Illinois Pension Debt Climbs As Pandemic Hits Funds

From The Center Square:

By Cole Lauterbach

Illinois’ public pensions, long underfunded by lawmakers, are beginning to show just how much of a financial hit they took during the pandemic.

A report from Moody’s Investors Service estimates Illinois’ pension liability will spike to $261 billion in 2020, up from $230 billion in the 2019 fiscal year. Moody's said the increase was because of a combination of lower interest rates and investment losses. That state has estimated its pension liabilities to be about $137 billion. The funds are around 40 percent funded, one of the lowest funding ratios in the nation.

The Teachers Retirement System of Illinois, responsible for public teacher retirements outside of Chicago Public Schools, is the largest of the five. It announced last week that it outperformed many other public pension systems during the economic turbulence but are still estimating a return of 0.52 percent return on assets that totaled $54.2 billion in January.

“Everyone took a hit during the pandemic,” TRS Interim Executive Director Stan Rupnik said. “But the investment strategies we have in place limited losses and have allowed us to prudently rebuild the portfolio’s value.”

The state’s pensions assume a 7 percent return annually. In years like this, the difference isn’t paid by taxpayers, rather just added to the total estimate of expected liabilities.

“This is going to be counted as an actuarial loss because it’s below that actuarial assumption,” said actuary Mary Pat Campbell, who maintains a popular blog on public pensions. “When you do the roll-forward of the unfunded liability, from 2019 to 2020, that’s going to count as a loss, as well as other things that may count as a loss.”

TRS, and the other four state funds, are largely-funded by taxpayers via state appropriations. Actuaries estimate the cost to properly fund them equals nearly half of the state’s entire annual budget but lawmakers follow a contribution plan that gradually increases annually. The current contributions account for around 20 percent of the state’s annual budget.

Public pension funds are paid for by taxpayers and partly paid into by future pensioners.

The focus of the work of The Center Square Illinois is state- and local-level government and economic reporting that approaches stories with a taxpayer sensibility. For more stories from The Center Square, visit TheCenterSquare.com.