AG settlement to put
$200M back into Illinois pension systems
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[August 22, 2014]
BY BRADY CREMEENS | Special to Watchdog.org
CHICAGO — Illinois Attorney General
Lisa Madigan announced Thursday that her office has reached a
settlement agreement with Bank of America that will provide $200
million in relief for Illinois’ pension systems. This settlement,
however, will have little impact on Illinois’ overall unfunded
“Bank of America’s misrepresentations cost large government investors such as
Illinois’ pension systems to suffer significant losses,” she said during a press
conference. “Of the $300 million I have secured in Illinois’ settlement, $200
million will fully cover the losses Illinois’ pension systems incurred for
investing in Bank of America’s residential mortgage-backed securities.”
Madigan sued Bank of America after an investigation revealed that between 2006
and 2008 the bank participated in marketing misconduct and the sale of risky
residential mortgage-backed securities.
This month, her office reached the settlement agreement, which totaled $300
million. Of the $300 million, $200 million will be put back into Illinois’
pension systems and $100 million will be dedicated to consumer relief in the
form of assistance for homeowners and funding for blight reduction — areas of
deteriorated or inadequate land use.
The Illinois Teachers Retirement System will receive $154.2 million, State
Universities Retirement System will receive $2.6 million and the Illinois State
Board of Investment, which oversees the State Employee’s Retirement System,
General Assembly Retirement System and Judges’ Retirement system, will receive
“Illinois pension systems invest in mortgage backed securities,” Madigan said.
“And the assets of those securities were the risky mortgages that people were
put into during the housing bubble. But when that bubble exploded, those
investments lost a tremendous amount of value.”
The Illinois pension systems lost investments will be recovered as a result of
this agreement. Regarding the state’s overall unfunded pension liabilities, the
impact of this settlement will be minimal and won’t fix the underlying problems
the pension system faces.
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“It will have a very small impact, but it obviously helps the
cause,” she said.
Joe Luppino-Esposito is editor and counsel at the Illinois chapter
of State Budget Solutions, a budget research and analysis
organization that aims a large amount of focus on Illinois’ pension
“A deal like this certainly helps because every little bit helps,”
Luppino-Esposito said. “But the state has quite a lot of ground to
make up. We aren’t just talking about a few bad investments, but the
entire way the pension system is handled in the first place.”
Luppino-Esposito said for too long the state has been basing its
pension expectations on an unrealistic rate-of-return and making
benefit promises it cannot fulfill. He said the solution is to begin
moving away from a state-based pension investment program.
“We need to start shifting to defined contribution plans instead of
defined benefits plans,” he said. “This would allow people to have
more control over their own money. It’s more stable. This doesn’t
mean they’d be immune to stock market ups and downs, but they’re
certainly more predictable at the individual level.”
INN’s Lesley Nickus contributed to this report.
Brady Cremeens is a reporter with the Watchdog affiliate, Illinois
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