Giannoulias applauds passage of ethics reform legislation
New ethics bill curbs abuses in pension system, increases transparency of investments

April 3, 2009

State Treasurer Alexi Giannoulias believes a series of ethics reforms approved by the Illinois General Assembly will go a long way toward preventing wrongdoing within Illinois’ five state-funded pension systems.

The legislation, which was approved by both the Illinois Senate and House on Thursday, would help eliminate the type of fraud and abuse committed in connection with the federal Operation Board Games investigation and outlined in the April 2 indictment of former Gov. Rod Blagojevich and his top aides.

“It’s time to end the scandals brought about by extortion and kickback schemes that put our pensions at risk and cost taxpayers in the long run,” Giannoulias said. ”This is a great first step that will limit pay to play and other ethical abuse by implementing strict safeguards that crack down on those who seek to scam the system.”

Many of the reforms are the same proposals that Giannoulias announced to overhaul the state’s pension systems last December. A week later, Gov. Rod Blagojevich was arrested on a criminal complaint, which accused him of, among other things, conspiring with influence peddlers to systemically corrupt the Teachers’ Retirement System (TRS).

Currently, five pension systems are overseen by three investment boards, TRS, the State Universities Retirement System (SURS) and the Illinois State Board of Investment (ISBI). ISBI oversees the investments of the General Assembly Retirement System (GARS), Judges Retirement System (JRS) and State Employees Retirement System.

SB 364 calls for ending the terms of Blagojevich’s appointees to the pension boards and calls on Gov. Pat Quinn to make new appointments within 30 days.

It would prohibit board members, their spouses and pension board employees from benefiting financially from the investment system by eliminating “finder fees” and other gifts, and it would ban vendors with contracts over $50,000 from making political contributions. It would also ban board members from contributing to candidates running for office or political campaigns, and prohibit them from seeking elected office.

In addition, the legislation would also require the boards to make investment information more accessible and transparent to the public, including the posting of investment updates online, detailing the amount of money it investments, where it gets invested and how much is made on returns.

It also calls for Giannoulias to convene a working group to oversee and review the performance of the funds’ managers, costs and investments.

Giannoulias has also called for the consolidation of the investment activities of all five of the state-funded pension systems into a single investment entity managed by a new Illinois Public Employees’ Retirement System (ILPERS). The legislation (SB 1734), sponsored by State Sen. Jeff Schoenberg and currently awaiting a committee hearing, would provide for additional ethical safeguards and save beneficiaries tens of millions of dollars annually. The consolidation is not part of the package approved by the Senate.

Giannoulias believes that consolidating the boards’ investment activities would result in a savings of $12 million annually in administrative costs alone, and up to $70 million annually in fees paid out to the private firms hired to manage and invest assets in each system. The General Assembly has instructed the Commission on Government Forecasting and Accountability (COGFA) to conduct a study, due later this month, to verify the costs of a merger.

A similar proposal to combine the pension systems surfaced in 2003, but was squashed by political powerbrokers William Cellini, Tony Rezko and Stuart Levine. Each has been implicated in the ongoing investigation spearheaded by U.S. Attorney Patrick Fitzgerald.

“While it might be impossible to completely remove politics from the system, consolidating these boards will lessen the burden on taxpayers and make it more difficult for felons to get their hands on them,” said Giannoulias, noting that  pensions are protected by the state’s constitution and any shortfalls or losses in the market are made up by taxpayer dollars.