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 Public labor unions are a powerful force in Illinois, but that
power too often works against their members’ best interests.
Unions have been able to block bipartisan policies that are in the interest of
their own members. They have been able to use their resources and influence to
push a proposed constitutional amendment through the Illinois General Assembly
that would put union contracts above state law. And recently, unions have pushed
to give unions more control over the Teachers Retirement System and the Illinois
Municipal Retirement Fund.
Two bills, House Bill 3474 and Senate Bill 2574, would tilt the power of the
IMRF and the TRS boards, respectively, in favor of the unions. But that tilt
could cost retirees.
HB 3474, passed into law on Aug. 20, lays out new requirements for membership on
the IMRF pension board. The board is made up of four executive trustees, three
employee trustees, and one annuitant trustee. HB 3474 adds to the requirement
that those who meet the qualifications to be an executive trustee – chief
executive officers or other officers or executives or department heads of
municipalities – may not serve as an employee trustee. In other words, if
someone meets the qualifications of an executive trustee, that person is not
permitted to become an employee trustee. It effectively limits who can represent
employees on the board.
 The TRS board consists of seven members who are not part of the retirement
system appointed by the governor, five members who are teachers and elected by
contributing TRS members, and two annuitant members who are elected by
annuitants. SB 2574 would reduce the number of board members not part of the
retirement system from seven to five, giving annuitants and teachers a majority
on the board.
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Both of these bills give more powers to union
members within their particular pension systems. But in trying to
gain more control over the pension systems, the unions may actually
cause the systems to perform worse than they might otherwise. In
general, it is in pensioners’ interests for the systems to be
administered by people with knowledge and experience that give the
funds the best chance to perform well.
Employee members generally may have little to no
financial expertise. Decreasing expertise tends to decrease the
fund’s performance.
Employee members also have an incentive to make pensions appear
cheaper than they are. That way, employees are more convincingly
able to argue for additional benefits such as increased salaries and
pension sweeteners. This desire to make pensions appear to cost less
leads employee trustees to tend to vote for higher discount rates –
an accounting assumption used to determine the present cost of
future promises. Voting for a higher discount rate allows employers
and employees to contribute less to the funds. When discount rates
are too high, the contributions can become insufficient to keep the
funds solvent in the long run, leading to future problems.
Research shows having more executive-appointed trustees positively
impacts fund performance. Employee trustees have either no impact or
a negative impact on fund performance. Even though some research
also shows pension boards having member-elected trustees have a
positive impact, those positive impacts do not accumulate after a
certain point. That study found no impact on performance when the
board consisted of half or more member-elected trustees.
While these two bills tilt the power on the pension board towards
the employees, they could decrease the actual performance of the
funds for pensioners who rely on them. In their grab for increased
representation, union leaders risk harming the rank-and-file members
they represent.
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