during the spring legislative session.

Belz held a hearing Thursday, and Illinois Attorney General Lisa Madigan’s office argued the pensions could be modified in times of emergency — such as the financial straits caused by the state’s worst-funded pension system in the nation.

A battery of attorneys for state employees and retirees argued strenuously the law should be tossed out because it is unconstitutional — a move that would put it on a likely path to the Illinois Supreme Court.

In July, the high court threw out a different law that cut health-care benefits that had been guaranteed to retirees, saying lawmakers had overstepped what they were allowed to do. That decision alone buoyed the hopes of state pensioners — as well as the city of Chicago retirees who don’t want their own pensions plans reduced.

Friday’s ruling is key because it is the first step toward determining whether officials can scale back public pensions in any way once they are set.

Unions believe the law represents an unconstitutional breach in contract. From the Chicago Tribune:

Unions representing government workers are asking Judge John Belz to declare unconstitutional a law approved nearly a year ago that aims to rein in costs of a retirement system reeling from more than $100 billion in debt.

At the heart of the pension issue is a clause in the Illinois Constitution that says membership in any state pension system is an “enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Employee unions argued that the pension law, which curbs annual cost-of-living pension increases for current retirees and delays the age for retirement for many current public workers, clearly violated those protections.

Illinois governor-elect Bruce Rauner believes the law will be overturned by the Supreme Court. Rauner has said in the past that the law doesn’t go far enough to reduce pension liabilities.

Illinois House Passes Bill That Would Take Pensions Away From Convicted Public Officials

Illinois capitol

The Illinois House passed a measure today that aims to prevent full pension benefits from being paid to public officials who have been convicted of felonies related to their public service.

It passed the House by an overwhelming 99-14 count.

More from the Chicago Tribune:

The Illinois House voted Wednesday to give the attorney general the ability to go to court to stop future cases in which a pension is being paid to a convicted public official even if a retirement board had approved payments.

The bill is inspired by disgraced former Chicago police Cmdr. Jon Burge, who did not lose his $4,000-a-month pension despite costing the city tens of millions in legal costs because of police torture and abuse in the 1970s and 1980s. This measure would not affect Burge’s pension.

[…]

After his conviction, the police pension board deadlocked 4-4 on a motion to strip Burge of his pension. The key issue before the board was if Burge’s conviction was related to his police work. Four of the current or former Chicago police officers elected to the pension board by their fellow officers supported Burge, while four civilian trustees appointed by then-Mayor Richard Daley voted in opposition.

Attorney General Lisa Madigan filed suit to challenge the decision, but the Illinois Supreme Court ruled she did not have the standing to take up the matter.

The bill now heads to the Senate.

Illinois Universities Pension Hires Search Firm to Find New Executive Director

NOW HIRINGWilliam Mabe, executive director of the State University Retirement System of Illinois (SURS), announced in September that he would be retiring on March 31.

SURS has now hired an executive search firm, the Hollins Group, to find his replacement before Mabe’s retirement date.

From the Associated Press:

The State Universities Retirement System has hired a search firm to help it find a new director.

The executive committee of the SURS board of trustees voted this month to hire The Hollins Group of Chicago.

Executive Director William Mabe (MAYB’) plans to retire in March.

Derrick Buckingham will serve as lead consultant. He is senior vice president and managing director for The Hollins Group.

In a September interview with the Chicago Sun-Times, Mabe talked about the reasons behind his retirement:

Mabe, 67, said in an interview…that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

SURS has 227,000 members.

 

Photo by Nathan Stephens via Flickr CC License

Chart: Illinois Pension Debt Has Nearly Doubled Since 2009

Illinois unfunded pension liabilities

Yesterday we brought you the numbers on Chicago’s per-capita pension debt, which ranks as the highest among the country’s 25 largest cities.

Today, we zoom out to look at Illinois’ unfunded pension liabilities, which have ballooned to $111 billion this year and nearly doubled since 2009.

