What the market giveth, the market taketh away.
Illinois state’ pension debts jumped back to near-record high of $140 billion in 2022, largely due to the funds’ poor investment performance. Both the stocks and bond markets had negative returns, worsening the state’s unfunded liability by $10 billion.
More importantly, this year’s preliminary pension report from the Commission on Government Forecasting and Accountability published the fact that Wirepoints has been harping on for years: that Illinois continues to far underpay what it should to the state’s five state-run pension funds. The latest projections for 2024 show the state will underfund the plans by $4.4 billion. More on that later.
2022’s worsening pension losses come after the previous year’s once-in-a-generation market-rally helped shrink the state’s unfunded liability to $130 billion in 2021, down from a record $144 billion a year earlier.
Illinois retirement costs have been consuming for years around a quarter of the state’s budget – the biggest budget burden in the country – and yet debts consistently rise no matter how much money residents pay in.
This year the markets played an outsized role in the decline of the state’s five state-run funds. The Teachers Retirement System lost 1.2 percent, the State University Retirement System lost 1.4 percent and the State Employees, Judges and Lawmakers systems all lost 6.4 percent on their investments.
That’s in contrast to their actuarially assumed returns of 6.5 to 7 percent yearly.
Illinoisans are now on the hook for $140 billion in unfunded state pension debts. That shortfall exists because the five pension funds should have $249 billion in their investment accounts today to ensure they can meet their future obligations, and yet they have only $109 billion. Hence the $140 billion shortfall.
That leaves the state’s overall unfunded ratio at 43.8 percent, one of the worst in the country. Equable ranked Illinois 49th in the country for its funded ratio, with only Kentucky doing worse.
Actual pension costs revealed
In an apparent first, COGFA actually published the difference between what the state should be paying into the pension funds (Actuarially Determined Contribution) and what it’s actually paying.
That’s one particular truth we’ve been trying to shed light on for years. Illinois has been underpaying pensions by about $3 billion a year and underpaying retiree health costs – another one of the state’s under-reported shortfalls – by anywhere from $1 to $3 billion a year.
The state statutory requirements for pensions require a payment of $10.9 billion in FY 2024, but the actuaries calculate it should be paying in $15.4 billion. That’s a funding gap of $4.4 billion.
That gap has a lot of implications that we’ll detail in future work. But for now, here’s what matters:
- It disproves Gov. Pritzker’s annual claim that Illinois’ budget is balanced.
- It discredits Comptroller Mendoza’s claim that all the state’s bills are paid off.
- It explains why Illinois’ pension debt continues to grow year after year.
- And it explains why the crisis always gets worse despite the squeeze that Illinoisans have been under for more than two decades.