Lax pension rules are costing suburban taxpayers millions of dollars by allowing job perks and hefty pay hikes to inflate retirement checks for local leaders, the Tribune has found.
In Glencoe, a free Jeep, bonuses and other perks to an outgoing parks director cost local taxpayers an extra $350,000.
Joliet officials literally wrote pension spiking into the employee handbook, costing taxpayers there nearly $500,000 extra on the outgoing city manager alone.
And in Evanston, four administrators cashed in their careers' worth of unused sick and vacation time in a way that helped boost their pensions, costing an extra $1.2 million in pension payments.
Even with governments struggling to provide basic services, the tab for inflated pensions grows as Illinois does not take on reforms other states adopted years ago. Those with the power to stop it, including local officials and statewide lobbying groups, have the most to gain from the status quo. And the Tribune found many have — significantly.
The Tribune investigation of the Illinois Municipal Retirement Fund reveals:
Pensions for executives are routinely boosted with bonuses, car allowances, cash-outs of unused sick and vacation time, and other perks. Retirement checks can jump 10, 20 even 30 percent from the perks — a practice other states in the Midwest don't allow.
The lax rules and oversight cost taxpayers in Illinois nearly $13 million for just the top-level retirees in the last two years and perhaps as much as $145 million for all municipal fund retirees in the last decade. Now, several local officials are on course to bump their retirement checks by up to 45 percent.
No one is responsible for investigating excesses. In fact, local elected officials are often complicit in the padding.
Those in the system readily acknowledge these problems, then promptly lay blame elsewhere. Retirees say they don't make the rules. Local government officials argue the tactics are legal and have long been used to reward workers.
Pension fund officials say their job is to collect money, invest it and pay it out — not to police the system. Elected officials should be doing that, they say.
Yet recent Tribune stories highlighting excessively inflated pensions have prompted some movement toward reform. Municipal fund Executive Director Louis Kosiba says he's working with state lawmakers to tighten the rules. "Everything is on the table," he said.
Ripe for Abuse
The Tribune took an unprecedented, systematic look at the $22 billion fund that covers 180,000 nonemergency local employees, from lifeguards to village managers, in nearly 3,000 local governments statewide, not including Chicago, which has its own pension funds.
The average retiree with 30 years of service ends up with $37,000 annual pension.
Governments and their employees set aside enough cash that, over time, it should cover the eventual monthly retirement check. Those checks top out at 75 percent of former pay for those who worked at least 40 years.
To reach that, typical employees store away 4.5 percent of every paycheck. For governments, it varies. The fund figures out how much they should sock away based on formulas that assume workers get normal pay raises.
But the Tribune found top bosses are boosting their paychecks by tens of thousands of dollars a year and sending annual retirement income soaring above $100,000.
Suburban executives routinely command car stipends on top of five-figure bonuses and generous pay hikes, not to mention the ability to cash out months of unused sick and vacation time.
The Tribune reviewed detailed pay records of the 44 public, nonelected employees who retired since 2008 and received six-figure pensions. Had their pensions been figured using base salaries alone and not all the extras, Illinois taxpayers would have saved nearly $13 million in pension costs.
That money came immediately out of government pension funds and must be paid off over several years by governments that employed them.
The top inflated pension case on the list is former Bellwood executive Roy McCampbell, whose pay the Tribune revealed in June. He combined stipends for extra job titles along with months of sick and vacation time. By 2009, McCampbell's compensation skyrocketed to $472,255 from an original base salary of about $116,000 in 2006.
If McCampbell's pension had just been based on his original comptroller-administrator salary, it would have been about $90,000 a year. Now it's $252,689 a year — the highest in the system — costing taxpayers $2.4 million extra to cover a lifetime of inflated pension payments. McCampbell says he earned his pension through hard work and long hours.
Plenty of others have quietly reaped the system's benefits.
The Glencoe Park District last year gave former Executive Director Rod Aiken the Jeep he drove during his tenure. The board wrote up the gift as a bonus valued at $12,000. That boosts his pension by $2,000 a year, part of a set of bonuses and other perks that boost his retirement checks by about $25,000 a year, and cost the district an extra $350,000 in pension funds.
Aiken said he just followed the rules and didn't view his pension as excessive. The North Shore district said it was just rewarding a loyal employee — and that the move didn't lead to any budget cuts.
The Tribune also found inflated pensions in communities struggling with soaring costs and fewer tax dollars.
Naperville officials blame pension bills, in part, for having to slash their workforce by nearly 100 positions over two years. The City Council declared this spring that municipal pensions were "outdated, not sustainable and too rich."
At the same time, they allowed outgoing utilities director Allan Poole to cash in $92,000 of unused sick and vacation time in a way that helped boost his pension by $29,000 a year. Combined with other perks, his total pension grew 26 percent, to $141,000 a year.
Had Poole's pension been determined using just his base pay, a Tribune analysis found, Naperville would have saved $315,000 on its share of his pension costs.
Poole did not return phone calls seeking comment.
The city said it's clamping down on perks that future retirees can use to pad pensions.
Joliet officials are considering the same move after slashing $11 million from their budget and threatening layoffs to balance their books.
In 2005, officials agreed to let most union workers cash out sick and vacation pay in a way that padded their pensions. Officials then wrote the perk into the employee handbook for nonunion workers.
Among those benefiting was City Manager John Mezera, who cashed in nearly $100,000 in vacation and sick time in 2008, when, he says, he was diagnosed with cancer and had to retire. Doing so helped boost his pension by 27 percent, costing the city an additional $480,000.
