ALEC: Illinois' unfunded pension liability $533 billion; $8.2 trillion nationwide

[June 10, 2022]  By Kevin Bessler | The Center Square

(The Center Square) – Illinois' five taxpayer-funded state pension systems are second worst in the nation when it comes to debt.

The American Legislative Exchange Council, (ALEC) released “Unaccountable and Unaffordable”, which puts the total unfunded pension liability at $8.2 trillion nationwide.

Illinois' liability was second worst at $533 billion. Only California, with a much larger population than Illinois, was worse.

The ALEC report also shows Illinois has the second highest unfunded pension liability per capita at over $41,656 per person. That ranks 49th in the country ahead of only Alaska.

On the other end of the spectrum, Tennessee’s pension liability is about $8,500 per person, the lowest in the country, followed by Indiana at just over $10,000.

The report looked at 290 state-administered government pension plans and their assets and liabilities from fiscal year 2012 to fiscal year 2020. An example of government pension plans in Illinois would be state employees, teachers, university workers, lawmakers and judges.

“This report does more than simply raise alarms; it offers a roadmap for states to set their fiscal house in order,” ALEC CEO Lisa B. Nelson said.

The authors said the comparative analysis of state pension systems is a valuable tool for state legislators as they strive to keep promises made to retired public employees while also protecting taxpayers through responsible pension reforms.

ALEC chief economist and executive vice president of policy Jonathan Williams said unless there is new leadership in Illinois and a change to the state constitution's pension protection clause, it will be more of the same for Illinois.

“Rack up the bills and then Illinois looking to the federal government and taxpayers around the country to bail out these underfunded systems,” Williams said.

The report singled out the structural pension issues in Illinois.

"In some of the worst cases, states ignore the [actuarially determined contribution] and instead use state statute to contribute less than the ADC each year," the authors wrote. "Such is the case with Illinois. ... Illinois uses state statute to contribute less than its ADC payment, leading to the massive growth of unfunded liabilities. This practice did not change in FY 2019 or FY 2020."

Illinois spends about 25% of its annual general fund budget on pensions, but has failed to make a significant dent in its overall pension debt. The state's pension protection clause prohibits any diminishment of the pension benefits promised to state workers, which makes reforming the system a challenge, Williams said. The pension protection clause has hampered past efforts to make changes to Illinois' state-run pension systems.

"Without a constitutional change or a new interpretation by the Illinois Supreme Court, the only other option is a federal bailout," he said. "The status quo will continue without a radical change in leadership."

Kevin Bessler reports on statewide issues in Illinois for the Center Square. He has over 30 years of experience in radio news reporting throughout the Midwest.