RELEASE: Treasurer Summers Announces First Steps in Plan to Save Pension Funds $25-$50 Million a Year

Treasurer’s Office to Launch Clearinghouse for Funds to Share Fee Prices and Help Eliminate Overcharging

Chicago City Treasurer Kurt Summers today announced that more than half of the City’s 11 public employee pension funds have signed on to a joint resolution that will help create significant savings on annual investment fees for all of the funds. Now, the Treasurer’s Office will partner with the funds to launch an online database or “clearinghouse,” so they can share information on how much in fees they pay to investment managers and work together to reduce those fees. By promoting collaboration among the retirement plans, the initiative has the potential to save more than $25-$50 million a year or $1 billion over the lifetime of all 11 pension plans.

In order to launch the clearinghouse, more than 50 percent of the 11 funds were needed to sign on to the joint proposal. At their monthly board meeting last week, the Retirement Plan for Chicago Transit Authority Employees (the CTA Retirement Plan) and Chicago Transit Authority Retiree Health Care Trust (the CTA Health Care Plan) were the sixth and seventh funds to approve support of the initiative, ensuring next steps for the Treasurer’s Office to start gathering fee data and build the online clearinghouse to launch by next year. Chicago joins several major cities that have adopted similar initiatives including New York City, Atlanta, Los Angeles and London.

“For years, the City’s public employee pension funds have been overcharged relative to the size of their investments on behalf of workers and retirees,” Treasurer Summers said. “Launching the clearinghouse will help ensure each of our pension funds, taxpayers and retirees are treated fairly when it comes to investment fees. I thank the CTA pension boards for joining our efforts and look forward to working with all of the funds and their investment managers on having a meaningful and long-term impact on our pension system.”

Over the next few weeks, information requests will be sent to the pension funds to start building the clearinghouse, which will be accessible to the public as well as pension fund officials and trustees.

“The clearinghouse offers the participating funds, including the Retirement Plan for CTA Employees and the CTA Retiree Health Care Trust, the opportunity to more-easily share information about fees and to use that information to their advantage,” said John Kallianis, Executive Director of the Retirement Plan for CTA Employees and CTA Retiree Health Care Trust. “We look forward to working with the other local plans on the implementation.”

Currently, the city’s 11 pension funds have approximately $35 billion in assets invested and each have their own procurement processes for contracting with investment managers, resulting in $144 million in investment fees annually.

For decades, the pension funds have been paying different fees, even in instances where the investment manager is the same. There are 236 unique investment managers across all pension plans, however the top 50 manage more than 75 percent of all fund assets. Additionally, “overlapping” investment management firms, who work for more than one of our local pension funds, collect approximately 80 percent of all fees.

Each fund is treated separately and investments and their fees are not considered in aggregate, often leading to one pension fund paying more than another and driving up the overall cost. For example, some funds are paying 30-40 percent more on investment fees than other local plans.

In many of these cases, implementing this pension savings initiative can save some of the plans up to 50 percent on those fees. These significant savings will have a direct impact on improving all local plans without impacting workers, retirees or taxpayers and also without changing board governance, investment decision processes or asset allocation decisions of any of the plans.

Funds that have voted in support of the proposal include the Municipal Employees’, Officers, and Officials’ Annuity and Benefit Fund (MEABF); Policemen’s Annuity and Benefit Fund (PABF); Firemen’s Annuity and Benefit Fund (FABF); and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund (LABF). The remaining boards include the County Employees’ and Officers’ Annuity and Benefit Fund (the Cook County Fund); Forest Preserve District Employees’ Annuity and Benefit Fund (the Forest Preserve Fund); and the Water Reclamation District Retirement Fund (the MWRD Fund).

In his 90 Day Action Plan released in December, Treasurer Summers laid out a blueprint of potential opportunities to better serve and directly impact the people of Chicago. The plan includes responsibly and actively investing in Chicago, protecting retirement benefits, expanding financial education and enhancing small business opportunities across the city. Today’s announcement is part of the Treasurer’s proposal to promote collaboration across local retirement plans to secure lower investment fees.

 

Translate »