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Illinois still climbing the pension ramp as unfunded liabilities grow $3 billion

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Illinois

* Yvette Shields at the Bond Buyer…

Illinois piled a few billion dollars more onto its unfunded pension tab last year as contributions remain below the actuarial levels needed to keep it from falling further behind.

The unfunded liabilities rose to about $137 billion from $134 billion, according to a review of the preliminary actuarial valuation reports produced by the five funds that make up the state’s system. The reports were released over the last week. […]

The Teachers’ Retirement System accounts for $78.1 billion of the unfunded fiscal 2019 tab, up from $75.3 billion a year earlier, according to the report compiled by Segal Consulting. The funded ratio held nearly steady at 40.6% compared to 40.7% a year earlier. […]

The State Employees’ Retirement System, or SERS, accounted for $30.3 billion of the unfunded tab, down slightly from $30.4 billion a year earlier with the funded ratio growing slightly to 37.8% from 36.5%, according to the valuation report prepared by Gabriel, Roeder, Smith & Co. The fiscal 2021 contribution was set tentatively at $2.35 billion, up from $2.3 billion this year and below an ADC level of $2.9 billion.

* Related…

* Competitive Illinois GO deal brings narrower spreads

* Illinois’ municipal market penalty eases in $750 mln bond sale

posted by Rich Miller
Thursday, Nov 7, 19 @ 9:45 am

Comments

The Dow and S & P are at all time highs but you would never know it as far as Illinois pensions are concerned

One more reason JB’s 3.4 billion dollar fair tax proposal is a Trojan horse.

He doesn’t want to use the extra revenue to pay the existing pension payment schedule which Illinois is currently underfunding

Comment by Lucky Pierre Thursday, Nov 7, 19 @ 10:01 am
The solutions are:

1)Taxes must go higher
2)Government spending must be cut (on pensions and non-pensions)
3)Polices to spur economic growth bringing in more tax revenue.
4)All of the above; or some of the above

Comment by Steve Thursday, Nov 7, 19 @ 10:10 am
“The solutions are:”

You forget a really big one:
Move out of IL and remove yourself from the situation.

Comment by Donnie Elgin Thursday, Nov 7, 19 @ 10:18 am
=== You forget a really big one:
Move out of IL and remove yourself from the situation===

… and yet you’re still here?

Comment by Oswego Willy Thursday, Nov 7, 19 @ 10:19 am
@LP

Are these numbers based on today’s stock market levels? That would be some pretty quick analysis. You comment also implies that the stock market is somehow tied to the Fair Tax proposal, but doesn’t offer why.

Can you expand on how having an inflated stock market and still underfunded pensions is proof that we don’t need more revenue for the pension hole?

Comment by supplied_demand Thursday, Nov 7, 19 @ 10:22 am
“… and yet you’re still here?”

To Everything There Is a Season.

Comment by Donnie Elgin Thursday, Nov 7, 19 @ 10:22 am
=== To Everything There Is a Season.===

Welp, if you’re gonna leave in the “season”, spare us your angst. You’re gonna leave. Congrats.

Comment by Oswego Willy Thursday, Nov 7, 19 @ 10:25 am
Donnie, do you need to borrow my modified Thanos glove? With one snap, your house is sold at full asking price and replaced with a new one at your new location while you and your spouse simultaneously find immediate employment and your kids are teleported to their new school. One snap only.

So what are you waiting for? Why are you still here?

Comment by City Zen Thursday, Nov 7, 19 @ 10:27 am
“The Dow and S & P are at all time highs” So you’re suggesting gambling pensions on stocks and not a lower risk, more stable investment vehicle? What do you suggest when the Dow and S & P are not at all time highs?

Comment by Skeptic Thursday, Nov 7, 19 @ 10:34 am
Maybe he’s still here because currently it is in his best interest to be here. No tax on retirement income is a pretty sweet deal.

Comment by SSL Thursday, Nov 7, 19 @ 10:37 am
The unfunded pension liability is precisely why we need the highest incomes to pony up more tax revenue. When so many others have had to sacrifice, the gravy train for upper incomes has to end. The case is compelling. We can’t cut our way out of debt. When the 2011 tax hike sunset in 2015, we didn’t get an economic boom to have generated in more tax revenue.

Comment by Grandson of Man Thursday, Nov 7, 19 @ 10:40 am
Hope the politicians try something new…listen to the actuaries for a change. Ramps don’t work. It is a debt problem. Need to reset with steady payments, no ramps. Again, listen to the actuaries. No more pension holidays or skipped/reduced employer contributions.

