Gov. J.B. Pritzker was speaking at the Economic Club of Chicago a couple weeks ago when he was asked about financial problems posed by the state’s five woefully underfunded public pension systems.
“Our public pension problem in this state is enormous. There’s just no doubt about it,” he acknowledged.
As bad as the state’s pension problems were then, they are even worse now.
In April, the state’s legislative Commission on Government Forecasting and Accounting estimated that total underfunding would amount to $136.8 billion by the end of the 2018-19 fiscal year.
In its monthly report issued this week, the commission reported that total underfunding has increased by another $500 million — from $136.8 billion to $137.3 billion.
Further, despite the state appropriating nearly $1 of every $4 in its annual budget to the pensions, the commission pointed out that the level of underfunding will continue to steadily increase.
“The aggregated unfunded liability has been growing significantly over the past decade. One of the main drivers continues to be actuarially insufficient state contributions determined by (state law). As the actuaries for the state retirement systems have noted in the respective annual actuarial valuation reports, the funding plan (under state law) produces employer (state) contributions that are actuarially insufficient, meaning that if all other actuarial assumptions are met, unfunded liabilities would still increase due to the state contributing an amount that is not sufficient to stop the growth in the unfunded liability,” the commission stated.
The commission’s conclusion undermines the credibility of Pritzker’s long-stated intention to pay down pension under-funding as a means of keeping faith with retirees in those systems.
Instead, it makes clear that the state’s real policy is not to pay down underfunding, but instead to preside over continued increases in what already is a suffocating debt.
That reality lends support to speculation by some financial analysts, including Forbes magazine financial analyst Elizabeth Bauer, that Pritzer’s public stance is a political ploy designed to appeal to certain groups, including members and retirees of the five pension systems.
Bauer, who writes about pensions “from an actuary’s perspective,” speculates Pritzker’s real intention is to operate the systems on a “pay-as-you-go” basis “with enough of a cushion to placate those who say otherwise.”
The commission report reveals that the Teachers Retirement System, which is 40 percent funded, has “market assets” of $53 billion and is underfunded by $78 billion.
The State Employees Retirement System is just 37.9 percent funded. It has $18 billion in assets and is underfunded by $30 billion.
The State Universities Retirement System is 42 percent funded. It controls $19.6 billion in assets and is underfunded by $26.7 billion.
The Judicial Retirement System, which is 38 percent funded, controls $1 billion in assets and is underfunded by $1.7 billion.
Finally, the General Assembly Retirement System, by far the smallest of the five systems, is 15.9 percent funded. It controls $59 million in assets and is underfunded by $314 million.
All told, the five systems control $92.5 billion in market assets and are underfunded by $137.2 billion. That average funding for the five is 40 percent.
On the investment side, the commission said the funds have suffered as a consequence of “poor investment performance” and the “lowering of investment assumption rates.”
Lowering expected rates of investment returns means the funds expect reductions in investment income, a decline that results in a need for greater employer contributions to invest.
Legislators will come face to face with the state’s budget problems when they return to Springfield in early 2020 and begin work on the 2020-21 budget that takes effect July 1.
Last year, they appropriated $9.2 billion in pension contributions for the state’s roughly $40 billion 2019-20 budget that’s now in place. They are expected to contributed another $9.761 billion to a budget that is expected to be slightly larger for the 2020-21 fiscal year.