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Unfunded pension liabililties grew a half billion dollars more than expected

Wednesday, Dec 4, 2019 - Posted by Rich Miller

* Whew…

Yep. Click here and you’ll see COGFA projected in April that the unfunded liability by the end of Fiscal Year 2019 would be $136.8 billion. Click here and you’ll see that COGFA’s most recent report shows the actual unfunded liability for FY19 was $137.3 billion.

* More from Hannah’s report

The total amount of pension costs included in the current fiscal year’s budget is $9.2 billion — which represents 22 percent of the total amount of state spending in the current $40.7 billion budget. The Governor’s Office of Management and Budget estimates the state budget for the 2021 fiscal year will grow to $42.2 billion, and the estimated $9.8 billion in pension contribution costs for the state’s five pension systems would represent 23 percent of the state’s operating budget.

When debt service payments for past pension bonds — including pension funding bonds from the 2003, 2011 and 2020 fiscal years — are included, along with the state’s contribution to the Chicago Teachers’ Pension Fund, the total amount of pension costs the state expends represents over a quarter of the state’s overall operating budget. Illinois is projected to spend $708 million in debt service for its pension bonds in the 2020 fiscal year.

The estimated costs for next year could climb even higher, as represented by the increase between actuarial demands for the pension systems this time last year and what ended up being included in the state’s fiscal year 2020 budget. Additionally, the Teachers’ Retirement System — by far the largest retirement system of the five under state control — actuarial funding policy calls for contributions of $8.3 billion, $3 billion more than called for in state statute. […]

The growth in unfunded liabilities to $137.3 billion during the 2019 fiscal year is “largely due to the continued actuarially insufficient State contributions and lower-than-expected investment returns,” according to COGFA’s report.


  1. - Lucky Pierre - Wednesday, Dec 4, 19 @ 10:02 am:

    Someone should write a book about this debacle

    While Springfield slept

    Denial is not just a river in Egypt

    How Win Government Union Friends and Influence People to Leave Illinois

    All would make great titles

  2. - SSL - Wednesday, Dec 4, 19 @ 10:05 am:

    I wonder if there are any areas that could use that $500 million to address critical services. Maybe DCFS has some issues they need to focus on?

  3. - Sue - Wednesday, Dec 4, 19 @ 10:06 am:

    Stories like this is why the WSJ reports today thT the suburbs and City of Chicago are the worst housing market out of 100 large metropolitan areas

  4. - Grandson of Man - Wednesday, Dec 4, 19 @ 10:08 am:

    We finally have a bona fide chance to address pension debt in the best and most reasonable way: more revenue by way of a graduated income tax. Cutting pensions further does not address the current debt. The message is crystal clear for advocates of the Fair Tax. The wealthiest, who’ve by far gained the most income in Illinois and nationally, have to pay more.

  5. - Steve - Wednesday, Dec 4, 19 @ 10:13 am:

    One of the major problems coming is any downturn in the S&P 500 will create even more problems.

  6. - Lucky Pierre - Wednesday, Dec 4, 19 @ 10:17 am:

    Lower than expected investment returns in a year where the stock market is at an all time high?

  7. - Fixer - Wednesday, Dec 4, 19 @ 10:19 am:

    The contributions are a huge issue, but how long have we been reading about lower-than-expected returns on these funds? Eventually the expectations for these returns need to be reexamined or they need to find someone new to do the investment.

  8. - Sue - Wednesday, Dec 4, 19 @ 10:20 am:

    Grandson- the 3 billion Pritzker plans to raise from the 3 percent doesn’t do anything to address the pension problem. If you believe it does I have a bridge for sale

  9. - Perrid - Wednesday, Dec 4, 19 @ 10:24 am:

    Sue, you need to stop drinking the Kool-Aid. Imagine saying that billions of dollars more in revenue “doesn’t do anything to address the pension problem.” I’m sorry but that’s just a silly thing to say.

  10. - Oswego Willy - Wednesday, Dec 4, 19 @ 10:24 am:

    === the 3 billion Pritzker plans to raise from the 3 percent doesn’t do anything to address the pension problem.===

    The ROI being missed here and the contributions needed to meet the ramp targets are at play here.

    Are you suggesting all liabilities are to be completed by, say, the end of business… today?

    It’s concerning that investment returns missed expectations. That needs to be addressed as well. Things are trending in the wrong direction.