Mezera said he only followed the rules.
"The employees don't create the system," he said. "I didn't do anything wrong. I didn't decide my pension. All I did is work my ass off."
No cops on the beat
Pension officials criticize governments that intentionally inflate pensions with pay hikes and big bonuses, calling it poor public policy that squanders taxpayer dollars.
But there are few rules against it. Pension officials said most retirees don't benefit from perks padding their pensions, so fund officials haven't been concerned about the practice.
And few have complained. Mezera and other officials point out the system is relatively well-funded.
But that is partly because state law requires governments to pay into the fund all that is owed, upfront — in good times and bad. So elected officials must kick in the pension cash before deciding how much they can spend to cut the grass at the parks, or fill potholes, or fight crime.
Compare that to the pension funds for police, firefighters, teachers and state workers, which governments don't have to keep fully funded. Those funds have been drowning in red ink — inviting critical reviews from all sides.
With little public outcry over the municipal system, elected leaders have largely failed to seek reforms despite the cost to local governments.
Those local governments have lobbying groups that could wield considerable influence on potential reforms, but those lobbying groups are themselves in on the game. They were long ago allowed to join the public pension fund, and outgoing directors for two of the top lobbying groups — Illinois Municipal League and the Illinois Association of Park Districts — recently used the current rules to inflate their pensions 21 percent and 42 percent, respectively.
Even the few reforms on the books have little impact on today's retirees.
The fund limits the compensation on which a pension can be based — $245,000 a year — and only affects workers in the system for less than 15 years.
State lawmakers approved legislation this year that will make padding less profitable. The reforms include placing a cap of $106,800 on applicable salaries and hiking the full retirement age to 67. But that only applies to new hires starting in 2011, meaning the full impact won't be felt for a generation or two.
The only rule that applies to every retiree in the municipal system is a limit on pay spikes in the last three months, and local governments routinely flout it.
It allows up to a 25 percent spike in pay over the last three months to be counted toward a pension, but no more.
The trick: Pay the perks earlier.
Early payouts appear to be the most popular way to inflate pensions — at least 28 of the 44 recent top-level retirees benefited from it. Such payouts can sometimes equal a year's pay or more.
Four of those top-level retirees came from Evanston. They spread out $470,000 in payouts for unused sick and vacation time before they retired in 2008. The payouts helped boost their pensions by 15 to 31 percent.
Had they been required to wait until their last paychecks, their pensions still would have been inflated from the payouts and other perks, but only by 1 to 4 percent.
Evanston's administrative services director, Joellen Earl, defended the perks as policy at the time, but said the city has reined in such perks for newer employees. "We don't want to have a large unfunded liability."
Pension system officials have known about the issue for years but have been leery to propose new rules. Kosiba said he fears workers would just find a way around them, making the effort futile.
"If you say 'A' is an abuse and you can't do 'A,' then 'B' will crop up. And if you say, OK, 'B' is an abuse and you can't do 'A' and 'B,' then 'C' will crop up," he said.
Other states are trying to police pension padding.
Statewide municipal or county funds in all 11 other Midwest states have rules to discourage several of the practices used to beef up pensions in Illinois. They all outline rules against using vacation and sick time and severance or retirement packages from counting toward a pension.
Seven of the systems go further, banning add-ons such as car allowances.
Kansas lawmakers tried to stop pension gamers in the early 1990s, and they now have some of the strictest rules in the Midwest. Those in the system before 2009 can't have late-career pay raises of more than 15 percent count toward their pension, absent promotions. The limit is 7.5 percent for recent hires. Cashing in sick and vacation time is also off the table.
"We don't see that many (pension padders) anymore," said Dianna Berry, a public service administrator with the Kansas Public Employees Retirement System.
If Kansas' system of 15 percent limits on pay hikes were in place in Illinois, a Tribune review of available Illinois pension data found, it might have saved taxpayers statewide as much as $145 million in the last decade.
The data isn't available for a more solid estimate — one that adjusts for allowable pay hikes, such as promotions, and pay that can't ever count, such as unused sick and vacation payouts.
The pension system has never studied the issue.
Costs continue to rise
Since the Tribune started to expose excessive pension padding cases this summer, a few lawmakers have started to ask questions.
"We know there are abuses out there, and we know that no one can stand up for those," said state Rep. Kevin McCarthy, D-Orland Park, who heads a House panel on pensions.
McCarthy said he wants to hold hearings on the municipal fund this fall. Kosiba, the fund's director, said he is willing to work with lawmakers on reforms.
Meanwhile, today's local government executives get closer to retirement.
The Tribune reviewed records for a dozen of the highest paid suburban executives and found they all stand to gain in retirement from tens of thousands of dollars in perks they now receive.
One — Palatine Village Manager Reid Ottesen — said it's "crazy" that he would get a pension inflated by as much as $50,000 a year in executive perks.
Yet, others see nothing wrong.
Fox Valley Park District Executive Director Steve Messerli is eyeing Dec. 31 for retirement — one that records show is set to come with as much as $68,000 more in yearly income thanks to big perks and an early retirement incentive from district officials in his final four years on the job.
Board members have promised him $95,000 in severance pay.
Add in another $70,000 for his private retirement account.
And $46,000 to cover Messerli's own contributions to his pension and $40,000 in car allowances.
It will all count toward his pension, helping to boost it to an estimated $166,000.
Messerli said he worked hard for the money, expanding programs and bringing in more money.
Don't blame him, he says. "Those are the rules."