By: Ted Dabrowski and John Klingner

Illinois’ annual pension report was released on July 2 by COGFA, the Commission on Governmental Forecasting and Accountability. The story remains the same. It shows that, despite the 2019 bull market, Illinois’ official state pension shortfall grew to a record $137 billion in 2019, up from $134 billion the year before. COGFA now projects that official pension costs will devour more than a quarter of the state’s budget for the next 25 years.

The problem is, Illinois’ pension crisis is far worse than even the official numbers show. The state’s rosy actuarial assumptions make the funds look better-off than they really are.

Under more realistic assumptions, Illinois actually owes $241 billion in debts – the biggest shortfall of any state in the nation, according to Moody’s Investors Service. Illinois would actually need to devote half its budget to retirements to pay off that debt. 

Here’s what the official numbers say

State pension debts have grown almost every year since 2000, when the state’s shortfall was just $16 billion. In 2019, those debts grew to a record $137 billion. 

Officially, Illinois’ five state-run pension systems have just 40.2 percent of the funds they need today to be able to meet their obligations in the future, up slightly from 39.8 percent the year before. The university fund, SURS, is the best funded of the five, at 42.3 percent, but its funded ratio fell by nearly 2 percentage points this year.

Most notable is the funding ratio for the state lawmaker pensions. It’s just 15.9 percent funded, with only enough assets left to make a little more than two years worth of payouts. It’s effectively insolvent by any definition.

The biggest driver of Illinois’ crisis has long been the growth in the total promises made to pensioners and active workers. The state’s accrued liabilities have grown so quickly over the past several decades that they’ve overwhelmed Illinois’ finances. Wirepoints covered that in our report Illinois state pensions: Overpromised, not underfunded.

In 1987, the state owed $18 billion in pension promises, or 1.6 times more than the state’s then-general fund budget of $11 billion. Today, the state’s promises total $229 billion, or 5.7 times the state’s budget of $40 billion.

That growth in pension liabilities has dwarfed the ability of state taxpayers to fund them. Retirement costs have grown to devour more than a quarter of the budget and COGFA estimates they’ll continue to do so for the next 25 years.

No other state in the nation spends as much of their budget on pensions.

What’s most damning about the current system is that the nation’s longest-ever bull market and billions in new taxpayer contributions have done nothing to improve the nation’s worst pension crisis. 

By 2019, markets ended up four times higher compared to their Great Recession lows. And taxpayer contributions had more than tripled over the same period. In 2009, the state paid $2.7 billion into the pension funds; last year it poured in more than $9.2 billion. 

Despite that, the state’s funded ratio hasn’t improved at all. It’s been stuck at 40 percent since 2009.

That’s really bad news for the funds. If Illinois’ pensions couldn’t manage to improve in good economic times with billions more taxpayer dollars, imagine how badly they’ll be hurt when the recent market downturn is accounted for.

It’s worse than what they say

The state’ official numbers are based on the rosy assumptions of the state’s actuaries, which count on overly optimistic investment returns for the fund going forward. The state assumes returns near 7 percent even though actual market rates are far lower.

The ratings agency Moody’s Investors Service, which used far more realistic assumptions (a 4.14 percent return rate in 2018), calculated Illinois’ shortfall to be $241 billion, more than any other state in the country in both total and per capita terms. 

What Moody’s says matters since it rates Illinois’ credit just one notch above junk. One more downgrade and Illinois will be rated junk, which has never happened to any state before.

Illinois’ official low-balling of its crisis also extends to the annual cost of pensions. JP Morgan’s Micheal Cembalest estimates the state would need to devote more than 50 percent of its budget to properly pay for its true retirement costs (including retiree health insurance). Illinois is the nation’s outlier; no other state comes close to that amount of their budget. 

*********

Illinois’ pensions are in terrible shape, but it’s the true numbers run by Moody’s and others that show how bankrupt Illinois has become. Major reform, including a reduction in retirement debts, is the only way out.

The negative impact of the COVID-19 crisis makes those changes all the more urgent.

Read more about Illinois’ worst-in-nation pension crisis:

45 Comments
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Poor Taxpayer
15 days ago

Raise taxes and then it would be a lower percentage.
Illinois “Land of Slavery”

Poor Taxpayer
29 days ago

Illegal Ponzi Scheme.
A pension fund is something that is funded.
This was not, not even close.
Taxpayers should take this to court as an Illegal Ponzi Scheme.

