SB 3317 Analysis - Consolidation of Public Safety Pension Fund Assets for Investment with ISBI
Posted March 17, 2016 in Legislative briefs
SB 3317 (Senator Duffy, R-Barrington) would amend several articles within the Illinois Pension Code to effectuate the following policy changes:
· Transfer investment responsibilities of Article 3 (police) and Article 4 (fire) pension funds to the Illinois State Board of Investment (ISBI).
· Increase the pension fund compliance fees owed by pension funds to the Illinois Department of Insurance.
· Reduce the pension trustee training requirements established by statute.
· Modify the process under which pension boards can intercept municipal revenues to make up for employer contribution shortfalls.
The key provisions of the bill are as follows:
Transfer of Investment Authority to Illinois State Board of Investments (ISBI)
Eligible Pension Funds
An “eligible pension fund” is defined as an Article 3 and Article 4 fund with net assets in trust that exceed a “threshold amount” equal to 3 months of current liabilities of the pension fund, including benefit payments owed to annuitants and beneficiaries of the pension fund and reasonable operational expenses. An Article 3 or Article 4 fund unqualified to transfer funds for investment by ISBI must operate under existing statutory requirements and investment limitations. Once a pension fund is determined to be an eligible pension fund, it would remain so even if net assets fall below the threshold amount.
Asset Evaluation and Transfers
Within 18 months following the bill becoming law, the Illinois Department of Insurance (IDOI) would be required to audit the investment assets of each eligible police and fire fund to determine a certified asset list. This audit must be performed by a certified public accountant funded by the board of the pension fund. Once the audit is completed, IDOI must provide the certified investment asset list to the pension fund and ISBI. Following receipt of the certified investment asset list from IDOI, the board of trustees of an eligible pension fund shall transfer all investment assets of the pension fund to ISBI. Details about how the transfer process would work would be established by the adoption of administrative rules. IDOI is required to impose penalties for non-compliance.
Within 6 months of the transfer of investment assets from an Article 3 or Article 4 fund to ISBI, the books, records, accounts and securities of the police or fire pension board must be audited by a certified public accountant designated by the Auditor General.
To ensure sufficient cash is available to pay benefits, each eligible pension board must make periodic written application to ISBI for receipt and deposit of reserves into the pension fund.
Pension Fund Compliance Fees Increased
The annual compliance fees for Article 3 and Article 4 pension funds would be doubled to 0.04% – 4 basis points of the total assets of the pension fund. The fee would not be permitted to exceed $16,000 for Article 3 and Article 4 funds. All other pension funds under the Illinois Pension Code would pay an annual compliance fee of $16,000.
Pension Trustee Training Requirements Reduced
The initial pension board trustee training requirement would be reduced to 8 hours (currently 32 hours) and limited to the following: (1) duties and liabilities of a fiduciary under Article 1 of the Illinois Pension Code; and (2) duties of a pension board trustee under Article 3 or Article 4 of the Illinois Pension Code. The annual continuing training requirement would be reduced to 4 hours (currently 16 hours).
Under current law, pension trustee training seminars must be accredited and affiliated with a State of Illinois certified college or university. Under SB 3317, IDOI approval would be a sufficient alternative for authorizing a training program not affiliated with a State of Illinois certified college or university.
Municipal Revenue Intercept Provision Modified
Under current law, police and fire pension boards can instruct the Comptroller to intercept municipal revenues to offset employer contribution shortfalls. This authority begins in 2016 when up to one-third of the difference between the actual employer contribution and the required employer contribution is subject to intercept. This amount increases to two-thirds of the difference in 2017 and 100% of the difference in 2018 and beyond.
SB 3317 would require that a pension board seeking to intercept local revenues must first apply to the IDOI Director. The Director would then certify the delinquent payment amount to the Comptroller in accordance with any applicable rules of the Department.
By: Joe McCoy
Legislative Director
Illinois Municipal League
March 17, 2016
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