Below, you can find a breakdown of where the liabilities are coming from, by system:

illinois systems

Chart credit: Illinois Policy

Illinois Teachers’ Pension Official Praises Asian Private Equity

globe

Speaking at the AVCJ Private Equity & Venture Forum last week, Illinois Teachers Retirement System investment officer Kenyatta Matheny expressed his bullishness on Asian private equity. Recapped by Asian Investor:

Matheny is very positive on the region. “If you’re building a global private equity portfolio, you would be remiss to not earnestly look to having an allocation to Asia and, quite frankly, with China as the anchor,” he said.     

The Illinois fund last month struck a partnership with Asia Alternatives, one of the biggest Asia-focused PE fund-of-funds managers with $3 billion in AUM. At the end of October it approved a $200 million commitment to the manager. This followed a period of 18 months to two years spent developing the relationship, Matheny noted.

Illinois Teachers had spent two or three years visiting the region to understand the landscape in the mid-2000s and subsequently made direct investments in PE funds and sought a local investment partner. It now has $5 billion of assets invested in private equity and another $3 billion of unfunded commitments, amounting to an $8 billion portfolio overseen by Matheny.

He was effusive about the benefits of the relationship with Asia Alternatives. “We think alike, we’re looking at the same managers, underwriting from the same perspective, but now you’ve got this piece that we don’t have: you can access small managers, you’ve helped fund a few start-ups” he said.

Matheny also spoke about an increased number of partnerships between U.S. and Asian private equity firms. From Asian Investor:

Kenyatta Matheny, who co-runs the PE portion of Illinois Teachers, has seen more cross-border partnering taking place between PE firms in Asia and the US, in both directions.

“This has been more recent, within the past 12 months, where there may be an Asia-specific PE fund with an asset that can continue to scale, but they’re looking to exit.” One route for them has been for an international PE firm taking on the asset and expanding it beyond China to other markets, such as Southeast Asia.

Matheny has also seen such deals originating outside Asia. “With an asset that has 5-10% exposure to China, we can pick up the phone and call counterparts in Asia. We’ve scaled the asset via acquisitions at home.”

The conference also featured a panel discussion on “Why Asia Still Matters for Private Equity.” The audio of the panel can be heard here.

 

Photo Credit: “Asia Globe NASA”. Licensed under Public domain via Wikimedia Commons

Firms Managing Illinois Pension Money May Have Skirted Pay-to-Play Rules By Donating To Rauner Campaign

Bruce Rauner

Over the course of his campaign, Illinois governor-elect Bruce Rauner accepted contributions from executives from firms that manage portions of the state’s pension money, according to a new report from David Sirota.

Those contributions may violate SEC pay-to-play rules, under which investment firms can’t make donations to politicians that have any influence—direct or indirect—over the hiring of firms to handle pension investments.

As Illinois governor, Rauner will have that influence – the governor has the power to appoint trustees to the state’s pension boards.

More from David Sirota on the donations:

During his gubernatorial campaign, Rauner raised millions of dollars from executives in the financial sector — and, despite the pay-to-play rule, some of the money came from executives at firms affiliated with funds that receive state pension investments. That includes:

– $1,000 from Mesirow Financial senior managing director Mark Kmety and $2,000 from Mesirow Financial managing director David Wanger. ISBI’s 2013 annual report lists Mesirow Financial as a hedge fund-of-fund manager for the pension system, and lists $271 million in holdings in Mesirow investment vehicles. In an emailed statement, a Mesirow spokeswoman told IBTimes that a separate branch of Mesirow works with the Illinois pension system and that therefore “we do not believe these contributions violate the pay to play laws.” Neither Rauner donor from Mesirow Financial “has any relationship with and/or receives any compensation from any state entity, nor do they pursue state business,” she wrote.

– $2,500 from Sofinnova general partner James Healy. TRS lists Sofinnova as a private equity manager. The system’s 2013 annual report says the firm manages $8.1 million of state pension money, and was paid more than $900,000 in fees that year. In June, TRS committed to invest another $50 million of state pension cash in Sofinnova. Healy did not respond to IBTimes’ interview request.

