December 09, 2021

State pension funds benefit from big returns

State pension funds for teachers, state employees and university employees are healthier than they’ve been in years, thanks to big investment returns.

That’s the upshot of a new state fiscal report, according to Crain’s Chicago Business:

[T]he state of Illinois is reporting that it actually has significantly reduced its unfunded pension liability—the first such progress in many, many years.

The progress comes in a new report from the Illinois Commission on Government Forecasting & Accountability, which serves as the Legislature’s fiscal research arm.

In a “special pension briefing” released yesterday, it said unfunded liability in the five state pension systems that cover university employees, state workers, and most teachers outside of Chicago shrank by a hefty $14.2 billion in the fiscal year ended June 30, dropping from $144.2 billion last year to $130 billion now.

The only other even comparable drop in recent decades was from fiscal 2010 to 2011, but the decline was less than half as much on a percentage basis.

The improved figures were enough to bump up the state’s funded ratio of pension assets to liabilities to 46.5%, still way short of the 90% goal but the highest it’s been since 2008.

The progress is the result of “exceptional” investment returns in the 2021 fiscal year that ended July 1. The three large funds saw returns of 22.9% to 25.2%—far higher than their 6.5% to 7% expected annual rates.

In every budget during his term, Governor JB Pritzker has made a point of paying the state’s full pension contribution that’s required by law.

But the funding law falls short of what actuaries say is truly needed to pay down the systems’ past debts that were created by years of underfunding. In the words of the COGFA report:

As the actuaries for the State retirement systems have noted in their respective annual actuarial valuation reports, the funding plan under P.A. 88-0593 produces employer (State) contributions that are actuarially insufficient, meaning if all other actuarial assumptions are met, unfunded liabilities will still increase due to the State contributing an amount that is not sufficient to stop the growth in the unfunded liability. Hence, there is a distinction between contributions that are statutorily sufficient and contributions that are considered actuarially sufficient[.]

Meanwhile, active and retired public service workers faithfully pay their required contributions to the pension funds from every paycheck they receive.

And Republican legislators, GOP candidates for governor and anti-worker front groups like the Illinois Policy Institute, Wirepoints and others continue agitating for a constitutional amendment allowing them to slash public pension benefits.

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