Illinois Pension Scandal Prompts Reform Calls

August 26, 2005 ( - Faced with a scandal at the state of Illinois' Teachers Retirement System (TRS), Governor Rod Blagojevich has proposed a sweeping pension reform including barring payment of consultant contingency fees.

Not only does Blagojevich want to cut out consultant fees paid for helping firms land state investment business, his proposal also would reportedly eliminate conflicts of interest for investment advisers and strengthen disclosure and penalty provisions to bring the state’s pension systems in line with other state agencies, according to news reports.

The governor’s proposal also follows reports that a prominent Republican lobbyist got $4.5 million from pension deals. from firms wanting to do business with the fund. In an August 3 indictment, US Attorney Patrick J. Fitzgerald accused former pension board trustee Stuart Levine of demanding and receiving hundreds of thousands of dollars in kickbacks from the Illinois Teachers’ Retirement System (See  Report: Illinois Pension Probe Focusing on GOP Bigwig ). Lawyers Joseph Cari and Steven Loren also were indicted (See  Attorneys Indicted In IL State Pension Scandal ).

“We need to restore the public’s faith in our state pension systems and send a message that those responsible with investing public dollars have to be held to the highest ethical standards,” Blagojevich declared in a statement., according to the news reports.

The governor’s proposal also increases penalties for violating ethics guidelines and requires more disclosures of financial interests for pension board trustees, advisers and managers.

Other Issues

The Illiois fund has also been buffeted by the impact of a budget plan that slashed pension payments in favor of funding other state expenses, that was signed into law by Governor Blagojevich earlier this summer.  The measure, which was designed to fill a huge state budget hole by diverting $2 billion earmarked for five state pension funds over the next two years, and would reportedly short the state’s pension systems by $38.5 billion over the next 40 years, according to critics.   The plan would impose pension reforms that Democrats said would save $70 billion in future costs – an estimate Republicans contend is more like $12 billion (see  Illinois Dems Push Through Pension Diversion Budget ).