Report ranks Illinois near the bottom for unfunded pension liability

[June 29, 2021]  By Kevin Bessler

(The Center Square) – A new report analyzing unfunded public pension liabilities ranks Illinois near the bottom.

The annual publication, called “Unaccountable and Unaffordable 2020” by the American Legislative Exchange Council, looks at each state’s unfunded public pension liabilities. The report finds state government’s unfunded liabilities total $5.8 trillion nationwide, an average of $17,748 per person.

ALEC ranked Illinois 49th in terms of the total liability and also per capita amount at $31,980 per person.

“Unfunded pension liabilities are a looming threat to state’s financial health,” ALEC CEO Lisa Nelson said. “This report tackles the issue head-on and provides examples of reforms that work, such as defined contribution plans.”

Falling interest rates and weaker-than-expected investment performance have also been hampering the state’s pension plans. The Teachers' Retirement System of the State of Illinois, the largest of the five state pension systems, reported investment returns of 0.52% in 2020, far below its target of 7%.

ALEC chief economist and executive vice president Jonathan Williams said there are two options for states once they go down this road and neither are ideal. One is to cut government services and the other is to raise taxes.

“You can’t even raise taxes high enough in many cases to pay for the unfunded liabilities because what will happen then, the higher you raise tax rates, the more outmigration, certainly something Illinois has suffered over recent decades,” said Williams.

Joining Illinois in the bottom five for the worst unfunded pension liabilities per capita are New Jersey, Hawaii and Connecticut, with Alaska at the bottom.

The top five states are Tennessee, Indiana, Nebraska, Florida and Wisconsin. Tennessee’s unfunded liabilities per capita amount to $6,346 per person.

Williams said that unfunded public pension debt poses a significant risk not only to state taxpayers, but also to state workers and retirees.

“Fortunately, states such as Wisconsin, Michigan, Tennessee and Oklahoma have all enacted pension reforms in recent years that will ensure promises to workers and retirees are honored, provide flexibility for young workers and protect hardworking taxpayers,” Williams said.