Alexi Giannoulias, Illinois state treasurer, plans to propose legislation in January to merge the investment functions of the state’s five pension systems into a single fund with a combined $54 billion managed by a new Illinois Public Employees’ Retirement System.
The merger would provide annual savings of $70 million in investment management fees and $12 million in administrative costs while curbing ethics abuse in state government, Mr. Giannoulias said.
The $34 billion Illinois Teachers’ Retirement System, Springfield, and the $11.2 billion Illinois State Universities Retirement System, Champaign, each invest their own assets independently.
The Illinois State Board of Investment, Chicago, oversees investments of the combined $9.2 billion in assets of the State Employees’ Retirement System, Judges’ Retirement System and General Assembly Retirement System.
Mr. Giannoulias is an ex-officio member of the Illinois State Board; he doesn’t sit on the investment boards of Illinois teachers or Illinois universities.
“Merging the investments into one fund will enable the (new) board to function more efficiently and operate more ethically,” Mr. Giannoulias said. The economies of scale of a consolidated system would reduce investment management fees significantly, he said. Mr. Giannoulias would like to see any annual cost saving to the systems used as additional contributions.
William R. Atwood, ISBI executive director, said the current systems “have so much redundancy in infrastructure, staffing and investment management.”
“I think that is a pretty defensible number,” Mr. Atwood said of Mr. Giannoulias’ proposed savings on fees and costs.
The Illinois State Board hasn’t taken a position on consolidation, Mr. Atwood said, but Mr. Giannoulias’ idea is consistent with legislation in 1969 that created the ISBI.
Illinois Teachers’ officials oppose Mr. Giannoulias' proposal. In a news release, fund officials said having separately managed pension systems insures portfolio diversification, higher returns and lower investment risk as well as providing more accountability to public employees about the investment of their pension funds.
“The current structure of having three separate boards to oversee the portfolios of the five state pension systems is a prudent and reasonable approach to protecting the assets, which is even more important now during the unprecedented volatility in the global financial markets,” Jon Bauman, executive director, said in the statement.