Editorial: Combining pension funds makes sense ethically, financially
Combining the state’s pension funds would make sense for cost savings alone. But add the transparency and the ethical reform that would be gained and the merger is irresistible.
State Treasurer Alexi Giannoulias visited the Rockford Register Star Editorial Board last week to explain his proposal to create one pension board called Illinois Public Employees Retirement System (ILPERS) to handle investment activities. Now, three boards manage investing five pension funds.
Let us explain. There’s TRS (Teachers Retirement System); ISBI (Illinois State Board of Investment), overseeing GARS or the General Assembly Retirement System: JRS or Judges Retirement System; and SERS, (the State Employees Retirement System); not to be confused with SURS, the State Universities Retirement System.
Confused? You don’t know confused until you try to find out about these boards. Once you get the acronyms right — no small feat — their Web sites are not exactly chock-full of information.
That would change under Giannoulias’ proposal.
“We want to create an ILPERS Web site which will show every day where every penny is going, how we perform against different benchmarks, what the long-term outlooks are, who’s getting the business, how they are getting the business — make it as transparent a process as possible because these pension funds have become just a cesspool of corruption and scandal and pay to play,” he said.
In Illinois, the calculus is straightforward: The more boards, the more opportunity for political payoff. Federal prosecutors have proved that in their Operation Board Games investigation, which already has resulted in the convictions of Tony Rezko and Stuart Levine and the indictment of William Cellini.
The pension reform also would set ethical practices. For example, it would prohibit board members from receiving compensation in connection with any investment.
Giannoulias says the consolidation could save $50 million to $80 million in lower administrative costs and management fees. Simple stuff, as he says: When you have three asset pools and you combine them into one, your bargaining power is greater.
The concept is not revolutionary. California has merged its pension funds for years in CalPERS. Wisconsin has the Wisconsin Investment Board.
It’s good news that Giannoulias has a powerful legislative ally in state Sen. Jeff Schoenberg, D-Evanston, who has sponsored the reform package.
It’s bad news that Jon Bauman, the director of the Illinois teachers retirement fund, has stirred up suspicion and distrust in his opposition to the Giannoulias plan.
In a press release last month, Bauman said the consolidation could increase investment risk and the potential for political influence; it fails to address the debt of the pension system (which could be as high as $70 billion); and could cost $400 million in startup expenses.
We disagree. Where did Bauman get the $400 million figure? Giannoulias, on the other hand, can detail the $50 million to $80 million in savings from increased efficiencies and economies of scale.
There’s no reason to have this many pension boards, each with their own officials, managers and functionaries. No reason, that is, short of protecting the status quo — the inefficient and expensive status quo in an economy that can’t afford it.
No legislation will solve every problem of Illinois’ pension system, the nation’s most underfunded, but providing sunshine is a good start. “When you put your eggs in one basket, it’s easier to keep an eye on that basket,” Giannoulias said. Sure enough, Illinois has had its share of rotten eggs.
Rockford Register Star