Comment by RankandFile Thursday, Nov 7, 19 @ 10:40 am
Skeptic- one of the problems is that the folks running these funds have been underweighted stocks for at least a decade. Real estate and private equity have done fine. In a nutshell the love affair with hedge funds which for at least 10 years have been drags on returns are responsible for the performance. And yet the the same people are running investments

Comment by Sue Thursday, Nov 7, 19 @ 10:43 am
==The solutions are==

1. Pass the fair tax proposal
2. Allow (and tax) sports gambling.
3. Shut up and pay…sooner rather than later…while denouncing every Ives-type legislator who touts pension reform.

Comment by Jocko Thursday, Nov 7, 19 @ 10:44 am
Everyone hired the last 8-10 years is a tier 2 retiree.Sooner or later all employees will be tier 2.!No one mentions how the liability drops when all the tier 1 ones are gone.

Comment by What about this Thursday, Nov 7, 19 @ 10:44 am
=== because currently it is in his best interest to be here. No tax on retirement income is a pretty sweet deal.===

There are those who yell at the clouds on their porches, and yet at times they are arguing against their best interests… abd forget that.

Good times.

To the post,

The revenues that will realized *if* a progressive tax is implemented, gambling takes off, legalized cannibis too… we don’t know what that snapshot will look like.

This obsession with business as the measure of government health is exactly why those so willing to think and act as though governing is like running a business fail at the governing.

Comment by Oswego Willy Thursday, Nov 7, 19 @ 10:44 am
Grandson- there aren’t enough rich people to solve the problem . Don’t you ever tire with your class warfare. It’s the wealthy Who provide the jobs yet you want to drive them away

Comment by Sue Thursday, Nov 7, 19 @ 10:46 am
Grandson,

Why are the Democrats endorsing kicking the pension can further down the road by not using the extra tax revenue from the fair tax to pay the pensions?

JB proposed lowering what we are paying now by 1 billion a year for the next 8 years?

Comment by Lucky Pierre Thursday, Nov 7, 19 @ 10:46 am
The actuaries demanded a lower rate of return in their projections. So this is based on The pension funds getting a lower rate of returning they have been.
The ramp is lower but being a ramp it shifts . It’s very close to the actuarial amount.

Comment by Not a Billionaire Thursday, Nov 7, 19 @ 10:48 am
==No tax on retirement income is a pretty sweet deal==
Absolutely, but it takes a lot of Splenda to hide the feculent taste of a 3% property tax rate, especially when the assessed value of your house is three or four times the size of your income. Maybe the answer is to put a mobile home on a piece of rural property, and pay the $0.15/sq. ft. tax on it (although that’s not a very responsible solution, you would effectively be shifting the tax burden to someone else by doing so).

Comment by Stuntman Bob's Brother Thursday, Nov 7, 19 @ 10:50 am
Before this appears in IPI related / affiliated organs, is the increase due to market conditions, or is it designed into the Edgar Ramp?

Comment by Anyone Remember Thursday, Nov 7, 19 @ 10:51 am
==So you’re suggesting gambling pensions on stocks and not a lower risk, more stable investment vehicle?==

Here’s the TRS breakdown of investments, according to their CAFR. I wouldn’t conssider most of these “lower risk, more stable” investment vehicles.

U.S. equities large cap 15.0%
U.S. equities small/mid cap 2.0
International equities developed 13.6
Emerging market equities 3.4
U.S. bonds core 8.0
U.S. bonds high yield 4.2
International debt developed 2.2
Emerging international debt 2.6
Real estate 16.0
Real return 4.0
Absolute return 14.0
Private equity 15.0

Comment by City Zen Thursday, Nov 7, 19 @ 10:52 am
=Don’t you ever tire with your class warfare.=

Easy there Don Jr. This is not warfare, it is taxation which is needed to pay for things.

Unlike the new right wing that wants things for free.

Comment by JS Mill Thursday, Nov 7, 19 @ 10:56 am
What worries me is what is it is not in those private equity and Real estate funds.
Btw base s on the amount of carried interest made by those over a million they should be paying taxes on the massive fees they charge our pensions for their RE and PE funds….

Comment by Not a Billionaire Thursday, Nov 7, 19 @ 10:57 am
=Real estate and private equity have done fine. In a nutshell the love affair with hedge funds which for at least 10 years have been drags on returns are responsible for the performance. And yet the the same people are running investments.=

You do realize that SURS has dropped all hedge fund managers and ISBI is also on its way from dropping all hedge fund managers.

Comment by Davos Thursday, Nov 7, 19 @ 10:57 am
==The Dow and S & P are at all time highs==

Trading volume is not necessarily a sign of health. In fact the freakishly high trading volume of recent years indicates a lot of waste produced in the finance sector that does nothing more than make a select few richer. Do you ever wonder why new instruments are being invented all the time? It’s to keep the churn going. It feeds volatility and worsens income inequality.

Comment by yinn Thursday, Nov 7, 19 @ 10:58 am
The grass is always greener on the other side of the fence.

