Good news on pension insurance does not alleviate underlying financial pressures, a new report says | Illinois
BY JERRY NOWICKI
Capitol News Illinois
SPRINGFIELD – According to a new report from the Commission on Government Forecasting and Accountability, the state saw its unfunded pension liabilities decline in fiscal year 2021 for the first time in four years, largely due to investment returns of over 20 percent.
As measured by the current values ââof pension fund assets, unsecured liabilities – or the amount of debt that state pension funds cannot pay – decreased nearly 10 percent to $ 130 billion in FY2021 from $ 144 billion in the previous fiscal year. This means that the state’s five pension funds are 46.5 percent financed, compared to 39 percent in the previous year.
It is the best coverage ratio since 2008 and only the third decrease in unsecured liabilities in the last 15 years, the last in FY 2017 with 0.5 percent, the other in FY 2011 with 2.9 percent. Otherwise, unsecured liabilities have increased annually from $ 42.2 billion in 2007.
However, the report also found that little has changed to alleviate the underlying financial pressures that caused unsecured liabilities to triple since the 2007-2008 financial crisis, meaning the good financial news were more of an anomaly than a trend.
The returns of 22.9-25.2 percent for fiscal 2021, which ended June 30, far exceeded the expected returns of 6.5 to 7 percent, according to the report.
Aside from the good investment news, the report was essentially similar to countless other pension reports in recent years, particularly as it once again urged the state to revise the much maligned “Edgar Ramp” plan of 1994 to pay off pension debts.
This is the name often used to refer to Public Act 88-0593, or the state’s 50-year plan, which will fund 90 percent of its five pension funds through 2045.
The real goal for this increase should be a 100 percent funded pension system within the next 25 years, or preferably sooner, according to a letter from its actuary Segal Consulting attached to the COGFA report.
The letter also accused Edgar Ramp of “reloading” pension payments by requiring lower contributions in the early years, resulting in 20 percent of the state’s discretionary spending being used for pension payments each year. It also highlighted other times when the pension system fell short, including during the tenure of former Governor Rod Blagojevich.
Only after the target has been raised to 100 percent, according to the report, will the state begin to reduce its uncovered pension liabilities on a sustained basis.
“(D) the financing plan under (Public Law) 88-0593 produces employer (government) contributions that are actuarially insufficient to halt the growth of unsecured liabilities,” the report said.
However, increasing pension payments is easier said than done, said Alexis Sturm, director of the governor’s office of administration and budget, in a letter accompanying the report.
She was unavailable for a phone call on Thursday, but her letter to the COGFA co-chairs states that consideration of changes to the current 90 percent target “must be carefully considered in the context of the budgetary implications” .
The $ 8.6 billion pension payment in FY2021 was equivalent to 20 percent of the General Revenue Fund’s $ 42.9 billion budget, and pensions are routinely the state’s largest GRF spending outside of the K- 12 training. In fiscal 2022, COGFA estimates the GRF payment at $ 9.4 billion, or over 21 percent of the operating budget.
Edgar Ramp’s mandated GRF payment for fiscal 2023 is estimated at more than $ 9.6 billion, or nearly $ 10.8 billion including other government funds.
However, if the state wants to make an actuary-approved contribution, according to the report, it will have to contribute nearly $ 14.9 billion in FY2023, which begins July 1, or 38 percent more than provided through the Edgar Ramp.
“An increase in the target would lead to higher payments, but ultimately to a reduction in unsecured liabilities in the systems,” wrote Sturm. “Given the current fiscal pressures the state is facing, it is inadvisable until Illinois clears the backlog of unpaid bills, borrows money to pay off debts left by the budget deadlock and the COVID-related recession, and that is can eliminate underlying structural deficits. â
According to the website of Illinois auditor Susana Mendoza, who said in a public appearance this week that the oldest unpaid voucher is 21 days old, the backlog is currently about $ 4.8 billion.
Nevertheless, given the circumstances, the 90 percent target is “reasonable and achievable,” said Sturm. Governor JB Pritzker’s administration has funded the pension system entirely at Edgar Ramp levels for each of his first three years, though he briefly considered lowering the payment in the first year before quickly abandoning the plan.
In their letter to the COGFA director, executives of the state’s “big three” pension funds – the state university pension system, the state employee pension system, and the teacher pension system – all endorsed the 100 percent funding goal and shorter ramps to full funding.
“Earlier financing would, in addition to a targeted coverage ratio of 100 percent, make the pension systems more secure and significantly reduce the financing costs by paying interest on the non-funded liabilities, the main driver of the state contribution obligation,” wrote those responsible for the pension systems.
The report also found that a pension purchase program launched in 2018 and extended by three years by the Pritzker General Assembly resulted in a reduction in unsecured liabilities of $ 213 million for fiscal 2021.
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