IBA Compliance Connection

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We have a police pension fund account for a local village. The village CFO wants to know if the pension fund account should be collateralized, since all other village accounts that hold public money are collateralized. Our position has been that although the police officers’ deferrals are matched by funds from the village, the funds cease to be public money once placed in the pension account since they belong to the police officers. Are we correct that this account does not need to be collateralized?

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Yes, you are correct that pension fund accounts do not need to be collateralized. The funds held in a pension fund account are specifically excluded from the requirements of the Public Funds Investment Act.

For resources related to our guidance, please see:

  • Public Funds Investment Act, 30 ILCS 235/1 (“The words ‘public agency’, as used in this Act, mean the State of Illinois, the various counties, townships, cities, towns, villages, school districts, educational service regions, special road districts, public water supply districts, fire protection districts, drainage districts, levee districts, sewer districts, housing authorities, the Illinois Bank Examiners’ Education Foundation, the Chicago Park District, and all other political corporations or subdivisions of the State of Illinois, now or hereafter created, whether herein specifically mentioned or not. This Act does not apply to the Illinois Prepaid Tuition Trust Fund, private funds collected by the Illinois Conservation Foundation, or pension funds or retirement systems established under the Illinois Pension Code, except as otherwise provided in that Code.”)
  • Public Funds Investment Act, 30 ILCS 235/6(d) (“Whenever a public agency deposits any public funds in a financial institution, the public agency may enter into an agreement with the financial institution requiring any funds not insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration or other approved share insurer to be collateralized by any of the following classes of securities, provided there has been no default in the payment of principal or interest thereon: . . .”)
  • Public Funds Deposit Act, 30 ILCS 225/1 (“. . . No bank, savings bank, or savings and loan association shall receive public funds as permitted by this Section, unless it has complied with the requirements established pursuant to Section 6 of the Public Funds Investment Act or is otherwise exempt from compliance as authorized by Section 6.5 of that Act.”)