Mike
29 days ago

Taxpayer Lives Matter.

Poor Taxpayer
1 month ago

Pensions do not cause the problem.
The Greedy people getting the money is the problem.
All the cops, teachers and firemen think they deserve $100,000 or more per year.
Yes that is the number for full pensions at age 45 years old, they will get paid more in retirement than they made sitting around doing nothing.
No hope no way. Kiss the state good bye. DOA, Toast, a goner.
Illinois “Land of Slavery”

IAFF
1 month ago
Reply to  Poor Taxpayer

Democrat, “Diddlin’ Joe” will keep the largesse going. His right hand man< the president of the IAFF Harold Shaitberger, was caught by their own treasurer stealing union money for his own reiterment. Ever wonder why you see those Firefighters for Biden signs? Sleepy Joe won’t seek a Federal investigation.

Kay Saroski
1 month ago

Is this still all Rauner’s fault?? Why don’t we have a CLAWBACK provision for pensioners that run up a tab on taxpayer’s and then move to a lower income tax state? They shouldn’t keep all the tax money they get for FREE if they aren’t willing to stay here and share the BURDEN. Or how about limiting how much they get? They want to see their beloved Illinois get even worse? They don’t care! $75-$100K in retirement sure sounds better than what I will get from my 401k. Some of these clowns get way more than that PLUS health benefits.… Read more »

The Truth Hurts
1 month ago
Reply to  Kay Saroski

There is nothing to CLAWBACK. Pensions are considered a contract. No where does the contract state they must stay in Illinois for life. They aren’t keeping “all the tax money they get for FREE” but are getting paid their contractually deferred compensation.

For the record this is not Rauner’s fault or Quinn’s fault for that matter. This cake was baked long ago.

John Richter
1 month ago

You’re delusional. Mathematical reality says you will be wrong in the not so distant future. Like most people with brains in Illinois I am looking to move out of Illinois currently. People are leaving, and the pensions (as is) are dying a slow death that is starting to speed up and will continue to until they are done for. Taxes can only go so high (obviously), and cuts (legally and realistically) only so deep. Illinois is a high tax state now with poor services that people are running away from. People don’t have to stay in Illinois, and more and… Read more »

Last edited 1 month ago by John Richter
Tim
1 month ago
Reply to  John Richter

So true!

The Truth Hurts
1 month ago
Reply to  John Richter

That’s ok John, no reply is needed. Clearly you have a reading comprehension problem so any thought you post would be irrelevant. Everything in my above statement is factual and true.

  1. Pensions are considered a contract.
  2. There is no CLAWBACK ability for pensions.
  3. Pensions are considered deferred compensation.
  4. Tier 1 pensions are the problem and these were done before 2010 before Rauner and Quinn. Quinn is responsible for Tier 2.

Nothing delusional in any of my statements but just facts.

Tim
1 month ago

Hmmm I go with John on this one. The math shows the pensions are unsustainable. State bankruptcy allowance seems a given in the future. It seems to me you or your spouse most likely get a pension. Bias doesn’t beat math though. It must suck to not be able to do anything about the pensions being so doomed at this point. The great thing is that people can move and not waste any money on Illinois pensions!

The Truth Hurts
1 month ago
Reply to  Tim

Clawing back pensions from people leaving the state is entirely different than a state bankruptcy or a default. That day will come when taxes can no longer be raised to get additional revenue.

Please point out where any of my statements are biased or without fact. Otherwise you’re making your argument like a liberal with feelings.

Tim
1 month ago

I am pointing out math. The math will win out. RI and Detroit already cut pensions. Both are worded like Illinois, and still got cut. When the funds reach zero, cuts will happen, one way or another. You won’t face cuts no matter what, and we both know why – you have skin in the game. Well, the game is f sir. Your statements mean nothing when math wins out over all, and that is the truth, and it must hurt. Have a good one, and I hope you have some other money for your retirement, because the pensions are… Read more »

The Truth Hurts
1 month ago
Reply to  Tim

Don’t have a pension and not worried. I am invested heavily in tech and I’m now up on the year. But your concern is noted. If I did have one I’m not sure I would be too worried. As you pointed out in Detroit, those pensioners continue to receive 95.5% of their pension post bankruptcy.

You still haven’t pointed out any of my statements that aren’t factual.

