Retirement Plan At Center Of Dispute In State Treasurer’s Race

Last month, Champaign Senator and Illinois treasurer candidate Mike Frerichs found himself on the defensive after opponent Tom Cross blamed him for costing Champaign County millions of dollars more than a decade ago, when he served as county auditor.  He and the Republican challenger are at odds over an early retirement program.

Cross (R-Oswego) contends the plan, passed more than a decade ago by the Champaign County Board, backfired, while Frerichs calls those allegations ‘lies’.

Back in 2003, Mike Frerichs was the Champaign County Auditor when the County Board passed a plan that allowed some county employees to take early retirement. 

An early retirement incentive, or ERI, is sometimes used by city or county governments, often as a way to cut payroll costs.  At the time, Frerichs also served as the county’s agent to IMRF, the Illinois Municipal Retirement Fund.

Now, Cross, the former House Republican leader, said Frerichs put Champaign County in a financial hole by pushing the early retirement incentive on the county board.

“He ran (the numbers) and said let’s do it - it’s going to save us money,” Cross said.  “We’ve now found out it costs $2-to-3 million – the county had to go sell bonds. So if you’re a rank and file county board member, you’re relying on this guy who’s the county board’s representative of IMRF, and you relied on that data and that information and recommendation.”

Frerichs was quick to dispute those comments.

“Tom Cross’ campaign told lies about who instigated it, they told lies about how much it saved, and they told lies about the authorized agent,” he said.

Frerichs called the accusations from the Cross campaign, ‘revisionist history’.

The Senator said he was approached eleven years ago by Champaign County Administrator Deb Busey to prepare some numbers, and find out how many county employees might opt to retire early. 

Tom Betz, a Democrat and a Champaign County Board member at the time, said a group of county employees pushed for the plan.

"A lot of people lobbied – because they wanted to retire,” he said.  “And they wanted an incentive to retire.”

Frerichs said gathering data and presenting the information to the county administrator was the extent of his job as the county’s IMRF officer.  After that, the proposal went to the full board for a vote, and passed 13-10, with bipartisan support.

The head of the pension fund backs Frerichs on that point.  IMRF Executive Director Louis Kosiba said a city or county’s decision to implement the program -- or not -- has nothing to do with the authorized agent.

“To me it’s a kind of tempest in a teapot if you’re saying the authorized agent did something or didn’t do something vis a vis IMRF,” he said.  “They’re just a communication conduit – they have no responsibility.”

The idea behind the Early Retirement Initiative is to replace higher-salaried employees with less-expensive ones, while possibly cutting some positions.

University of Illinois Finance Professor Jeffrey Brown said ERI is always a bit controversial.  He suggests it’s only effective if a municipal or county government is looking to downsize, or pay retirees with a bonus that won’t eat up all savings a government would have by replacing them.

“If it’s being done solely as a cost-saving measure, then I would be very skeptical because of the fact that the real cost savings often don’t materialize, and are often dependent upon, frankly, somewhat flawed government accounting standards that we have in the U.S.,” he said.

At least 30 Champaign County employees opted for early retirement after the program was offered in 2003.  That’s according to documents obtained from the county and the pension fund through a Freedom of Information Act request.

The documents show that when those employees retired, several positions were left vacant in the following year and most of the others were rehired at lower salaries.

And that brings us back to the current argument.

“The cumulative savings for the 10 years from the changes in employment, were right at $2.1 million,” said Champaign County Administrator Deb Busey.

That $2-million figure comes from savings in salaries she calculated out over the next decade.

Cross argues the program cost the county several million dollars.  And he points to 2005, when the Champaign County Board approved a bond issue of about $2.5 million.

Documents from the county and the pension fund suggest both figures are accurate. 

The county paid IMRF around $2.5 million up front to cover the cost of the program - money raised through that 2005 bond issue.  

And money that Cross said should never have been spent. 

Mark Shelden was Champaign County Clerk in 2003.  He said Frerichs didn’t have a full grasp of market conditions that year. Shelden said his decisions back then make him a poor candidate now to handle the state’s finances.

"Mike should have had full knowledge, whether or not he had full knowledge and went ahead with it, or just wasn’t quite informed with the nature of pension funding, I don’t really know,” he said.

Cross says Frerichs relied on the wrong numbers when calculating potential costs.  

To understand that, you have to understand the financial makeup of the IMRF pension fund.

On average, more than half of the plan’s annual contributions come from investment income. When a city or county government considers ERI as an option, IMRF provides employers with financial statements that include both a true market value of assets, and another figure that spreads gains and losses over a 5-year period.

That’s to avoid drastic changes in annual employer contribution rates because of short-term fluctuations in the markets. 

This matters - because as a defined benefit retirement plan, the pension says employers bear the risk and reward of investment returns or losses.

The Cross campaign said Frerichs didn’t use the true market value, and failed to account for market drops after the September 11th attacks and the dot-com bust. Frerichs said he doesn’t remember which number he used.

When looking at a county government action taken eleven years ago, the documents and data tell us generally what happened, but not why.

That leaves both sides in the race for state treasurer to focus only on the information they prefer. Meanwhile, the IMRF reports a marked decline over the years in the use of ERI programs by city and county governments in Illinois.