  11. - Back to the Future - Wednesday, Dec 4, 19 @ 10:28 am:

    This is a serious problem. I think it is time for Governor PR Pritzker to do a press conference and let us know he is ”concerned” and “outraged”.

  12. - Donnie Elgin - Wednesday, Dec 4, 19 @ 10:31 am:

    Illinois and most states use a rate of approx 7% for investment returns for their public pensions. Single employee plans due to ERISA and The Pension Protection Act of 2006 have had to adopt a much lower and more realistic rate assumption. When the investment return assumptions go down the unfunded liabilities go way up. Don’t take my word for it - just search on public pension assumption rates.

  13. - Merica - Wednesday, Dec 4, 19 @ 10:34 am:

    Let’s increase the income tax, let’s create a graduated income tax, let’s legalize pot and tax it, let’s increase the gas tax, let’s increase gambling fees, let’s increase car registration fees….

    and how about we don’t put any of that new revenue into the pension funds?

    Expect a lot more stories like this

  14. - Anyone Remember - Wednesday, Dec 4, 19 @ 10:37 am:

    Report of Illinois Pension Laws Commission, 1917: “The general condition of the pensions operating under the laws of Illinois may be correctly described as one of insolvency. That is to say, viewed from the standpoint of sound finance and of having the necessary reserves to carry out the payment laws, there are immense deficiencies in the existing funds.”

    Perhaps Rich should require, before allowing a commenter to post on pension matters, an acknowledgement of having read the above quote?

  15. - Fixer - Wednesday, Dec 4, 19 @ 10:41 am:

    Good information Donnie Elgin. Thank you.

  16. - DarkDante - Wednesday, Dec 4, 19 @ 10:43 am:

    ==Let’s increase the income tax==

    They didn’t.

    == let’s create a graduated income tax==

    They are working on it.

    ==let’s legalize pot and tax it==

    Hasn’t started yet, not intended to close budget deficit.

    ==let’s increase the gas tax, let’s increase gambling fees, let’s increase car registration fees==

    Enjoy the structually sufficient bridges and roads this investment will buy you over the next 5 years.

    The state is a financial and management disaster. There ain’t no single silver bullet to kill the pension monster, and the problem ain’t gonna fix itself overnight. Pot, gas taxes, casinos, the graduated income tax, payment into the new funding formula - and much else besides - are all important pieces of the puzzle.

  17. - Anon - Wednesday, Dec 4, 19 @ 10:43 am:

    Is this a matter of relatively poor performance or overly optimistic projections? Are the funds performing worse than other state pension funds, and if so, is that because Illinois is less risk averse?

  18. - Sue - Wednesday, Dec 4, 19 @ 10:50 am:

    Anon- it’s because the folks at TRS have had for at least 10 years an outside allocation to hedge funds which have underperformed. Most large Plans began reducing Hedge Fund exposure years ago-TRS increased its commitments. Go figure.

  19. - Chambanalyst - Wednesday, Dec 4, 19 @ 10:59 am:

    Page 59 of SURS annual report indicates the asset allocation for the retirement plan. Granted, there are multiple retirement systems, each with their own asset allocation, but I think it’s fair to reason SURS is a good example to base analysis off of. 23% allocation to US equities, 27% to non-US equities. The YTD performance of similar funds are both up over 20%. Now, one could argue that a pension system has heavier exposure to fixed income investments like bonds, so asset returns naturally will be lower, right? The SURS allocation indicates a 19% exposure to the US Agg. Bond Index. That US Agg. Bond Index fund shows nearly an 11% 12 month return.

    What gives? I would very much be interested in an audit or analysis in greater detail of the retirement systems’ returns. Unless our expected rate of return has increased significantly, we should be outperforming expectations this year.

    Our sorry state.

  20. - Chambanalyst - Wednesday, Dec 4, 19 @ 11:00 am:

    Ah, sorry. Meant to post my sources!

    1. SURS 2018 Investment Report

    2. Vanguard Fund Returns

    3. US. Agg. Bond Index Fund Returns

  21. - RNUG - Wednesday, Dec 4, 19 @ 11:10 am:

    This is simply the result of:

    1) The Edgar pension ramp, as revised / modified, contributing less than the actuarially required amount; this is a feature, not a big or mistake.