Tim
1 month ago

Actually I did, since there WERE clawbacks for pensions in Detroit, RI, and Cali too, which I forgot. All worded just like Illinois, still cut. So, you are in fact wrong. Nice try though. But as I said, you won’t face reality because you have pension income. This is worthless. Bye now.

The Truth Hurts
1 month ago
Reply to  Tim

Please go back and read the thread from the top. The “CLAWBACKS” I was referring to was from Kay. She was referring to pensioners who leave the state. I stated no such claw back provision is allowed. That is a fact. If you can’t follow a thread then don’t make a comment. Then the discussion won’t be worthless. You stated I won’t face up to cuts. I have made no such argument. I have argued they are a long way off. In the meantime, more taxes and pensions will continue to be paid. Until taxes stop bringing in more revenue… Read more »

Last edited 1 month ago by The Truth Hurts

Please point out where any of my statements are biased or without fact.
Your claim that these PUBLIC pensions are a result of valid, arms length negotiation/s.

Last edited 29 days ago by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴
Freddy
29 days ago

I will try to make this an observation rather than a statement. You say that pensions are considered deferred compensation which to me means that in lieu of getting more compensation now they are deferring income to a later date. As an example here in Rockford the school district contracts are always larger than the previous contracts. The teachers contract are usually 2-3 years long with anywhere from 2-3% annual raises plus perks. So what compensation exactly is being deferred? The teachers (or anyone working for the district) income is larger at the end of career than the beginning so… Read more »

The Truth Hurts
29 days ago
Reply to  Freddy

“To me HOW the final pension calculations are calculated is the problem and the solution.” I agree that is one of the largest problems I just don’t understand your solution. Illinois changed how pensions are calculated for employees hired after 2010. They must work until 67 for full retirement, calculations are now based on 8 of last 10 years, a maximum benefit applies, and increases are lower. The current tier 2 calculations put the pension benefit closer to a social security payout. They are not the problem but rather tier 1. The calculations of tier 1 pensioners can’t be changed… Read more »

Freddy
29 days ago

Thank You. I think Tier 2 does not get 3% compounding and I agree Tier 2 is not the problem but they are upset that some of their money is being steered to Tier 1 retirees and want some lump sum to compensate according to some articles I read. Do you know when the 4 highest years to calculate the pension was enacted and by whom? I would like to read more about it. It seems more of a loophole than some specific law. Also do you know how many people were hired just prior to 2010 rule changes. These… Read more »

The Truth Hurts
29 days ago
Reply to  Freddy

“ Do you know when the 4 highest years to calculate the pension was enacted and by whom?”

Changes like these are made by the state legislature and signed into law by the governor. In this case it was implemented in 1971. Prior to that it was 5 of the last 10 years which was implemented in 1949.

Freddy
29 days ago

Thank You again. I could not find it.

Mike
29 days ago

The “highest four consecutive years within the last 10 years” did not become effective for all pension plans in 1971. The various pension plans have various rules which is one of the many problems with Illinois pensions. Also, as you probably know, the accrual rate is a related topic. For example the accrual rate was hiked to 2.2% in 1998 for TRS as part of Public Act 90-0582 (PA 90-0582) which amended the Edgar Ramp (PA 88-0593). The pensions in Illinois are a political farce. Pension benefits are supposed to be predictable and stable. In Illinois they were political tools.… Read more »

Last edited 29 days ago by Mike
The Truth Hurts
29 days ago
Reply to  Mike

Thanks Mike regarding not all pension plans were changed in 1971. I was describing TRS which represents a large portion of the states unfunded liability. It’s difficult on these boards to go into every detail of our pension situation so I appreciate you providing clarity. My point was merely that the 4 out of the last 10 years was not something new.

Pensions are considered a contract.
Wrong. Fraud invalidates any contract.

There is nothing to CLAWBACK. Pensions are considered a contract
Sorry, but FRAUDULENT contracts are void at inception, and trust me, every public pension contract in IL during the last 35 years is up to it’s eyeball in fraud and deceit.