– $5,000 from Northern Trust’s Senior Vice President Brayton Alley. Illinois TRS lists Northern Trust Investments as an equity manager. The system’s 2013 annual report says Northern Trust manages $2.3 billion of state money, and made $548,000 in fees from the system that year. A spokesman for the firm told IBTimes, “We are aware of the obligations under various Illinois and federal laws and regulations” and “we are unaware of any violation to such requirements.”

– $9,600 from employees of the real estate firm CBRE. The 2013 annual reports of TRS and ISBI show a combined $184 million worth of state pension investments in CBRE investment vehicles. A representative for CBRE told IBTimes that the employees are not covered by the SEC rule because they are not involved in state pension business and not employed by the subsidiary of CBRE that does pension investment work.

– More than $90,000 in in-kind contributions from John Buck of the John Buck Company, which is listed as an investment manager for TRS. A spokesman for TRS, David Urbanek, told IBTimes that the pension system’s investment in the John Buck Company “is now in wind-down mode” and added that “the company is no longer actively managing TRS money.” A representative for the John Buck company said, “We do not manage money for TRS.”

While some of the contributions are relatively small, the SEC recently prosecuted its first pay-to-play case over donations totaling just $4,500. SEC sanctions can be strong: The rule can compel investment managers to return all fees they have collected from the pension systems after the political contributions were made.

Illinois state law also restricts contributions from state contractors to candidates for governor, though the executive director of ISBI, William Atwood, told IBTimes that the pension systems are exempt from the statute.

Specifics of the SEC rule in question, as explained by law firm Bracewell & Giuliani:

Rule 206 (4)-5, which was adopted in 2010, prohibits investment advisers from providing compensatory advisory services to a government client for a period of two years following a campaign contribution from the firm, or from defined investment advisers, to any government officials, or political candidates in a position to influence the selection or retention of advisers to manage public pension funds or other government client assets. Some de minimus contributions are permitted, topping out at $350 if the contributor is eligible to vote for the candidate, and the contribution is from the person’s personal funds.

Read Sirota’s entire report here.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Video: Pension Limbo Spurs Early Retirement in Illinois


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The legality of Illinois’ pension reform law is up in the air, and may remain so until year’s end. That puts many soon-to-be-retirees in an unusual position: they can retire early and lock in their benefits, or they can wait to see the outcome of the state’s pension legal battle.

Many are choosing the former, according to ABC 20 .

Pension Reform in Illinois Likely to Look Different Under Rauner If Supreme Court Rejects Current Law

Bruce Rauner

Under Gov. Pat Quinn, Illinois passed a sweeping pension overhaul that cut COLAs and raised retirement ages for some workers.

But the state Supreme Court could reject the law. If that happens, it will be Bruce Rauner who will be able to shape reform legislation, which will likely look different than Quinn’s. From the Wall Street Journal:

Confronting the nation’s worst state pension shortfall was the top concern of Illinois Gov. Pat Quinn. The same will likely be true for Bruce Rauner, his newly elected successor.

The Illinois Supreme Court in coming months could dump the $100 billion problem in the lap of Mr. Rauner, who defeated Mr. Quinn on Tuesday to become the state’s first Republican governor in more than a decade.

A year ago, Mr. Quinn, a Democrat, won passage of a bill that lowered future pension costs by shrinking cost-of-living increases for retirees and raising retirement ages for younger employees, among other steps. State workers and retirees challenged the law, and a recent ruling by Illinois’s top court signaled the justices may end up overturning the law.

Mr. Rauner, who was a longtime private-equity executive before deciding to run for governor, has said he favors moving to a 401(k)-style system over pensions, but the shape that would take at the state capitol remains to be seen. Mr. Rauner was quiet the day after his big victory and his campaign declined an interview request.

Part of the challenge for any plan for Mr. Rauner will be getting it through the Democratic-controlled legislature. Many there agree the state has a big problem, but Mr. Quinn had a bruising fight with his own party to broker a deal.