    2) less than projected returns … which is a real problem that needs to be addressed; it is still possible to make 7% or 8% annually long term IF they get some better investment advisors.

    Now a bit of a rant … other than the need for short term (1-5 years) cash held in staggered bond and money market funds, the State should be aggressively invested. Not saying they should be in super risky stuff but the truth is the State is an ongoing enterprise with steady income (plus additional revenue raising capability IF the Legislature has the political will) and very conservative investing is NOT what the State needs; what the State needs is average or better ROI.

  22. - justacitizen - Wednesday, Dec 4, 19 @ 11:13 am:

    Nice 200+ page report full of (too much) detail. I wonder how many of the members read beyond the summary?

    It’s amazing how the pension funds investments have underperformed when the markets are doing so well.

  23. - Blue Dog Dem - Wednesday, Dec 4, 19 @ 11:20 am:

    Just wondering if Governor Edgar is discussing this in his government classes.

  24. - City Zen - Wednesday, Dec 4, 19 @ 11:21 am:

    The Ghost of COFGA Past told me unfunded liabilities in 2020 would be $119 billion, not $139 billion, and the state contribution would be $1 billion less. He needs to sync up with the other ghosts.

  25. - Anyone Remember - Wednesday, Dec 4, 19 @ 11:33 am:

    City Zen -
    That presumption was calculated before the full impact of the 5,000 strong “May 2012 Class of Retirees” was known. You remember, the class that was double projected size because Pat Quinn announced he was raising the retirement age for then current state employees. It causes such a premature rush for the exits that Speaker Madigan actually announced no such legislation would be considered by the House. Quinn’s trick to reduce headcount below 50 thousand vy June 2014 (his 2105 budget documents) only cost us $20 Billion.

  26. - Huh? - Wednesday, Dec 4, 19 @ 12:24 pm:

    “Report of Illinois Pension Laws Commission, 1917″

    And in the past over 100 years, when has the State of Illinois ever missed a pension payment or gone bankrupt because of the apparent insolvency of the pension funds?

    Short answer - Never.

  27. - Merica - Wednesday, Dec 4, 19 @ 12:52 pm:

    So much is made of this “1917 report” i guess the idea is that “nothing has changed” so don’t worry about it.

    I looked at the report. The unfunded amount in three pension systems was approximately $320M (in 1917 dollars). When you adjust that amount for inflation (to 2019 dollars) its $6 Billion (plus of minus a billion) an amount that is not comparable to our current pension crisis (yes it’s a crisis).

    if you want to compare apples to apples let’s talk about the economic growth rate in 1917, 18%, vs. now, 2.3% (likely not accurate and inflated thanks to a Trump).

  28. - Sickntired - Wednesday, Dec 4, 19 @ 12:56 pm:

    And if they ever offered another ERI, there would be thousands that would jump at that to. Makes you wonder what would happen if they let tier 1 buy needed time up to 5 years. How many would run? Without an ERI how many will stay longer than the 5, and do little, to drive up their pension numbers? Would it save the state more money in the long run to get these older, higher paid, employees out and replace them with cheaper tier 2 employees?

  29. - Red Ranger - Wednesday, Dec 4, 19 @ 1:07 pm:

    Huh?, the question isnt’ whether or not IL will be able to make the payments; the issue is almost a quarter of the state’s budget is now going to pensions. Combine that with Medicaid, and nearly 45% of state budget is pensions and Medicaid. Yet so many people wonder why the state’s share of higher ed and local education continues to decline.

  30. - City Zen - Wednesday, Dec 4, 19 @ 1:13 pm:

    ==Would it save the state more money in the long run to get these older, higher paid, employees out and replace them with cheaper tier 2 employees?==

    Well, you’d have old employees now drawing pensions years earlier than planned from an under-funded pension system rather than continue contributing. Then there’s the matter of pay-as-you-go health care obligations for those retirees. And while that money is being spent, you still have to pay their replacements. In the end, you spend more overall for a less seasoned workforce.

    If the state is indeed understaffed as we’ve been told, no early retirement incentives should be given.

    ==So much is made of this “1917 report”==

    I can show you reports of teacher shortages that are just as old.

  31. - thoughts matter - Wednesday, Dec 4, 19 @ 1:16 pm:


    Surely you aren’t implying that older, highly paid workers == do little == just because they are older? Because that would be age discrimination. Surely you understand that older, highly paid workers are often the majority of the workers in a given area, work just as hard as anyone else, and serve as a knowledge base to new employees and keep people from repeating past mistakes?