The Truth Hurts
29 days ago

No fraud involved at all. Pensioners have had the right to have their pension calculated based on the formula present on their first day of employment. Sure it could go up as that doesn’t impair a contract. That has been the case since 1970. Is the state aware of this when they hire new employees that offer this new contractual benefit? Yes. Is the new employee aware? Yes. Both parties willingly know their sides of the contract and entered into it. Fully valid. Im assuming you’re argument is that salary contracts are negotiated with people that are voted into office… Read more »

s & p 500
1 month ago

The pension crisis deniers refuse to do the math. It totally baffles me. They think the state can print money or it’s some kind of South Sea bubble that will never stop. In this piece about budget problems in a Pa. school district, pensions are a footnote and the blame goes to charter schools. The board should have accepted the $2000 of Gofundme money.

https://www.penncapital-star.com/education/death-by-a-thousand-cuts-controversy-in-lebanon-county-school-district-highlights-pa-s-education-challenges/

Tom Paine's Ghost
1 month ago

Why havent the ratings agencies rated Illinois debt as Junk? Are they complicit in this scam? When Illinois defaults will investors have recourse to claw back some of their losses from the grossly inaccurate ratings generated by Moodys, S&P, etc?

Last edited 1 month ago by Tom Paine's Ghost
willowglen
1 month ago

Tom Paine – the rating agencies work for the issuer, i.e., in this case the State. Query what would happen if a taxpayer association would pay them to analyze the State’s finances?

Poor Taxpayer
1 month ago

A junk rating is too high. Illinois is a Ponzi Scheme and should be illegal what they are doing.

The Truth Hurts
1 month ago

The ratings agencies are waiting for the progressive income tax increase. If that doesn’t pass they will want a flat tax increase/spending reduction. Once taxes are increased the agencies will monitor out migration and overall expected revenue. As long as overall revenue continues to climb they will be happy.

Lyn P
1 month ago

I can’t envision any scenario where revenues would rise in the next few years. All facets of tax streams are majorly damaged, combined with likely higher out-migration for foreseeable future – business and residential. What tax rate increase in either structure could possibly pass to make all this up?

willowglen
1 month ago
Reply to  Lyn P

Lyn P – the other thing is that higher taxes are no exogenous to productivity and revenue to the fisc. Ask any tax and spender if higher taxes are exogenous to productivity and you will get met with a blank stare or a non-sensical answer.

Poor Taxpayer
1 month ago

Nearly 80 People Shot In Chicago, 15 Of Them Killed, In July 4th Weekend Violence Since Late FridayWhy would you stay just to get screwed over by the taxman??

Poor Taxpayer
1 month ago

The Greed of cops, teachers and firemen has destroyed the quality of living for the poor honest hard working taxpayer and their families.
The enemy of the worker is the government worker.
They retire at age 45 to Florida to live in luxury homes and drive luxury cars.
Get out while you can or pay, pay, pay. Taxes are going way way up and your home values will go way down.
Illinois “Land of Slavery”

Khanski
1 month ago

Illinois is not at the edge of the cliff; it has a whole foot to go which should happen by spring next year. Illinois zombies will continue to vote for Democrats (and lousy Repubs) because they can’t help it. It’s the leftist politics stupid….

Freddy
1 month ago

Don’t worry-the progressive tax will fix everything. Like I said from the beginning. They will dangle some miniscule property tax relief in exchange for voting for the progressive tax just a few months before election day. Unfortunately many will fall for this hook,line and sinker except for Wirepoints readers who are well informed. But what still concerns me if that if the tax is voted down what is Plan B? There is always a Plan B. Always!

UnclePugsly
1 month ago
Reply to  Freddy

Plan B is to raise taxes.

nixit
1 month ago
Reply to  Freddy

Embedded in the Fair Tax is an increase in the property tax credit from 5% to 6% of taxes paid. That’s our property tax “relief”.

Lyn P
1 month ago
Reply to  Freddy

Cook Co. will not see anything but property tax increase under its current regime.

willowglen
1 month ago

The current glob of politicians will simply state in response that taxes have not been sufficiently high, and Pritzker’s tax proposal will fix that problem. Of course, Pritzker’s proposal can’t raise any appreciable revenue by taxing the “rich”, and the State will have to tax almost anyone with expendable income – precipitating a downward spiral. But the facts don’t matter – the politicians can’t want to wait until they can secure Democratic control of Congress and the executive branch – a federal bailout is their true objective.

Mick the Tick
1 month ago

You worry too much. Yes, the state has financial problems, but everything else is running smoothly, so let’s all fight to save Illinois because it deserves to be saved. HAHAHAHAHAHAHAHA

UnclePugsly
1 month ago

What do the Chicago Democrats say about all this debt since they are the ones who ran it up and run the state? What does Pritzker say? The debt is Pritzker’s problem to fix – what has he done to fix it?