Print Friendly, PDF & Email


By: Mark Glennon*


The Stanford Institute for Economic Policy Research recently published a splendid new database, Pension Tracker, that includes “market based” numbers on state and local pension debt. For Illinois, the numbers (linked here) are simply astounding.


Pensions, governments and reporters use “actuarial based” numbers, which are built on assumptions typically set by politically appointed pension trustees. Those assumptions include, most importantly, high earnings expectations for pension investments — the “discount rate” — typically, about 7.5% —  which no reputable financial economist accepts. Pension Tracker shows those numbers and also “market based” numbers, for which it uses twenty-year Treasury yields as the discount rate.


The logic there is that, since pensions are guarantied, the underlying assets to pay them likewise should be guarantied, and that means United States Treasury bond rates. Twenty-year Treasury yield ranged from 2.50% to 4.25% between 2008 and 2014. To put it another way, if you went out to buy an annuity matching a pension with a no-risk guaranty, it would be very expensive because it have to be based on low Treasury yields.


For Illinois, the commonly reported actuarial debt (the unfunded liability) for state and local pensions totals $140 billion, or about $29,000 per household.


But the market based pension debt (the unfunded portions) for those pensions is a stupefying $371 billion, or $77,822 per household, according to Pension Tracker.


Instead of the commonly reported funded ratio of 45% using actuarial numbers, the market based funded ratio is just 23%.


Think about those per-household numbers in practical terms of who really pays taxes, and this goes beyond ridiculous. Even in flat tax Illinois, taxpayers with incomes over $100,000 per year –the top 18 percent of Illinoisans — pay 63 percent of all income taxes. If that same relative burden held, each household with an income over $100,000 would be responsible for about $432,000 of pension debt.


Or, suppose we accept the reasoning behind the recent graduated income tax proposal, which is that taxes should be cut for 99% and raised just on the top 1%. That would mean the top 1% would bear an obligation of over $7.8 million each.


Even if you use the officially reported actuarial numbers, the burden for high earners is still staggering. The top 1% would be liable for about $1 million each if you stuck only them with the liability. If you spread the liability as our current tax structure does, the top 18% who earn over $100,000 would be liable for $163,000 each.


Yet, pension reform opponents continue to claim there’s no reason to fear that pension obligations can contribute to out-migration.


Good arguments can be made that Stanford’s 20-year Treasury rate is too low for most pensions, unfairly increasing the liability. However, given that many Illinois pensions are bleeding out towards zero well before 20 years (including all Chicago’s pensions), and that Illinois courts say pensions are guarantied hell-or-highwater, Stanford’s approach is quite defensible for Illinois.


And the raw Stanford numbers are understated, for several reasons. First, they worked off of FY 2014 data and our pensions have deteriorated since then. Second, they don’t include healthcare liabilities for pensioners, which are now constitutionally guarantied along with pensions. Healthcare adds more than $50 billion just to the state pension liability, and who-knows-how-much for local pensions (because nobody tabulates that total reliably). Finally, that $50 billion dollar healthcare liability is badly understated because it’s discounted, too, even though there are zero assets set aside to pay it, which makes little sense.


Big salute to the Stanford Institute for Economic Policy Research for their work. Shame on Illinois universities for being AWOL on this and other aspects of our pension apocalypse.


We’ve said it before and we will keep saying it: This is insane. Pure madness.


*Mark Glennon is founder of WirePoints. Opinions expressed are his own.




Sort by:   newest | oldest | most voted
The public unions and their criminally complicit political stooges need to be run through the ringer – wake up people, the Democrat machine has run the state (and Chicago) into the financial toilet for their personal gain Government employees often draw more pay than they could in the private sector for their skills (and effort) and then are handed million dollar or more retirement accounts (do the math, for you to retire on $40K for the next 25 or more years at today’s no risk yields yes, you’d need an IRA funded with a million dollars). How many private sector workers retire with a million dollar 401K… Read more »
S Moderation Douglas

In 2014, Fidelity alone had 72,000 workers with $1 million or more in their 401(k). Up from about 30,000 in 2012.

In 2013, there were about 6.15 million millionaire households in the U.S.,  That means 1 in every 20 households in the U.S. has more than $1 million in investable assets. Those figures don’t include the value of real estate.