To be sure, Illinois will continue to be a focus of the national debate that’s raging over how to fix ailing public pension systems. But on Tuesday, the Land of Lincoln wasn’t alone in having the issue play a role in the elections.

Bruce Rauner gives some hints about what his plans for pension reform would look like on his website:

I believe we must choose to address this problem head-on. No tinkering around the edges.

We must boldly reform our pension system. To do that, we can:

– Ensure pay and benefits do not rise faster than the rate of inflation.

– Eliminate the ability of government employees to receive massive pay raises before they retire just to increase their pension.

– Cap the current system and move towards a defined contribution system.

Teacher Group: Illinois Pension Reform Is “Direct Violation” of Lawmakers’ Oath of Office

Flag of IllinoisLast week, the Illinois State Journal-Register published a piece by Ty Fahner exalting the state’s pension reform law and detailing the consequences that would face Illinois in the wake of a court rejection.

Now, the newspaper has published a rebuttal from Bob Pinkerton, president of the Illinois Retired Teachers Association.

The letter reads:

“What if pension reform is rejected?”

These words were written by Ty Fahner, president of the Civic Committee of the Commercial Club of Chicago, sometimes referred to as the Millionaires’ Club.

The question should be, “What happens when the Supreme Court reminds us what the Illinois Constitution says in Article 13, Section 5, ‘… benefits, of which, cannot be diminished or impaired?’”

What does the legislature do when it is forced to acknowledge the pension reform lawmakers voted for is in direct violation to their oath of office?

Mr. Fahner writes, “A decade ago, only a small fraction of state revenues went to fund the pensions.”

This is the problem. Over the years, the legislature violated the laws they passed by skipping or reducing pension payments so they could afford new projects.

The state cannot expect retirees to fill the pension gap left by irresponsible lawmakers. It is not right that the legislature is now attempting to reduce benefits to pay for the past negligence of the state.

Over the years, no one complained when new programs were implemented without new revenues because stealing from the pensions seemed harmless to them at the time and these were available dollars already allotted in the state budget.

The bill is coming due for all those years of pension holidays. Illinois has the fifth-largest economy in the country. I believe we can figure out a way to pay our bills.

Read Ty Fahner’s original column here.

Illinois Prepares To Contribute More To Teachers’ Retirement System

Illinois map and flag

Illinois is gearing up to make a higher payment this year to its largest public pension system.

The Teachers’ Retirement System of Illinois will be receiving a $3.72 billion contribution from the state in FY 2015-16. That payment is over $300 million higher than last year’s.

From the Pekin Daily Times:

The Teachers’ Retirement System board of trustees has given preliminary approval to a state contribution to the system of $3.72 billion for the budget year that starts July 1, 2015. That’s a $307 million increase from the state’s contribution for downstate teacher pensions in the current budget.

About $200 million of the increase is the result of TRS lowering the estimated rate of return it expects to get on its investments, said TRS spokesman Dave Urbanek.

Earlier this year, TRS reduced the estimated rate of return from 8 percent annually to 7.5 percent, which brought TRS into line with anticipated returns used by other major pension systems.

“There are other factors that play into the increase, but that is a big one,” Urbanek said. “We’ve always said that you lower the rate of return the (state) contribution goes up.”

The calculations were made using current state pension laws, not the pension reforms that were passed by the General Assembly a year ago. The pension reforms are on hold while the constitutionality of the law is challenged in court. Another hearing on the case is scheduled in Sangamon County Nov. 21.

TRS said about 70 percent of the annual contribution is devoted to paying off the system’s unfunded liability. TRS is the largest of the five state-funded pension systems. The total state bill for the pension systems in the current budget is $6.2 billion.

The change in TRS’ state contributions has fluctuated in the last couple of years. It actually dropped slightly in the current budget after increasing by $736 million the previous year, according to TRS figures.

TRS manages $45.3 billion in assets and is 44.2 percent funded.


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