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Illinois Department of Insurance Takes Political Stance on Consolidation

January 14th, 2016

At the beginning of October, the normally apolitical Department of Insurance, Public Pension Division, released its “Biennial Report.”  This normally benign report carried a declaration directly from the Governor.  On page 20 of the report, the DOI made “recommendations for legislative and administrative correction that the Division deems necessary for the next biennial period.”

 

DOI’s top “recommendation” it deemed “necessary” to implement targets downstate police and fire pension systems.  Without support or justification, “the Division recommends that the investment assets of the downstate police and fire pension funds be consolidated in order to increase the rate of return on the funds’ assets.”  Further ignoring empirical studies, the DOI claims, “Upon consolidation of investment assets, the funds may witness significant decrease in investment management fees, and experience opportunities to access a broader array of asset classes.”

 

Oddly, the DOI makes no mention of the two (2) widely recognized and most comprehensive studies relating to consolidation of downstate police and fire funds’ investment assets.  The non-partisan Commission on Government Forecasting and Accountability (“COGFA”) concluded none of the claimed benefits would be realized by the DOI and

Governor Rauner’s proposal.  In fact, COGFA

concluded a plan where “pension funds would be mandated to invest in state-created commingled funds – would never achieve a cost savings over a 30-year period.”  COGFA’s report further explained even if consolidation of investment assets was accomplished with “no problems”, “it would take 11 years to break even and begin realizing any cost savings in excess of transition costs.”  Meaning, the investment fees paid during, and other costs associated with the transition will be immediately and definitely realized.  At the same time, any savings are speculative and dependent on market volatility.  COGFA’s study concluded, “costs savings would never surpass transition costs over a 30 year period, making that structure completely unviable.”  COGFA is not alone in reaching such conclusions after performing a comprehensive cost/benefit analysis of consolidation.

 

On December 30, 2014, the Anderson Economic Group (“AEG”) made similar conclusions relating to investment of downstate police and fire pension

assets.  In that study, AEG found on average,

downstate police and fire pension systems outperformed the benchmark on returns.  AEG concluded, “Poor management of investments does not appear to contribute to police and fire pension shortfalls in Illinois.”

 

Plainly, the DOI made a politically fueled attempt to justify seizing control of locally controlled police and fire pension systems.  This attempted power grab is not made lightly, accidentally, or without knowledge to the contrary.  It is made without any sort of meaningful support.  Please contact your state representative and senator to tell them how you feel about the DOI’s “recommendation” for what is “needed.”