At this rate, pretty soon you won’t be able to swing a dead cat without hitting a millionaire.

The point is that Fidelity is a defined contribution plan – not a defined benefit plan like public union pensions – Fidelity employees put their own money into their 401Ks and reap whatever they have at the end – public unions expect their future benefits to be guaranteed regardless of how well (or not) the funds are managed and most contribute an insufficient (or no) funds – expecting to suck taxpayer pockets for whatever it takes e.g., CALPERS and many other public unions have lost billions over the years on bad and/or crooked investments – do they tell their membership that their benefits are going to be… Read more »
S Moderation Douglas
Sorry, unclear. Not Fidelity employees, but outside workers with 401(k) accounts through Fidelity. That was response to the question: “How many private sector workers retire with a million dollar 401K or IRA??” Including the one in twenty US households with more than $1 million in investable assets. ————————- “Anyone with the slightest economic understanding has always known defined benefit plans are financially infeasible Ponzi schemes – but government unions continue to extend their grasp on taxpayer wallets through their political cronies making a bad situation ever worse” Not buying it. There are myriad world class economists who disagree with you. ————————— “There were many things wrong about… Read more »

The better question is “how many private sector workers who retire with a million dollar 401k are withdrawing 75% of their peak salary when they begin retirement then giving themselves 3% compounded raises every year on top of that?” Show me that guy and I’ll show you a guy living solely off Social Security in ten years yet worked 5-10 years longer than his public sector buddy.

Tough Love

Dead on accurate !

Tough Love

That was a reply to nixit71, NOT S Moderation Douglas …. a retired CA Public Sector worker desperately trying to support his own unjustifiable pension.

S Moderation Douglas

Public Safety Unions and the Financial Apocalypse

J.A. Herzrent
It’s not a pretty picture. In most countries, those who run the government and hold the checkbook are afraid to take the risk involved in not keeping police and fire fighters on the job. As demographics of U.S. cities continue on the trajectory of housing the extremes of haves and have-nots, the protection of the haves and their worldly goods will become an even greater priority. Even those haves who live in the suburbs have major stakes in public order being maintained in financial districts, court houses, etc. The folks who protect the haves can be very subtle … it’s a pretty thin layer of protection in… Read more »

does anyone really believe taxes will be raised or cuts will be made? no. what is going to happen is a bailout where the bill is added to the national debt and/or more money printing by the FED in the form of QE for pension debt. college loans, mortgage loans, pensions, all will be bailed out. i only hope the country survives.


The FED is already buy the majority of US bonds. It can only dilute the value of whatever money is out there now.

Rex the Wonder Dog!
But the market based pension debt (the unfunded portions) for those pensions is a stupefying $371 billion, or $77,822 per household, Instead of the commonly reported funded ratio of 45% using actuarial numbers, the market based funded ratio is just 23%. Well, we all KNOW where this is going, and what will be the end game. I am actually starting to feel for the retirees who are about to get stiffed. It is partially their fault, maybe even the vast majority their own fault, but the bottom line is that the Muni employees in Chicago AND the State of IL are going to get MAJOR haircuts in… Read more »

Unfortunately the Illinois Supreme Court has upheld the supremacy of those public union defined benefit pensions (a corrupt fundamentally unviable economic concept) over the rights of the public at large – the court won’t let them haircut – it’ll take complete economic collapse of Chicago and the state as a whole before it will be out of the hands of the judiciary – by then, I hope to be long gone from this sewer of corruption – may Madigan and his fellow criminals burn in Hell


It’s so comforting to know there are 49 other states to move to some day. But if it comes to mass exodus, selling a home might be a problem. I think the Feds will at some point do another bailout. However that bailout, if it happens, will be simply structured as another can kick. Only because the parties who would initiate such a fed bailout, are also the ones who got Illinois and other state pensions in this mess. The solutions are always the same and never address cost.


That’s why we welcome fleeing Illinoisans to Indiana.
Unlike most other states in America that are facing long term stability issues and fiscal crisis thing’s are stable and good here.
Fiscally Responsible Government with a 2.2 Billion Dollar Surplus (How many states have that?) AAA credit rating, 50% lower taxes than Illinois, Only state with a 1% cap on property taxes, No Pension Crisis and very strong robust job growth as well 🙂
As they say in Indiana come one come all.


