The tab for the state's unfunded pension liabilities increased by $4.4 billion in the past year and is expected to continue growing through 2028, according to a new report from the bipartisan Commission on Government Forecasting and Accountability.
The new CoGFA report pegs Illinois’ unfunded pension liability for the state's five retirement systems at $133.5 billion, $4.4 billion more than the year before, and the average funded ratio is 40.2 percent. The American Academy of Actuaries recommends that pension systems should plan to attain 100 percent or greater funding ratios.
In 2009, the unfunded liability for Illinois’ five funds was $77.8 billion, or 38.5 percent funded, according to CoGFA. In 2007, before the Great Recession, the unfunded liability was $42.2 billion, or 62.6 percent funded.
“The aggregate unfunded liability has been growing significantly over the past decade. One of the main drivers continues to be actuarially insufficient state contributions determined by the current pension funding policy,” the CoGFA Special Pension Report said. “Other reasons for an increase in unfunded liability would be the results of poor investment performance.”
“It’s more of the same,” said Bill Bergman, research director for Truth In Accounting, a public financing watchdog. “The trend is not your friend, especially since 2009."
The Dow Jones Industrial Average in January 2009 was around 8,000. After peaking at 26,800 in October, the Dow closed Monday at 24,423.
“Effectively, the unfunded liability has been rising significantly for the state pension plans despite the fact that we’ve had a huge rally in the stock market, at least up until recent weeks and that’s the warning sign,” Bergman said.
He said market downturn could make things worse, especially with the state’s pension funds invested in what Bergman characterized as risky investments like special equities.
“We’ve learned in recent weeks that stocks can go down as well as up, and you and I as taxpayers, even if we don’t own stocks, are in the market and on the down side because these [state employee pension] benefits are guaranteed,” Bergman said.
The Illinois Supreme Court shot down a 2011 pension reform measure that would have lowered the state's pension liability by changing future benefits calculations. The court said that violated the state Constitution's diminishment clause.
While some have argued for changing the constitution to allow for pension reforms, Democrats at the statehouse have resisted the idea.
Bergman said there’s a difference of opinion on whether the growing unfunded liability is the result of the state failing to contribute enough money or if the pension benefits are simply too expensive.
“But it’s a combination of both of those things and the reckoning day is coming,” Bergman said.
State Sen. Tom Cullerton, D-Villa Park, blamed previous policymakers for kicking the can down the road with pension holidays.
“In ‘94 they needed a solution, they thought they had a solution,” Cullerton said. “But they were underfunding in the beginning.”
He compared the pension payment ramp implemented years ago to adjustable rate mortgages with balloon payments in later years that often led to foreclosures during the Great Recession.
Gov.-elect J.B. Pritzker said Monday that he plans to introduce a “balanced budget” in February with pensions in mind.
“What’s most important to me is the principle that people who've been promised a pension should get the pension they’ve been promised,” Pritzker said. “That’s the principle we’re going to go by. But there’s no doubt that we’ve got to address the challenge in the budget of the increasing share of the budgeting going into pensions.”
Pritzker supports putting more tax dollars into pensions in earlier years of a pension ramp to lessen how much needs to go toward the funds in later years. One idea is to sell bonds to make those payments in earlier years. Pritzker said everything is on the table.
The CoGFA report projects in fiscal year 2020 the state will pay $9.2 billion into the pension systems – about $700 million more than this year. Total employee contribution will be $1.5 billion. Despite the increased contribution, the unfunded liabilities are projected to increase up to $139.2 billion.
CoGFA projects the unfunded liability to continue to increase to nearly $146 billion by 2028 when the total state contribution will be $11.5 billion while the total state employee contribution will be $1.8 billion.
The pension ramp to get to 90 percent funded, or a projected unfunded liability of $33 billion, by 2045 has taxpayers putting in $19.1 billion annually and total employee contribution at $2.8 billion.
“It’s definitely staggering, it’s something we’ll have to look at,” Cullerton said.
The General Assembly Retirement System for retired lawmakers has the worst funding ratio at 15 percent funded. CoGFA projects taxpayers next year will pay in $25.8 million to GARS while participating lawmakers will put in $1.2 million. Cullerton doesn’t participate and has advocated for GARS to be scrapped.
Asked if employees should put in more, Pritzker said his incoming administration will soon be negotiating with the unions. The state's largest public-sector union, AFSCME Council 31, endorsed Pritzker.
“We’re looking at all the options here because there’s no doubt, we cannot move forward for a long time in this state until we get our arms around how we’re going to manage this increasing amount that’s going into pensions,” Pritzker said.