By: Mark Glennon*
Each year, the Illinois Auditor General hires its own actuary and submits a review of the actuarial reports for each of the five state pensions and certifies the amount taxpayers will have to contribute. The most recent Auditor General report was released this week, linked here.
As it did last year, the report says, in bold face for each pension, “the statutory mandated minimum funding requirements [which is what taxpayers pay] call for inadequate funding” and the funding method “does not meet generally accepted actuarial principles.”
That’s despite a $680 million increase in taxpayer contributions to the pensions. Specifically, The report certifies the amount the state is required to pay into the pensions under the state’s accounting methods is $7.5 billion for the current fiscal year, an increase of about $680 million over last year. That’s more than a fifth of the state general fund budget.
Two killer points should be kept in mind, which are not reflected in the report.
First, even if the questionable assumptions used by pension actuaries turn out to be valid, underfunding will continue and the unfunded liabilities will continue to grow, just as they did last year. That’s because “negative amortization” is built into the way Illinois pension contributions are calculated, which was explained in our article here from last Fall. Last year, the state paid in only about 2/3 of what would have been required to keep unfunded liabilities from growing, even if the phony assumptions turned out valid.
Second, state pension accounting has yet to reflect the addition of healthcare costs for pensioners, which the Kanerva decision last July by the Illinois Supreme Court says are constitutionally protected and cannot be cut, just like pension benefits themselves. That decision alone added over $50 billion to the unfunded liability just for the five state pensions, increasing the unfunded liabilities by about 50%.
That additional $50 billion liability isn’t even mentioned in the report. Not a word about how it’s supposed to be paid, amortized or accounted for.
Not one of six different stories I have seen on the report mention these deficiencies. Expect another year of journalistic malpractice on pensions.
And don’t blame the Auditor General, Bill Holland, or his staff on this. Their reports are prepared in accordance with the directive they get. Instead, the problems with worthless pension reporting in Illinois are systemic and statutory. For you pension wonks, the report also details assumptions being used by the pensions’ actuaries that the state’s actuary thinks are unreasonable. The report does note improvement on that score over last year, though criticisms remain.
Happy new year of pension madness in Illinois.
*Mark Glennon is founder of WirePoints