    I’d be glad to take an ERI, but stop implying that I don’t do my share of work.

    Also keep in mind that just because someone is eligible to retire by state standards doesn’t mean that their retirement is enough to sustain them thru retirement. Not every tier 1 worker eligible to retire has anywhere near 44 years in (the service years needed for their maximum pension). Some of them may only have 8-10 years in if they hired in out of the private sector.

  32. - PlsSenSorMe - Wednesday, Dec 4, 19 @ 1:21 pm:

    I think the actual financial shortfall is caused by billionaires hiding income in Caribbean trust funds. That money escapes both state and federal taxation.

    When that problem is addressed, I will consider a progressive income tax.

  33. - Davos - Wednesday, Dec 4, 19 @ 2:18 pm:

    =And if they ever offered another ERI, there would be thousands that would jump at that to. Makes you wonder what would happen if they let tier 1 buy needed time up to 5 years. How many would run? Without an ERI how many will stay longer than the 5, and do little, to drive up their pension numbers? Would it save the state more money in the long run to get these older, higher paid, employees out and replace them with cheaper tier 2 employees?=

    The last ERI increased pension liabilities by $2B.

  34. - Just A Dude - Wednesday, Dec 4, 19 @ 2:48 pm:

    Doubt there will be another ERI anytime soon. People are retiring fast enough the way it is.

  35. - Shemp - Wednesday, Dec 4, 19 @ 2:53 pm:

    Sounds bad, but it’s almost a rounding error in a number that large. If anyone else can forecast a pension fund liability within 0.03%, I think you can write your own check to the top of any accounting firm.

  36. - RNUG - Wednesday, Dec 4, 19 @ 2:56 pm:

    == Makes you wonder what would happen if they let tier 1 buy needed time up to 5 years. How many would run? ==

    In 2002, about 1 in 7 under SERS took the ERI. It was a huge shift of State costs from GRF to the SERS retirement fund. In 2004 about 1 in 13 took the less generous terms offered then. Same result.

    My guess … given the length of time since the last ERI, 1 in 5 or more would take a deal and run.

    == Would it save the state more money in the long run to get these older, higher paid, employees out and replace them with cheaper tier 2 employees? ==

    Hard to say for sure. In 2002 State employee GRF paid personnel costs went way down, but that is because people were not replaced. (This started the hollowing out if State services). But, as others have pointed out, the State was still paying the health insurance for SERS retirees, so there was basically no savings there. And when the State did hire replacements, their combined salary and insurance, and other non-retirements benefits were not much less than the salary of the person they replaced. Total / overall State costs increased but GRF personnel line item expenditures went down some.

    Today, with the need to expand State personnel and services, my gut says any ERI “savings” would be less than the expanded hiring while also increasing SERS’ total liability … even if you consider the small cash influx to SERS from the employees buying service time (I’m assuming the same 4% employee contribution per year used in 2002).

    So I don’t see the State overall saving any money on an ERI. The only thing it would do is cap the retirement liability at +5 years for the Tier 1 age group that would be eligible for the ERI.

  37. - Sure thing - Wednesday, Dec 4, 19 @ 3:03 pm:

    When is it they go hat in hand to the feds?

  38. - Nicky - Wednesday, Dec 4, 19 @ 3:49 pm:

    Also. Retirees won’t Be paying income tax on pension
    And won’t be paying into pension fund
    And given the premium free healthcare for those with over 20 years that id say is the majority of tier 1

    It seems better for the state to offer incentives to keep tier 1 working longer given the above and the fact there is a delay to drawing pension along with guaranteed cola

  39. - OpentoDiscusssion - Wednesday, Dec 4, 19 @ 3:55 pm:

    RNUG or anyone else.

    What would the unfunded liability of SS be if held to the same accounting standards?

    Real question, I don’t know but would like to.

  40. - OpentoDiscusssion - Wednesday, Dec 4, 19 @ 4:00 pm:

    Any ERI would be a disaster for the state both financially and in terms of public perception.

    Just to let everyone know SURS employees were not eligible for either ERI. The U of I administration did not want it and therefore they told the GA members what to do (or not do) and naturally they acted liked little bobble heads.

    The unions were totally MIA and did nothing.

