Updated audit shows Illinois pensions remain around 42% funded

[June 17, 2022]  By Kevin Bessler | The Center Square

(The Center Square) – A report by the Illinois Auditor General on the state’s pension systems offers some sobering numbers.

The audit shows the pension systems for teachers, state universities, state employees, judges and the General Assembly were about 42% funded in 2021, which reflects little improvement from the year before.

The dismal stock market performance this year will negatively affect the Illinois pension system. Jonathan Williams, chief economist for the American Legislative Exchange Council, or ALEC, says it is a double whammy for Illinois taxpayers.

“At the same time, these same taxpayers in the private sector are now going to be doubly-hit by the idea that there are these huge unfunded liabilities that at the end of the day taxpayers are liable for,” said Williams.

While one year of poor performance will negatively affect pension funding levels, most pension funds use a multi-year average of market returns to smooth out returns. The Teachers Retirement System accounts for the largest portion of Illinois’ unfunded pension liability at nearly $80 billion.

Former Gov. Bruce Rauner proposed realigning the costs of government retiree health insurance and pension costs for schools and universities to ensure the one who incurs the cost should pay the bill. One report shows a total realignment of the costs of local pensions would net significant savings for the state at close to $2 billion a year. Reforms to the overall system have not advanced. Neither has a constitutional amendment proposal to amend the pension protection clause.
 

Eric Kim with Fitch Ratings said despite the budget requiring annual pension system contributions to reach 90% funded by 2045, the amount is inadequate to fully address the state’s pension burden.

“It comes down to either paying that liability and paying that down, or working on ways to chip away and reduce liability, or a combination of the two,” said Kim.

According to the audit, the cumulative unfunded actuarial accrued liability decreased from $1.1 billion to $139.8 billion during FY21 when using the “smoothed” valuation of assets.

The audit projects that the state’s required contribution to the pension fund will be close to $11 billion by 2027.

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.