Police and fire pensions get padded despite Illinois' pension deficit crisis

Chicago Ridge boosted salaries for its police chief and a deputy before they retired. Over the next decade, salary benefits for them could reach $2 million, paid out from the village's underfunded police pension.

Monday, July 19, 2010

Shortly before Tim Baldermann retired as Chicago Ridge's police chief, the town boosted his salary by more than $70,000, handing the 44-year-old as big a paycheck in retirement as he earned full time on the police force.

The deputy police chief, who sat on the pension board, received a similar deal. As it did for Baldermann, the town added Dennis Kapelinski's unused vacation time to his final salary — in exchange for opting out of insurance coverage — and gave him a 20 percent raise just before he retired, documents show.

Baldermann, who also is New Lenox's mayor, saw his police pay — including 100 days of unused vacation time — jump from about $127,000 to $199,000 while Kapelinski's salary went from $105,000 to $188,000, according to village documents. Their pension benefits are calculated using final salaries.

Chicago Ridge boosted their benefits — and those of two deputy chiefs in 2006 — even though the Illinois Department of Insurance, in a 2006 audit of the village's police pension fund, warned that "increasing salary to inflate pensions" for two prior employees violated the pension code and was "actuarially unsound."

Towns have long been aware of the financial time bomb created by pension deficits, but what happened in Chicago Ridge was hardly unique. Some municipalities are sweetening deals for their top police and fire administrators even as they call for pension reform in Springfield.

Illinois' pension system — including police, fire and public-sector employees — is the most underfunded in the nation, according to the Pew Center for the States, with only about half the assets needed to cover a staggering $60 billion in liabilities.

Experts blame the crisis almost completely on the unwillingness of the state and local communities to make necessary contributions into the funds — a practice that has become more pronounced in the past 15 years. Police and fire boards are funded through local tax levies and employee contributions.

There are 649 police and fire pension boards in the state, and more than a third have less than 55 percent of the cash needed to meet their liabilities, according to 2008 state figures compiled by the Illinois Municipal League.

Among towns with full-time fire departments, the worst-funded pension is in Cicero, which has only about a fourth of the assets — $20 million — to meet its liabilities, which stand at $75 million, state records show.

The worst-funded pension among full-time police departments is in Willow Springs, the figures show. Its police pension is just 16 percent funded — with $575,000 in assets versus $3.5 million in liabilities.

It's also a town that has been generous to a retiring administrator. Three weeks before former Police Chief Jerome Schultz retired in 2002, the town boosted his salary from about $60,000 to about $80,000 a year, records show.

Village Board minutes show trustees agreed to the increase "so (Schultz's) final pension numbers will work out in a positive manner."

The town's pension board later tried to reverse the decision but, after Schultz filed a lawsuit, was overruled by a Cook County judge. In April, an appellate court reversed that decision, finding that Schultz's increased salary should not be used to calculate his pension.

Three years ago in Westchester, Police Chief Robert Smith wrote a letter to the village manager saying he had decided to retire and asking that the town give him an $8,000 raise. Smith noted that had been done for the prior fire chief.

"It is my understanding … that this same consideration would be afforded to me upon my retirement," he wrote.

The town went even further. On top of that raise, the Village Board gave him a 4 percent pay increase and allowed him to roll $6,100 of holiday pay into the final salary used to calculate his pension. All told, Smith went from earning about $95,000 to making $113,000.

He retired two months later, in July 2007. The pension board is fighting the increased pay, an issue now before an appeals court.

"The only plausible justification for this fiscally irresponsible policy is to artificially inflate those individual's pensions," wrote pension board attorney Jeffrey Goodloe in his appellate brief. Smith's attorneys say the pension board's decision to overrule the Village Board is "clearly erroneous."

Some towns are also rehiring retired police and fire administrators, allowing them to collect a salary and pension at the same time.

"There aren't really clear guidelines on this," said Tony Halachoulis of the Illinois Public Pension Fund Association.

When former Lockport Fire Chief Robert Cronholm retired last fall, he started the next day in a newly created position — chief administrator — and also was allowed to collect his firefighter's pension by a pension board that includes his father.

After an Illinois Department of Insurance attorney warned in a March letter that Cronholm should not be receiving pension benefits because the new job was almost identical to his old one, the district hired a new fire chief and stopped paying Cronholm's pension benefits.

But they kept the former fire chief in his newly minted position — relabeled fire administrator — with a six-figure salary. He could not be reached for comment.

A group of Lockport firefighters filed a lawsuit in May seeking the return of five months' worth of pension benefits paid to Cronholm. Attorneys for both sides did not respond to requests for comment.

Unlike its broader regulatory powers over insurance companies and brokers, the Department of Insurance has little power over local police and fire pension boards, which are staffed by five unpaid trustees who often have no financial backgrounds.

The state last year took steps to improve training for the local boards, passing legislation that requires trustees to obtain 16 hours of instruction in "fiduciary responsibilities and ethics." Newly elected trustees must also complete a 32-hour training course.

Though they operate out of the spotlight, pension boards are tasked with overseeing millions of dollars.

In Chicago Ridge over the next decade, salary benefits for just Baldermann and Kapelinski could reach $2 million, paid out from the village's underfunded police pension, which in 2008 stood at $10.8 million — or 41.4 percent funded, records show.

"We're a small department. We're going to take a huge hit," said Chicago Ridge Officer Steve Schaal, who has become the spokesman for officers opposed to the pension deals. "These young guys are going to be paying for it if these large buyouts continue to happen."

Kapelinski, the retired deputy police chief, could not be reached for comment.

Baldermann, who worked 23 years in the Chicago Ridge Police Department, said he was forced to retire in April after rupturing a disc in his back while on the job, leaving him with permanent nerve damage in his right leg. Because he could have retired with 100 percent insurance coverage for life, Chicago Ridge will benefit by him opting out of coverage in exchange for a salary bonus, he said.
Without the incentive, he said he would have enrolled in the village insurance plan.

Instead, he remained under his wife's insurance plan at New Lenox School District 122, where she is an elementary school principal.

"I think anyone that knows me knows that I wouldn't take advantage of the system," Baldermann said.