  41. - Publius - Wednesday, Dec 4, 19 @ 4:08 pm:

    If the legislature appropriates funding to equal the amount of money paid out to retirees and administrative costs annually ( roughly 5 billion) the fund will never be out of money

    Can we all stop worrying about creating a $200 billion pool of money a broker will invest in the stock market

  42. - Oswego Willy - Wednesday, Dec 4, 19 @ 4:21 pm:

    - Just Me 2 -,

    For the 65,813th time.

    We are all taxpayers

  43. - PTown Cynic - Wednesday, Dec 4, 19 @ 4:37 pm:

    I always see quite a bit of complaining about pensions and taxes here. What are your solutions for resolving this, if not taxes? Current pensions have been protected in court. Ramps, pension holidays, etc. I get it, but we have to move forward. The minority party’s solution is job growth, well that will not happen when people constantly gripe about the state. Come with new ideas, not old gripes.

  44. - Sue - Wednesday, Dec 4, 19 @ 4:53 pm:

    The pay as you go idea is the first intelligent post here today. Why continue to give the various lay boards comprised by non investors billions of extra money as they fail year after year to achieve decent returns. Why the State doesn’t impose the likes of a Goldman or Blackrock to manage what are essentially taxpayer funds is a great question. Who would be better to manage our pension Funds-Larry Fink at Blackrock or teachers elected because they are active unionists and Governor appointees selected for political reasons. Every dollar these funds can earn is one less dollar taxpayers need be responsible for so for everyone’s benefit it’s time to professionalize the investment management of all State and municipal pension plans

  45. - theCardinal - Wednesday, Dec 4, 19 @ 4:59 pm:

    No worries just big ole tax increase (graduated) for 20-30 years will have this thing pounded right out. Maybe we could sell the naming rights to the state motto on license plates… The Land of Lincoln Bank and Trust offing 3.5% CDs for 6months. (may be penalty for early withdrawal)

  46. - Anyone Remember - Wednesday, Dec 4, 19 @ 6:51 pm:

    OpentoDiscusssion -
    SS was pay as you go, until Greenspan convinced Reagan to make SS solvent until 2050ish or so by raising the tax rate in 1982-83. The excess funding was used to mask the deficit caused by Reagan / Stockman’s “Supply Side Economics” … . And when the Paul Ryans of the world talk about entitlement reform, that is code for “we don’t want the General Fund to pay back what it borrowed from Social Security” … .

  47. - OpentoDiscusssion - Wednesday, Dec 4, 19 @ 7:29 pm:

    Pay as you go might be find for us who have already retired- we can probably slip by.

    But for younger state employees it is a very, very bad concept. And if I have to explain that to anyone they THEY really don’t understand the issue.

  48. - IThink - Wednesday, Dec 4, 19 @ 10:00 pm:

    “ Stories like this is why the WSJ reports today thT the suburbs and City of Chicago are the worst housing market out of 100 large metropolitan areas”

    You got a link? I couldn’t find it after a quick search?

  49. - RNUG - Wednesday, Dec 4, 19 @ 10:01 pm:

    == When is it they go hat in hand to the feds? ==

    On the pensions? The Feds will never bail Illnois out …

  50. - OpentoDiscusssion - Wednesday, Dec 4, 19 @ 11:19 pm:

    @ IThink

    Kind of late i the night but here it is

  51. - Anon - Thursday, Dec 5, 19 @ 8:24 am:

    The blame falls on the legislators,for passing bills they don’t understand, for not demanding proof of cost or cost savings, for trying to make a name for themselves pretending they are doing something, and to the public for not asking for details, number reviews and demanding to know the impact.

  52. - Tom - Thursday, Dec 5, 19 @ 9:52 pm:

    Another sad fact - that $137 billion amount doesn’t even include the unfunded health care benefits the state is on the hook for. Conservatively, that’s another $70 billion the state has failed to set aside.

    Simply put, there is no amount of tax hikes and service cuts that will ever allow these benefits to be paid in full. The only option is a restructuring of the debt. Period.

    The state will get an idea of what’s coming when Chicago is forced to restructure its pension debt in a few years. Chicago’s pension payments are set to increase by $1 billion over the next 4 years. That can’t be done. The obligations will need to be restructured either by agreement or through bankruptcy.

Sorry, comments for this post are now closed.

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