State pension liabilities continue their climb in Illinois

Illinois piled a few billion dollars more onto its unfunded pension tab last year as contributions remain below the actuarial levels needed to keep it from falling further behind.

The unfunded liabilities rose to about $137 billion from $134 billion, according to a review of the preliminary actuarial valuation reports produced by the five funds that make up the state’s system. The reports were released over the last week.

The state’s unfunded liabilities, a primary driver of the state’s low-investment grade ratings, have steadily climbed through the years and were at $113 billion in 2015, according to the pension section in the offering statement on the state’s $750 million general obligation sale coming up Wednesday. The POS posted before the 2019 results were published.

The results, which still must be finalized and certified by the state actuary, call for $9.8 billion in state contributions in fiscal 2021 which begins next July 1. That’s up from about $9.2 billion in contributions certified for the current fiscal year and nearly on par with the state’s projections.

The Teachers' Retirement System accounts for $78.1 billion of the unfunded fiscal 2019 tab, up from $75.3 billion a year earlier, according to the report compiled by Segal Consulting. The funded ratio held nearly steady at 40.6% compared to 40.7% a year earlier.

The fund saw a 5.1% return on assets compared to its assumed 7%. A proposed contribution of $5.1 billion is up from $4.8 billion this year and falls $3.2 billion short of the actuarially determined amount.

“Any way you look at it, $5 billion is a lot of money. But because the state has underfunded TRS every year for 81 years, a contribution that further shortchanges the system will make our overall financial position worse in the future,” said TRS Executive Director Dick Ingram. “The unpaid debt gets bigger.”

The valuation report offered a stark assessment. “The state funding has been inadequate, resulting in TRS being among the worst funded public employee retirement systems in the United States. We strongly recommend an actuarial funding method that targets 100% funding,” Segal wrote.

Illinois contributions adheres to a 50-year scheme established in 1995 to bring the system to a 90% ratio and while the contributions are ramping up they fall short of actuarial determined contributions, or ADCs.

Gov. J.B. Pritzker proposed in his fiscal 2020 budget pushing off the amortization by seven years. The plan faced legislative opposition and investors and rating agencies warned of the potential for rating deterioration. Two rating agencies already have Illinois on the final notch above speculative grade.

The governor dropped his proposal after an April tax windfall but his administration has refused to take if off the table as an option for future years.

The State Universities Retirement System, or SURS, accounted for $26.8 billion of the full unfunded tab, up from $25.9 billion the previous year, and the funded ratio mostly held steady at 42.3% compared to 42.75% the previous year, according to the 2019 valuation report prepared by Gabriel, Roeder, Smith & Co.

The tentative state contribution was set at $2 billion, up from $1.9 billion this year and short of a $2.45 billion ADC.

The State Employees’ Retirement System, or SERS, accounted for $30.3 billion of the unfunded tab, down slightly from $30.4 billion a year earlier with the funded ratio growing slightly to 37.8% from 36.5%, according to the valuation report prepared by Gabriel, Roeder, Smith & Co. The fiscal 2021 contribution was set tentatively at $2.35 billion, up from $2.3 billion this year and below an ADC level of $2.9 billion.

The General Assembly Retirement System, or GARS, accounts for $314.5 million of the total unfunded liability which is a drop from $318.2 million a year earlier for a funded ratio of 16% compared to 15.3% the previous year. The state’s 2021 contribution was tentatively set at $27.3 million, up from $25.8 million this year and under a $34.4 billion ADC.

The Judges’ Retirement System accounts for $1.72 billion of the full tab, up slightly from $1.7 billion for fiscal 2018 with the funded ratio improving to 38.3% from 37.2%. The 2021 contribution was set at $148.6 million, compared to $144.2 million this year and under a $173.2 million ADC.