January 19, 2012 08:55 AM
Private-Sector Lobbyists Stand To Collect Public-Sector Pensions
Little-known aspect of Illinois state law allows employees of select trade groups to collect retirement benefits from taxpayers—a BGA Rescuing Illinois special investigation.
By Andrew Schroedter/BGA, with CBS2
Township Officials of Illinois is a private trade group, not a governmental agency, yet its employees are eligible for public-sector pensions subsidized by taxpayers, the Better Government Association has learned.
No one from TOI is currently drawing a pension from the Illinois Municipal Retirement Fund. But TOI’s four full-time employees, two of whom are registered lobbyists, stand to draw the potentially lucrative retirement benefit down the road, according to interviews and records.
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Besides lobbying to preserve the township form of government – which critics decry as antiquated and duplicative – TOI educates members on legislation, budgets and financing. All but three of the 1,432 township governments in Illinois belong to the Springfield-based group.
As a non-governmental body, TOI doesn’t levy taxes or comply with the Illinois Freedom of Information Act or the Open Meetings Act, both of which guarantee a level of government transparency and accountability.
"I’m really surprised," Sam Yingling, the elected supervisor of Lake County’s Avon Township, says of the public pensions that TOI workers may someday collect.
Yingling, a Democratic candidate for the General Assembly, favors eliminating many of the state’s township operations.
"TOI is not a governmental organization," Yingling says. "It’s a private organization that’s using taxpayer money to lobby. Lobbyists should not be receiving public pensions."
Yet TOI’s executive director, Bryan E. Smith, says employees of his group deserve the public pensions they stand to gain.
"We represent governmental bodies so we’re tied [to IMRF] that way," Smith says.
The Illinois General Assembly recently passed a bill aimed at curbing public pension abuses by some labor union leaders. But the reforms, signed into law on Jan. 5 by Gov. Pat Quinn, don’t address private groups such as TOI that lawmakers over the years have let into the system.
Similar groups include the Illinois Municipal League and Illinois Association of Park Districts. Like TOI, they work for and lobby on behalf of their governmental agency members – yet they aren’t public bodies and don’t directly serve taxpayers.
TOI was founded more than a century ago. But it wasn’t until 1971 that the General Assembly, for reasons not totally clear, amended the state pension code so TOI could participate in the pension plan. However, TOI didn’t join IMRF – the second-largest public-sector pension plan in Illinois, with $25 billion in assets – until 2001.
In an email to the BGA, IMRF spokeswoman Linda Horrell says IMRF considers TOI to be a governmental entity and therefore worthy of inclusion in the pension system in part because its "funding comes from township taxpayers and the TOI board is composed of elected township officials."
Townships are funded through property taxes.
To become members, townships pay TOI between $80 and $1,300 a year, an amount based on their population and other criteria, Smith says.
In 2011, TOI represented 1,429 townships, which, among other things, maintain roads in unincorporated areas and offer social services, property tax advice and immediate assistance for the needy.
TOI had revenues of nearly $1.3 million in its fiscal year ending Aug. 31, 2011, according to documents filed with the Internal Revenue Service. That income helps pay for the group’s lobbying efforts. But Smith says those revenues were not used by TOI’s political action committee which, since 2000, has given $75,000 to legislative candidates, according to state campaign records. The PAC is funded by individual donations and only gives to legislators and legislative candidates, Smith says.
TOI, which is registered with the Illinois secretary of state as a non-profit, employs Smith and three other people, all of whom participate in IMRF, public records show. Smith declined to disclose their salaries but federal tax records show TOI paid him $101,720 last year.
TOI employees hired in 2010 or before become vested in IMRF after eight years and after 40 years can collect 75 percent of the average of their highest 48 consecutive months of salary in the decade leading up to retirement. Based on that formula, Smith would collect an annual pension of $76,000 if he worked the maximum number of years and his salary remained at its current level.
Participating IMRF employees contribute 4.5 percent of their annual salary to the pension fund. So for Smith, that amounted to $4,577 last year. Meanwhile, TOI paid $45,916 to cover pension obligations for him and three other employees, according to interviews and documents filed with the IRS.
