A policy to eliminate accelerated vacation payouts to city of Springfield employees' before they retire has saved the city about $1.5 million in just one year, city budget director Bill McCarty says.
The policy is just one of many ways the city has been working to reduce pension spiking. Prior to 2016, city employees who pay into the Illinois Municipal Retirement Fund could sell back all of their accrued vacation days within a year of retiring. The practice would increase a retiree's pension, which is calculated by averaging the worker's highest-paid four years of the last eight years of their career.
McCarty recalled one City Water, Light and Power employee who was able to increase his annual pension payment by $16,000 per year.
"It was $5,000, $10,000, $50,000 -- it was getting crazy," McCarty said.
The Springfield City Council decided to discontinue the practice in 2015. Employees had to give the city notice by May 31, 2016, if they were going to retire by the same time next year in to be able to have their accrued vacation days count toward their retirement earnings. From June 2016 through May 2017, about 68 city employees who benefit from IMRF retired. There are currently 946 city employees that pay into IMRF.
"To get the same impact on your pension, you would have to work an extra four, five years, so why wouldn't you go out the door?" McCarty said. "We had quite a substantial brain drain."
However, fewer employees liquidating their vacation time meant the city was paying less to IMRF. At the height of accelerated payments in 2016, the city paid $2.4 million to IMRF. Since May of last year, it's paid about $60,000.
The decision to pull the perk wasn't without controversy. When Mayor Mike Houston first put the proposal before the city council, it was tabled for months. It took a newly elected council in July 2015 to pass the proposal.
"It's the only ordinance I've seen tabled that I've seen come back to life," McCarty said.
The savings could have been greater if the new policy had been implemented an immediately. However, an amendment to the ordinance asking to do so was shot down by the council.
"Because the phaseout stayed in place, the city ended up spending $3 (million) to $3.5 million more than if we had passed that amendment," McCarty said.
The policy has also weathered legal challenges. Both the Sangamon County Circuit Court and an appellate court have upheld the city ordinance.
Other pension spiking perks
With the payments for police and fire pensions outpacing the amount of property taxes the city collects, the city is also looking to rein in pension spiking for public safety workers, as well. More than five years ago, the city decided to stop offering a perk for police and firefighters in which they all received two payroll checks with 5 percent increases, one for their birthday and one for their work anniversary.
"It was standard operating procedure for the policemen and firemen to retire during that time," McCarty said.
By retiring during those bumped-up pay periods, their temporarily increased salary was what was considered when calculating their pension, McCarty said. The city was able to negotiate the perk out of the union contracts, which McCarty said led to savings.
Another perk in the city's sights: firefighters hired before November 2015 who include double-time holiday pay toward their pensionable salary.
Reversing a 1998 opinion, the Department of Insurance issued an opinion in November 2015 saying double-time pay should not be calculated into pensionable salary. It stated that for holiday pay to be considered part of a firefighter's salary and factor into the pension, every employee would have to receive the additional compensation, whether they work the holiday or not.
"It's overtime," McCarty said of holiday pay. "(To be counted), it has to be given to everyone. Not everyone can work a holiday. It's based on scheduling."
While the Fire Pension Board complied with the opinion by eliminating the perk for hires after the opinion was issued, those hired before were still able to include double-time holiday pay in their pension calculations. An attorney for the pension board said by eliminating the practice, it would be an unconstitutional reduction of benefits.
McCarty, as a pension board trustee, as well as other city officials disagree with the Fire Pension Board's stance.
The board sought the court's advice on whether holiday pay should be included in pensionable salary calculations when it filed a lawsuit in 2016 against the city and the Department of Insurance. However, later that year, a judge dismissed the lawsuit. Though the city hoped this meant the pension board would follow the Department of Insurance's opinion, the board continued its practice of approving pension packages with holiday pay included.
In the meantime, Mayor Jim Langfelder asked the Department of Insurance to audit the city's firefighter pension packages. The department completed the audit in May, according to city attorney Jim Zerkle. Once the city receives the audit's findings, it will weigh whether it should take legal action against the Fire Pension Board to enforce the department's opinion.