Living in another state may look like a sweet deal until you actually do it. Lower income or property tax may just mean higher taxes or fees elsewhere. Sales, hotel, license plates, etc. I don’t know anyone who actually moved out of state for tax reasons. It’s all been job, weather, proximity to family, etc.

Comment by thoughts matter Thursday, Nov 7, 19 @ 11:02 am
=You do realize that SURS has dropped all hedge fund managers and ISBI is also on its way from dropping all hedge fund managers.=

My apologies, SURS still utilizes such funds, as does ISBI, but ISBI is transitioning away from such funds.

Comment by Davos Thursday, Nov 7, 19 @ 11:03 am
Since about 70% of the burden is teachers, wouldn’t it make sense to reform there? Teachers don’t pay social security therefore they get more in state retirement to make up the difference. If they made it so future teachers paid social security and lowered their benefits to be like state employees, wouldn’t that also take a hefty burden off of the state in time? There are probably many other factors to this idea as well but since the TRS is 70% of the problem, tackle that one first.

Comment by Just Saying Thursday, Nov 7, 19 @ 11:06 am
City Zen explains the performance problem- those allocations to alternatives and real return ( a/k/a hedge funds) have hurt performance for at least 10 years. Most pension funds have reduced or dumped hedge funds due to fees and lagging performance and yet TRS retains the overweight allocations. Have to wonder why and why the investment managers are still working at TRS

Comment by Sue Thursday, Nov 7, 19 @ 11:16 am
==Since about 70% of the burden is teachers==

The ‘burden’ is all of us electing craven legislators who didn’t pay the proper amount as they went along. Since they represented our interests, WE are on the hook.

Comment by Jocko Thursday, Nov 7, 19 @ 11:16 am
Steve…… I’ve been working for nearly 40 years, and I’ve been promised a particular level of pension. You are saying that those pension should be cut. Besides the obvious unfairness, and the fact that I can’t go back in time and change my financial behavior based on that promise. Do you realize all the problems that would ensue if the government backed out of their promise? If they can back out of the pension promise, they can back out of any promise, bonds or otherwise.

Comment by ajjacksson Thursday, Nov 7, 19 @ 11:17 am
Just saying…..If teachers are required to pay Social Security, and the school have to match that amount for every single teacher. That will cost the schools far more than they’re paying now. Is that really what you want? Do you want cost of schools to go up?

Comment by ajjacksson Thursday, Nov 7, 19 @ 11:19 am
“Since about 70% of the burden is teachers, wouldn’t it make sense to reform there?”

Not without upper incomes paying a higher state income tax, at the very least. We already reformed pensions with Tier 2 under Quinn. This was my earlier point.

Comment by Grandson of Man Thursday, Nov 7, 19 @ 11:21 am
==Don’t you ever tire with your class warfare.==

Republicans never seem to tire of engaging in class warfare against poor and middle class people, even when the economy is good. It would be poor sport to just let y’all have all the fun

Comment by Lester Holt’s Mustache Thursday, Nov 7, 19 @ 11:24 am
There is no way, absolutely zero chance, that the state does not honor the pension liability. The question is how does it go about the process of doing so, and what will the state look like when the smoke clears.

Comment by SSL Thursday, Nov 7, 19 @ 11:28 am
City Zen: Show me a class of investments that has significantly higher returns without significantly higher risk.

Comment by Skeptic Thursday, Nov 7, 19 @ 11:33 am
==There are probably many “other factors” to this idea as well but since the TRS is 70% of the problem, tackle that one first.==

Other factors to consider:

1. With a growing teacher shortage we need to compete with other states for the best teachers.

2. Tier 2 was passed for new employees to reduce future pension oligations.

Comment by Enviro Thursday, Nov 7, 19 @ 11:37 am
I am a broken record. In regards to TRS - teachers don’t get social security benefits.

Comment by NoGifts Thursday, Nov 7, 19 @ 11:43 am
Skeptic - We’re already running heavy on the risk side. The pension systems are in full-bull market mode and yet we still can’t make a dent in the liabilities. That’s what is frustrating.

Comment by City Zen Thursday, Nov 7, 19 @ 11:44 am
Skeptic / City Zen- stop arguing- it’s not an issue about too much equities or risk. There is ONE reason for TRS performance issue. Hedge Funds - the sector has underperformed for a decade and they are expensive in terms of fees.

Comment by Sue Thursday, Nov 7, 19 @ 11:46 am
==Republicans never seem to tire of engaging in class warfare against poor and middle class people==
I was listening to Ralph Marterie talk about his earlier life working with these sainted types and a person asked him why they so strongly go after pensions….paraphrasing..”Never underestimate the desire of people who have a lot,to want you to have less”

Comment by Anotherreitree Thursday, Nov 7, 19 @ 11:47 am
Never underestimate the desire of people who have a lot,to want you to have less”

Not sure if this means what you think it does.