Municipal League Players Are Pension Winners
The Illinois Municipal League is a trade group that represents the interests of local governments from across the state.
In recent years, the private nonprofit has favored a variety of public-sector pension reforms.
But the Better Government Association found the IML is not as tough-minded when it comes to the pensions of its own employees.
A BGA review found that IML workers are eligible for taxpayer-subsidized retirement benefits through the Illinois Municipal Retirement Fund – even though the IML considers itself non-governmental and not subject to the state’s open records and meetings laws. What’s more, the IML is paying out unused sick and vacation time to retiring employees, causing pension payouts to spike.
Consider former IML head Kenneth Alderson, 69, who now collects an annual pension from IMRF of $185,892. When he retired as executive director in 2007, the IML, which represents 1,130 municipalities, paid him an undisclosed chunk of cash for the unused sick and vacation time he accrued over a more than three-decade career.
The lump sum payment not only fattened Alderson’s wallet – it boosted his pension by $20,000 a year, Alderson confirms.
"He had a high salary and lots of years," says Larry Frang, who succeeded Alderson as IML’s executive director. "But had there been no adjustments, [his pension] would’ve been less."
The IMRF determines a person’s pension by averaging the highest consecutive 48 months of salary in the decade before retirement. The maximum benefit is 75 percent of the average after 40 years, so a lump sum payment in the final year of work can significantly drive up the annual benefit.
That’s how Ted Flickinger came to draw an annual IMRF pension of $226,572, according to interviews and public records.
Before he retired as president and CEO of the Illinois Association of Park Districts – another non-governmental nonprofit whose employees qualify for taxpayer-subsidized pensions – Flickinger cashed out the unused sick and vacation time he had accrued over a 30-year career at the trade group that represents 461 park, forest and recreational districts across the state.
The windfall boosted Flickinger’s salary from $199,523 in fiscal year 2008 to $311,874 in 2009, the year before he retired, inflating his pension in the process, he confirms.
"I never got sick," says Flickinger, 67. "I was sick one day in 30 years."
Under a new state law, which took effect this year, employers that grant large end-of-career salary increases are now required to immediately pay IMRF to cover the cost of the higher pension. (IMRF is funded by three revenue streams: contributions from employees, contributions from employers and investment income.)
But going forward the new law won’t prevent officials from padding their salaries – and pensions – by cashing out unused sick or vacation time at the end of their careers. IMRF doesn’t prohibit the practice, says spokeswoman Linda Horrell. But it is enacting rules to blunt last-minute salary spikes. The IMRF currently determines a person’s pension by averaging the highest consecutive 48 months of salary in the decade before retirement. But the benefit for employees hired on or after Jan. 1, 2011, now will be based on a different formula. Under legislation passed last year, the benefit will be based on the highest consecutive 96 months of salary in the last decade of work, and reportable income will be capped.
The IML and IAPD, both based in Springfield, have been around since the early 20th century. In addition to lobbying, the groups, which are funded in part by dues from their taxpayer-funded members, provide education on topics such as taxes, finance and new legislation.
IML and IAPD employees didn’t always qualify for public pensions, which are typically reserved for government employees. State lawmakers amended the pension code in 1957 to include IML, and again in 1968 to include IAPD, says Horrell.
Even though the groups aren’t governmental agencies, they were allowed to join because they’re funded in part by tax dollars and their boards are comprised of public officials, she says.
Today, a dozen IML employees and nine IAPD employees pay into the IMRF, according to public records. Eight former employees are currently drawing IMRF pensions, although two of those pensions are based in part on service with other agencies.
Even though some of the groups’ employees are registered lobbyists, both Flickinger and Alderson say the benefit is not undeserved.
"I think it’s a reasonable thing to do," Alderson says. The IML "represents local governments and are intimately involved with education and assisting those local officials."
These investigations were written and reported by BGA Investigator Andrew Schroedter and CBS2’s Pam Zekman. For questions, call (312) 821-9035 or email email@example.com.