I have a rural lot I’ve been trying to sell for +2years now. Nobody wants to deal with the taxes.

all defined benefit plans are ponzi schemes. convert db plans to dc plans now.

actuaries have no code of moral ethics that prevents moral hazard. the way actuaries practice the profession is seriously flawed.

Tough Love

Too late for Illinois, but perhaps the soon-to-come pension/healthcare failure in Illinois will help “wake-up” in insatiably greedy Public Sector unions in other States.

S Moderation Douglas
Too late for Illinois, (and New Jersey) but perhaps the soon-to-come pension/healthcare failure in Illinois (and New Jersey will help “wake-up” governments and Public Sector unions in other States. It says the same thing without the “insatiably greedy” blather. With 20/20 hindsight, most people understand the problem. The solution is simple. It’s just not easy. “I’ll give it away at the beginning: they’re in trouble because they’re not making the “required” contributions to the pensions. Yes, there are all sorts of other reasons as well, such as spiking, early retirements, sluggish payroll growth, optimistic valuation assumptions, etc. But ultimately the reason the pensions are so little funded… Read more »

But if the pensions were funded, there would have been less money leftover for actual salaries, resulting in lower pay, less employees and…wait for it…lower and fewer pensions! Funny how that fact is conveniently absent in each and every “the state didn’t put in enough funds” comment regarding pensions.

James Gordon
On the surface your argument would seem to be right, but there’s a flaw to the logic you’ve given. TRS accounts for most of the state’s unfunded pension liabilities, but your argument does not apply to public school teachers employed in districts other than Chicago who are part of that pension system. I say that because the funds used to pay teacher salaries are derived from two sources primarily, local property taxes and state grants. For school districts in wealthier areas, the local property taxes provide a far greater amount of the funding towards school district salaries and usually provide the vast major it of it. Yet,… Read more »
The idea that underfunding pensions is the root cause is an utter fallacy – the root cause is that these pensions are defined benefit plans rather than defined contribution plans – it fundamentally doesn’t matter how much they’re funded or how poorly they’re managed, the government is still 100% on the hook for the benefits – unions have lost billions due to bad and/or crooked investments but benefits aren’t cut as a result – they just go back to the government and tell them they need to shell out more money to guarantee the payouts That doesn’t even include the additional billions stolen through corrupt practices like… Read more »
Each school district receives a certain amount of revenue from the state for education. That revenue is a component of the overall state budget. If there is more money devoted to pensions, there is less money in that overall budget for other services. All things equal, teacher pension contributions are a part of teacher compensation, so the state could argue it’s providing that educational revenue but more and more is being consumed by deferred compensation. Less revenue from the state would directly impact teacher salaries at the local levels. Now could the state could keep ed funding at that level, but it would come at the expense… Read more »
S Moderation Douglas

Doesn’t cost that much if you pay the ARC when due and let returns build up over time.



So you agree it costs something, no? Your salary minus something = what your salary should have been * 75% = smaller pension.


S Moderation Douglas
Or… One could short the pension system to pay for tax cuts. “This is best illustrated by Mrs. Whitman’s decision to withhold billions of dollars that should be going into the public employee pension funds over the next few years, and using the bulk of that money to balance the state budget. Then, with an audacity that dazzles her supporters and even draws grudging admiration from opponents, Mrs. Whitman smiles and characterizes the withheld funds as savings.” “Whitman was one of those star Republican governors of the early 1990s. Like so many other Republican governors who win media attention for innovative approaches, she made her name… Read more »
For the 45 years Illinois has had a state income tax, rates were only cut twice (1985 and 2015) and only because the previous hikes were temporary. All other levels of taxation have only increased over the years. You go under the false assumption that the problem can be solved only on the taxpayer side of the equation. If budgets were indeed balanced by shorting pension funds, what makes you think higher taxes was the only way to balance the equation? Deferred compensation is still compensation, so if more budget dollars go towards pensions, it only stands to reason there are less for current salaries. How much… Read more »
S Moderation Douglas
“You go under the false assumption that the problem can be solved only on the taxpayer side of the equation.” Not at all. nixit’s premise was that if pensions were funded, there would have been less money leftover for actual salaries, resulting in lower pay. My point is that money is fungible. One of the other common complaints is that pension costs are crowding out social services, infrastructure, safety, etc. Pensions are crowding out lower taxes, motherhood, and apple pie. Now they’re crowding their own salaries? Maybe what is really being crowded out is our old nemeses “fraud, waste, abuse and corruption”. Who can say for sure?… Read more »

