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By: Ted Dabrowski and John Klingner

Wirepoints recently reported that the shortfall in Illinois’ five state-run pension funds failed to improve the past year despite the nation’s booming stock markets.

The government released a report showing the state’s unfunded pension liability barely dropped to $129.1 billion from $129.8 billion in 2016. That was despite above-market returns from the pension funds.

But the bigger story is how Illinois’ pension funds have collapsed – putting both state workers and taxpayers at risk – during one of the longest bull markets in history.

Since the end of the Great Recession, the S&P 500 index has recovered and grown by more than 200 percent, including reinvested dividends, to reach record highs.

At the same time, Illinois’ pension shortfall worsened by 65 percent, to reach $129.1 billion. In 2009, it was $78 billion.

Some of the growth in debt was due to the pension funds changing their actuarial assumptions, including a drop in assumed rates of return in 2016. Regardless, the systems’ overall downward trend is clear.

And the warning this trend provides is even more stark: if the state’s pension debts continue to worsen during a period of remarkable market returns, imagine how those funds will collapse when the next recession inevitably hits.

Not only will state workers’ retirement security be put at greater risk, but taxpayers will be forced to pour billions of extra dollars into the pension funds when they can least afford it. And those most dependent on government services will only experience further pain.

Taxpayers do their share

Not only have stock market returns been favorable for a recovery of Illinois pensions, but so have taxpayer contributions.

Illinois taxpayers have paid almost $24 billion more into the pension funds than Governor Edgar’s original 1994 funding ramp called for. In 2017 alone, taxpayers will contribute nearly $4 billion more than Edgar’s plan required.

In fact, taxpayer contributions have gotten so large they now consume more than 25 percent of the general fund budget of the state. Virtually every core government service in Illinois has been cut to make way for larger pension costs.

Which makes the thought of next year’s election season sobering.

The likelihood of a budget let alone the passage of comprehensive pension reform is very dim.

That means Illinois’ pension crisis is only going to get worse. And that’s bad news for every Illinoisan.

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Fred
When a pension funds actuarial table does not attain the 7 or 7.5% return doesn’t that Diminish or Impair the funds. According to the Illinois Constitution that is illegal .You can not tax pensions. Why don’t the unions or pensioners then go after the wall street companies that invest their money. Also the management fees come off the top which diminish or impairs the returns. There were many years when the returns were very low and even negative. The taxpayers are still on the hook with higher taxes. On a side note why do the pension recipients entrust their money with Illinois politicians whom very few if… Read more »

How does the “Edgar Ramp” compare to the actually calculated ARC?

…might explain the shortfall, eh? (well, some of it… IMRF is 100% ARC funded. Where does it stand?)

Kyle

Thank you for this analysis. Based on the current pension state, what advice would you give to those considering entering local government work? I understand local government typically is funded by IMRF, which is on more solid ground. Is IMRF stable and going to be around in 30 years? Would you advise others to not leave solid private sector work for Illinois local government work? Appreciate the work and research conducted.

Mike
The IMRF pension fund is present in most sizable local units of government outside of Chicago and Cook County (the County unit of government). Chicago and Cook County have unique pension funds separate from IMRF. IMRF funding varies by employer. Meaning, the City of Oak Forest funding level is different than the City of Palos Heights funding level. IMRF does not seem to publicly post a document listing the funding level for every employer, but that information could be obtained by submitting a FOIA request to IMRF. The funding level for each employer is listed in the employer’s audited annual financial report or, if they have one,… Read more »
Jeff+Carter

Work in another state’s local government if that is your burning desire.

More like work in another that has has no cash flow/pension issues. There are a select few, but not many.