* Civic Federation a little over a year ago…
The assumed reductions in State pension contributions are the result of three provisions in the FY2019 budget legislation. The most important is a voluntary buyout plan that offers certain employees who are about to retire upfront cash payments—in exchange for delayed and lower automatic annual increases in their benefits. The plan accounts for $382 million, or 86%, of the total budgeted State pension savings for the fiscal year that began on July 1, 2018.
Public records show that the $382 million figure comes from actuarial reviews of a different pension buyout plan. As a result, it is not clear whether the savings estimate applies to the enacted measure. Even if the savings estimate is relevant, it remains to be seen whether the assumed participation rate of 25% is realistic.
The $382 million savings estimate is based on actuarial reviews of House Bill 5472. The measure has not come up for a vote in the General Assembly, but the actuarial studies were prepared by the pension funds at the legislature’s request in advance of a public hearing last February. There was no public hearing on the enacted pension measure. [Emphasis added.]
I totally missed that story last year.
* And now…
A new pension buyout plan designed to save hundreds of millions of dollars for the State of Illinois in the fiscal year that just ended actually generated relatively minor savings in FY2019 and does not appear likely to meet the annual cost-reduction target over the next few years.
The shortfall has occurred despite robust participation by members of the State Employees’ Retirement System (SERS), the pension fund that was supposed to account for most of the savings. The problem stems from the original savings estimate, which was overstated because it was based on a different buyout plan and further inflated due to technical miscalculations, according to SERS officials. […]
Actual General Funds savings are now pegged at about $13 million, largely from the COLA buyout at SERS, according to recent reports by the three pension funds. […]
To pay for the buyouts, the State was authorized to sell up to $1 billion of bonds. So far, the State has issued $300 million at an interest cost of 5.74%. Of the $298.5 million in net proceeds, records from the Illinois Comptroller’s website show expenditures of $29.6 million for buyouts at SERS and $1.6 million for buyouts at TRS. SERS reports having spent an additional $17.6 million in FY2019, which is not yet reflected in the Comptroller’s records. The remaining bond proceeds continue to cost the State interest, but have not yet resulted in any pension savings.
So, we’ve got a big pile of borrowed money just sitting there piling up interest and a cost savings projection that is wildly out of whack.
…Adding… Hannah Meisel at the Daily Line wrote about this last week and I missed it somehow. Click here.