Home > Blog > Pensions > More Money Needed For Pensions SHARE:

More Money Needed For Pensions

Illinois residents should be ready to pay an additional $886 million in general funds in the next fiscal year (which starts July 1st) towards pensions for state employees, teachers, staff at state universities, judges, and legislators. That’s the total change from this fiscal year (FY17) after the state pension systems[1] set their contribution amounts and the State Auditor (a firm hired by the Auditor General) reviewed them. The state contributions to the pension systems will total $8.9 billion in FY18 with approximately $7.9 billion coming out of the general revenue funds.

The state operates under a 1995 law requiring the pension systems to have assets at 90% of their projected liabilities in FY45. Currently, the state’s pension systems collectively only have assets for 37.6% of their liabilities.

When the state adopted the 1995 law, it back-loaded the payments with contributions dramatically increasing in FY12. The systems also adopted lower projected rates of returns on existing pension system assets in recent years. The result of the reduced rates is an increase in the unfunded liabilities of the systems and therefore a need to increase the required contribution amounts. Other revised demographic changes, such as mortality rates, have impacted the projected liability and estimated contribution amounts.

 

Historical Change in Investment Rate Assumptions
System Prior to FY 10 FY10 FY12 FY14 FY16
TRS 8.50% 8.50% 8.00% 7.50% 7.00%
SERS 8.50% 7.75% 7.75% 7.25% 7.00%
SURS 8.50% 7.75% 7.75% 7.25% 7.25%
JRS 8.00% 7.00% 7.00% 7.00% 6.75%
GARS 8.00% 7.00% 7.00% 7.00% 6.75%
Note: The years associated with investment rate assumption changes reflect the actuarial valuation year and not the fiscal year in which the State contribution was calculated using the new rate.
Source:  Commission on Government Forecasting and Accountability

 

The total unfunded liability for the pension systems (to get to the required FY45 level) stands at just under $130 million dollars. To put the FY18 general revenue funds contribution amount of $7.9 billion into perspective, the total General Revenue Funds operating budget in FY15 (the last time there was a complete state budget) totaled just over $31 billion. So, the contribution represents more than 25% of the last complete state budget. The state could change the existing law and stretch out the time frame for meeting 90% of system liabilities. However, that likely would mean setting aside even more money for pension system contributions.

The increased pension payments only add more pressure to the state’s finances which are already stressed by the failure of lawmakers to pass a complete state budget and expenditures that exceed incoming revenue by billions of dollars (resulting in the state currently having a backlog of bills totaling more than $11 billion). The result has been cuts to vital human services and higher education institutions with more cuts likely absent any further action.

The only viable solution is for the state to bring in new revenue. Without new revenue, the state is looking at deeper and deeper cuts that will undermine Illinois’s economy and quality of life.

[1] Teachers’ Retirement System, State University Retirement System, State Employees Retirement System, General Assembly Retirement System, and Judicial Retirement System

Print Friendly