The core of the task force—co-chaired by former Chicago Board Options Exchange CEO William Brodsky and Associated Fire Fighters of Illinois President Pat Devaney—was the expected conclusion that the state’s roughly 650 police and fire retirement systems generally are just too small to shrewdly invest their money and get the best returns, and they need to be consolidated into two statewide funds, one for police and the other for firefighters.

Almost two-thirds of the funds have assets valued at under $20 million, the task force found, with one of them holding just $2,000 in retirement funds. “The average number of fund participants per plan is only 67 individuals, with 24 plans having only one active participant. That leaves the funds without the liquidity and scale to maximize their return on investment," the report concludes.

One telling statistic: The average annual return between 2004 and 2013 for the 650 funds was just 5.61 percent. In comparison, the Illinois State Board of Investment, which handles two of the four large funds that cover state workers, averaged 6.73 percent. A 7.62 percent return was netted by the Illinois Municipal Retirement Funds, which handles municipal pensions outside of Chicago for non-public-safety workers.

If a new, united police/fire investment fund did as well as other statewide funds, it would generate an additional $820 million to $2.5 billion over the next five years, and $3.6 billion to $12.7 billion over 20 years, the task force said.

However, in a bit of a surprise, the panel balked at also urging consolidation of administrative and not just investment functions of the police/fire funds under one roof, something Pritzker has suggested could save lots of money by slashing overhead.

The report was pretty clear on why: politics. As the report put it, “Such action requires further discussion with those who would be affected by such a change.”

Organized labor traditionally has opposed consolidation, perhaps feeling it can get a better deal with local control. But the report said such consolidation likely would save $14 million a year statewide in reduced administrative costs.

Also as expected, the panel opted to exclude Chicago’s police and fire retirement system from the consolidation proposal. But it also said that though those systems get better returns than the smaller funds, the state should “continue to review the potential advantages of consolidation of these larger systems and to make recommendations to the governor on this issue.”

That's about all that Mayor Lori Lightfoot gets out of the report, which comes less than two weeks before she's scheduled to unveil a 2020 city budget, and cover a $838 million spending gap.

The shocker in the report is something that’s been quietly discussed for awhile in Springfield but has not until now become prominent. That’s the finding that the 2011 reforms may violate federal law.

Under federal standards, local pension systems that substitute for Social Security must pay at least the same level of benefits to get “safe harbor” status, a legal determination that the system follows the law. But, said the report, the creation of Tier 2 not only has irritated new workers who will get lesser benefits than those hired before 2011, but it has raised “significant concerns that the slower Tier 2 pensionable salary cap growth and revised final average salary calculation will be in violation” of Social Security law.

The report does not flatly state the state cut benefits too far, referring only to a “potential and costly safe harbor violation.” But the state would do better to fix it now, rather than waiting until later, when it might have to make expensive retroactive payments.

To deal with that and the “unique” circumstances affecting sometimes dangerous fire and police jobs, the task force recommended the state partially roll back benefit cuts for such workers in the 2011 law.

Specifically, it would revamp annual cost-of-living adjustment from half of inflation to the lesser of inflation or 3 percent, boost payments to surviving spouses to the Tier 1 level and base pensions on the highest four of the last five years of a worker’s career, rather than the current eight of the last 10 years.

Doing all of that would eat up part of the investment gains from consolidation, costing municipalities $70 million to $95 million, but might help the state deal with its safe harbor problem.

Pritzker is holding a new conference on this later today. I’ll have more to add.

Update—In comments after unveiling the plan Pritzker, aware that it faces some opposition, was careful to accentuate the positive, terming it “a step toward good fiscal management.”

But in response to a question, he conceded that the violation of federal law in Tier 2 is real—and will apply to much more than these local police and fire funds. “We have the same challenge facing a number of other systems that will have to be addressed at some point,” he said. Those "are bigger funds,” he said.

Pritzker’s office asked panel members not to comment afterward. But after talking to another of them, I’m told the problem with federal law, while real and expensive, may not be catastrophic.

The key question is how many people in those funds would be impacted. Police and firefighters generally get a pension instead of social security, so Chicago’s huge police fire pension funds would be impacted. But other state workers also get Social Security so are exempted. Teachers are somewhat in the middle.

So how much are we going to be out? It’s undoubtedly a multiple of that up to $90 million (over five years) for the newly consolidated non-Chicago police and fire funds. But how big is hard to tell.

I’m also told there’s more willingness to help Chicago out with its pension woes than was apparent in the text of the report, but that won’t come until next year at the very earliest.

Meanwhile, the Illinois Fraternal Order of Police put out a statement expressing “strong concerns” about the recommendations. Among them: “Only” 50 percent of the board that would govern the new consolidated police pension system would have to be law enforcement officers. But the firefighters are for it.