Corruption indeed – look to the existing pension system for one of many instances of corruption bleeding billions from taxpayers

J.A. Herzrent
There are many layers here. One of the reasons that pensions were underfunded is that unions encouraged the underfunding so that that more budget dollars would be available for pay increases. The salaries that may be crowded out by pension debt are the salaries of the current employees. The retired employees have already received the big bucks in salary and now want the corresponding big bucks in pension. It’s the payment for those pensions that will crowd out the salaries of their hapless faculty successors. Basic equity requires that the wasting trust assets be distributed among all those who have earned a pension. The current system assures… Read more »

putting red herrings and other logical fallacies everywhere you can, tough love. you are writing nothing but logical fallacies in your comments. you are not smart, even though you are trying to make others think that you are.

just to clarify, actuaries should not have jobs when their job is not honest and they are making things worse. they can use their skills to solve problems instead of manipulate calculations for the benefit of the employers example: rate of return. they use a fixed number. this is extremely unrealistic. instead, they could use a matrix of annual returns, based on history. history includes years of loss so there would be losing years there. this changes the scenario projections enormously. this is the type of helpful and honest thing that actuaries could do instead of what they do now. they also could present many scenarios, best… Read more »
J.A. Herzrent
The smartest segment of the pension reform opponents understands this and also understands its own mortality. Fixing the problem would reduce their benefits. Kicking the can continues their benefits with COLA. When the fund runs dry, as it inevitably will, the assets will have been transfered to their pockets. They’ll be able to spend it down and leave some to their descendants. The younger teachers should be allied with those unhappy few who pay the taxes. They should be working together to stop this wealth transfer immediately. However those (younger teachers) will be the first at the barricades to confiscate what’s left from those who stay around… Read more »

the really really honest truth is that db plans have never worked, they do not work and they will not ever work. db plans are all ponzi schemes and the actuarial profession directly benefits from their existence. if db plans did not exist, most actuaries would not have a job.

convert all db plans to dc plans now.

S Moderation Douglas

ad nauseum fallacy. continual repetition of the same tired idea does not make it so. db plans are not ponzi schemes. they do work. they have worked well for decades. they will continue to work till i and thee have shuffled off this mortal coil. ad infinitum.

J.A. Herzrent
Defined benefit plans have worked well for only so long as their true costs were obfuscated. Once the private sector was forced by accounting rules to reveal costs accurately, those companies dropped the plans as quickly as possible. The liabilities were contributing factors to the bankruptcies of GM and Chrysler. The Teamsters union plan is so poorly funded that benefits may have to be cut by more than 50% to sustain the fund for the next decade. This has become an issue with the public sector only because the accounting profession has (at long last) forced municipalities and states to make truthful disclosure of their liabilities. Only… Read more »
S Moderation Douglas
Cows are four legged mammals, but not all four legged mammals are cows. And not all DB pension systems are DOA. The California Policy Center, (partners with TransparentCalifornia salary/pension database) is generally considered a very conservative, or libertarian organization, and are strong supporters of pension reform, but not necessarily opposed to DB systems per se. “Despite Mr. Rice’s hyperbole, most pension reformers do not want to abolish defined benefit pensions for public employees, if these pensions could be made fair and financially sustainable. That would require returning to the conservative investment guidelines in place until Prop. 21 was passed in 1984, and it would require returning to the modest… Read more »
J.A. Herzrent

The quote may be viewed in context at

The Illinois Supreme Court decision has made it impossible to return to modest and fair benefit formulas other than (perhaps) new hires. Meanwhile, we have a legacy problem that makes the Teamsters look well-funded and that will push us into bankruptcy before it can begin to be solved.

General Motors was a health insurance provider that happened to make cars. Illinois and its municipalities are providers of compensation and benefits which happen to provide for public health and welfare out of left-over revenues.