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Moody’s likes the new pension law

Friday, Dec 6, 2013

* For Bruce Rauner, the Wall St. Journal editorial page, the Illinois Policy Institute and everybody else who’s been loudly complaining that the pension reform bill doesn’t spill enough blood on the floor, Moody’s has some news for you…

* From the rating agency itself…

Illinois Pension Reform Legislation Is Credit Positive

Illinois Governor Pat Quinn yesterday signed a bill (Senate Bill 1) that, according to legislative documents, reduces the state’s unfunded pension liability by about 20%, a credit positive for Illinois (A3, negative), the lowest-rated US state.

The reforms face a legal challenge from organized labor but, if implemented, we believe they will substantially ease the pension funding pressure that has helped trigger five Illinois downgrades since early 2009.

Illinois’ unfunded pension liabilities – which totaled $100 billion in June 2013 on an as-reported basis, or $173 billion according to Moody’s adjusted net pension liability calculation – are the largest of any US state.

The state General Assembly’s passing of SB 1 on December 3 ended a multi-year impasse over how to reverse severe deterioration in the state’s pension funds.

Formal actuarial data on reforms’ effects still to be evaluated

We have yet to receive formal actuarial data detailing SB 1’s effects on accrued pension liabilities and future state contribution requirements, but we will evaluate them, when available. The preliminary estimates disclosed by the state legislature say the reforms will lower contributions during the next 30 years by $160 billion in nominal terms, to $214 billion, while putting the state pensions on a path to full funding over a closed, 30-year period. The state expects to reduce its contribution in the first year after implementation by $1.2 billion, or 20%, according to the legislative figures. The savings come from reforms affecting current members of the State Employees’ Retirement System (SERS), the State Teachers’ Retirement System (STRS), the State Universities Retirement System (SURS) and the General Assembly Retirement System (GARS), which account for the bulk of the state’s unfunded pension liability. SB 1’s reforms do not apply to the fifth statewide plan, for judges.

Supplemental contributions may help state reach full funding faster

Including the impact of supplemental funds provided for in the law, the legislature expects the public pensions to reach fully-funded status in about 25 years. Prior governing statute, by contrast, required annual state contributions based on a goal of achieving an actuarial assets-to- liability (“funded”) ratio of 90% over 50 years. Supplemental contributions would be derived from two sources: 10% of savings from cost of living adjustment (COLA) and other pension plan changes and the revenue currently being used to provide debt service on two pension funding bonds issued in 2010 and 2011. The last of those bonds mature during fiscal 2019, when debt service requirements total $900 million. These supplemental funds, which will total more than $1 billion annually starting in fiscal 2020, would be deposited into the Pension Stabilization Fund in the state treasury and transferred monthly to the systems. These supplemental payments will not be used to reduce the state’s base contributions, which under SB 1 must be enough to achieve full amortization of unfunded liabilities over a 30-year period.

- Posted by Rich Miller        

  1. - wordslinger - Friday, Dec 6, 13 @ 4:04 pm:

    A “credit positive” from Moody’s. Will wonders never cease.

    Maybe Ty gave them a call and said he was on board.

  2. - funny guy - Friday, Dec 6, 13 @ 4:23 pm:

    What Moody’s and the rest of the ratings agencies did to “aid and abet” the financial crisis in 2008 was criminal. The Mafia has nothing on those guys and wall street.

  3. - walkinfool - Friday, Dec 6, 13 @ 4:24 pm:

    Not good enough, Moody’s.

    Fitch, wake up!

    We’ve now done more than any other state, especially when including reforms done in 2010.

  4. - ejhickey - Friday, Dec 6, 13 @ 4:31 pm:

    Let’s be clear. Moody’s would like any action by the State that either brings in more revenue or decreses the payments by the State of Illinois. they are not concerned about the legality or constitutionality of the actions.

  5. - Norseman - Friday, Dec 6, 13 @ 4:32 pm:


  6. - walkinfool - Friday, Dec 6, 13 @ 4:55 pm:

    OK, Mr. Rutherford, your mission, if you choose to accept it, is to make a strong, reasonable case to the rating agencies, that Illinois’ future fiscal health will be improving, justifying higher ratings.

    That is what real Treasurers do.

  7. - The DuPage Bard - Friday, Dec 6, 13 @ 5:07 pm:

    The Trib’s political cartoon should be a pin that says Moody’s and a balloon that says Rauner campaign with the pin popping it.

  8. - Formerly Known As... - Friday, Dec 6, 13 @ 5:21 pm:

    === “may be the largest reform package” tried by any state ===

    Moody’s has a short memory. This bill cuts pension obligations by $160 billion. That is less than the $220 billion we cut pension obligations by in 2010, although those cuts were directed towards new hires.

    And for all this talk of a pension “crisis”? According to a new report coincidentally issued yesterday:

    Illinois unfunded pension liability increased less than $1 billion during fiscal year 2013.

    Sounds like things were already heading in the right direction, even before these massive new diminishments were pushed through the day before.

  9. - Samurai - Friday, Dec 6, 13 @ 5:30 pm:

    Don’t worry Bruce, there is always Tort Reform and Work Comp Reform for you to support.

  10. - RNUG - Friday, Dec 6, 13 @ 5:46 pm:

    The key phrase above is “if implemented”. In that paragraph they gloss over the union legal challenge like it is nothing more than a nuisance lawsuit. They’re probably making a mistake there.

    It appears what they did like was action, any action. The one thing they really seemed to like is the supplemental money that will be going into the systems.

    Today was also an “up” day in terms of economic reports. Looks like some of that optimism spilled over to Moody’s.

Sorry, comments for this post are now closed.

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