Pritzker administration pushes against recommendations for full pension funding goal

[December 09, 2021]  By Greg Bishop

(The Center Square) – Taxpayers are on the hook for Illinois’ unfunded public employee pension obligations, which increased by more than $120 billion in 25 years.

And the governor’s office advises against changing funding goals as recommended by actuaries.

The Illinois Commission on Government Forecasting and Accountability recently published its report for the end of November with a focus on pensions.

It found total unfunded liabilities were nearly $140 billion as of June 30, 2021, driven by the unfunded liability in the Teachers' Retirement System of the State of Illinois with nearly $80 billion. The total funding ratio is 42.4%. The worst funded system is the General Assembly Retirement System, which is 19.3% funded.

But, based on “market value of assets,” the commission said the unfunded liability drops by $10 billion to $130 billion with a total funded ratio of 46.5%. Credit is given to “exceptionally strong investment performances by all the five systems” that outperformed estimated rates of return. In one example, the rate of return on investments for TRS was 7%, but returns came in at 25.2%.

Even with the “more realistic valuation,” the commission said in the past 15 years, the unfunded liability has grown from $42.2 billion to $130 billion, driven by what the commission said was insufficient state contributions.

For fiscal year 2022, Illinois budgeted $10.5 million for pensions, nearly a quarter of every tax dollar the state brings in. That’s expected to go up to $10.7 billion next year. That figure increases every year under projections with the peak of $16.5 billion by 2045 to get to a funding ratio of 90%.

The appropriateness of the 90% funding target was questioned by the commission’s actuary, Segal. In a letter to the commission, the company said in an opinion that the 90% goal “is not an appropriate goal.”

“We strongly recommend an actuarial funding method that targets 100% funding” over time, the opinion stated.

A letter from officials from the State Universities Retirement Stem, State Retirement System and TRS also “strongly recommended raising the target funded ratio to 100%.”
 

A letter from Gov. J.B. Pritzker’s director of the Office of Management and Budget said consideration of changes to the funding ratio goal needs to be reviewed carefully.

“An increase in the goal would result in higher payments, but eventually lead to a reduction in the unfunded liabilities in the systems,” GOMB Director Alexis Sturm said. ”Given the current fiscal pressures facing the state, this too is inadvisable to consider until Illinois can eliminate the unpaid bill backlog” and other debts.

“Therefore, at this time, the 90 percent funding ratio continues to be a reasonable and achievable goal for the State of Illinois pensions systems,” Sturm said.