Politicians have raising regressive taxes on regular working people, with virtually zero retirement savings, for decades to pay for their inflated promises to the special interest groups who fund their campaigns

Comment by Lucky Pierre Thursday, Nov 7, 19 @ 11:56 am
===Politicians have raising regressive taxes===

And yet you oppose a progressive tax. Pick a lane.

Comment by Rich Miller Thursday, Nov 7, 19 @ 11:57 am
- Lucky Pierre -

Should we revisit your feelings on the “poor” if you’d like…

Comment by Oswego Willy Thursday, Nov 7, 19 @ 12:01 pm
Sue - Can you explain what you mean? How have hedge funds impacted TRS in the past year or two?

Comment by anon Thursday, Nov 7, 19 @ 12:04 pm
City Zen - I think there is a good argument that the investment policy of TRS and other funds should not seek to track (or exceed) the Dow Jones. While not obtaining the full benefits of a bull market, it allows the funds to avoid the full downside of a bear market.

Comment by anon Thursday, Nov 7, 19 @ 12:06 pm
Look at the allocation to real and alternative- hedge funds have lagged the S&P by a huge variance since 2009. If you are overweighted to a lagging sector it impacts your return.most Large public funds have moved away from hedge funds due to cost and poor performance

Comment by Sue Thursday, Nov 7, 19 @ 12:19 pm
And when a recession does hit, that 40% funded rate will tumble quite a bit. Taxes will have to be raised to make up the difference. Every year will have fewer people than the year before and the balance of unfunded pensions will be higher than the year before. No fair tax will solve that guaranteed problem.

Comment by Sure thing Thursday, Nov 7, 19 @ 12:26 pm
=== You are a very tiresome…===

Yeah, I’m gonna stop ya there.

Since Rauner, now Trump, there’s this purity even Oberweis and Ives couldn’t dream possible. I’m not that word because that word is a phony disguise for those seeking purity and religion in politics.

What’s next, GHWB was a … at the end?

=== When the state starts taxing retirement income, I’m gone.==

That’s not happening. No Governor in any near future will support it, no chance it’ll get changed constitutionally. You’re ginned up just as the phonies like it.

Comment by Oswego Willy Thursday, Nov 7, 19 @ 12:47 pm
====I am a broken record. In regards to TRS - teachers don’t get social security benefits.==

Many teachers do receive ss benefits in addition to TRS, because they worked long enough before or after their teaching careers, although most are reduced by WEP.

Comment by swIll Thursday, Nov 7, 19 @ 12:58 pm
== wouldn’t that also take a hefty burden off of the state in time? ==

Keep in mind that putting the teachers into SS would be an immediate 6.2% cost on the local school district and another 6.2% on the teacher. Unless the State is going to step up with more money, that means the school district property tax levy needs to go up immediately by 6.2% and eventually by another 6.2% (12.4% total) as the teachers claw back their As contribution through either higher wages or getting the district to pick up the employee portion of the SS contribution.

12.6% of salary expenses, one way or the other, would be the district’s cost to switch. If there was any reduction of the current contribution to TRS, it would be the State achieving the reduction of employer contributions and either the district or the teacher might see a reduction in the employee contribution.

IMO, it would be a big expensive mess for at least 10 years to switch the teachers to SS plus a smaller State pension.

Comment by RNUG Thursday, Nov 7, 19 @ 1:11 pm
===it would be a big expensive mess for at least 10 years===

Agreed.

Comment by Rich Miller Thursday, Nov 7, 19 @ 1:56 pm
So if they are 3 billion short now how much worse will it get next year and so on…mind you this is after they plunked down 9 billion. This is the state systems…we havent even toughed county or local shortfalls.

Comment by Senseless Thursday, Nov 7, 19 @ 2:27 pm
It’s gonna be a big mess anyway if they fully fund things. Why not make some progress in the doing?

Comment by Just Saying Thursday, Nov 7, 19 @ 3:05 pm
==and eventually by another 6.2% (12.4% total) as the teachers claw back their As contribution through either higher wages==

Clawback? Social Security is, for lack of a better word, a benefit. The employer includes their portion of SS in determining what gross salary they can pay their employees, no different than any other benefit. If anything, the district would be doing the claw back.

Moot point because it’s not happening.

Comment by City Zen Thursday, Nov 7, 19 @ 3:09 pm
“So if they are 3 billion short now how much worse will it get next year and so on…mind you this is after they plunked down 9 billion….”

It will get worse. It is designed to get worse. According to the most recent CGFA report unfunded liabilities will grow until 2028 before beginning to decline (tier 1 folks start to exit the scene). And the State will be required to “plunk down “ $11 - $12 billion a year by then. All of these projections assume the financial markets don’t implode and that some new drug isn’t discovered that increases life expectancy.

Comment by CapnCrunch Thursday, Nov 7, 19 @ 3:41 pm