Bonds away

Illinois sells $3.7 billion in pension bonds

Illinois on Wednesday sold $3.7 billion in pension bonds, priced at an average price of 5.56% for securities whose maturities range from 2014 to 2019, according to Kelly Kraft, spokeswoman for the state Office of Management and Budget.

The bonds were sold to fund the state's required annual contribution for the current fiscal year to its five statewide retirement systems.

Moody's Investors Service rated the bonds A1 and Standard & Poor's A+, both with a negative outlook, according to the reports of the credit-rating companies.

The $34.6 billion Illinois Teachers' Retirement System, Springfield, expects to receive $2.2 billion from the bond sale and the $13.5 billion Illinois State Universities Retirement System, Champaign, $777 million.

The $9.97 billion Illinois State Employees' Retirement System expects to receive $690 million; the $420 million Illinois Judges' Retirement System, $47 million; and the $105 million Illinois General Assembly Retirement System, $9 million. The three plans are overseen by the $10.5 billion Illinois State Board of Investment, Chicago.

The Illinois Teachers pension fund is working on an investment plan for its share of the proceeds, said spokesman David Urbanek. No timetable has been set to complete the plan, he said. The system plans to keep part of the proceeds in cash to pay pension benefits for the rest of this fiscal year, ending June 30, and part of next fiscal year, Mr. Urbanek said, adding the amount hasn't been defined yet.

TRS doesn't plan to sell any more assets the rest of the fiscal year to pay pension benefits because of the expected bond proceeds, Mr. Urbanek said. It has sold $2 billion in investments since the start of the fiscal year last July 1 to pay pension benefits, Mr. Urbanek added.

ISBI expects to invest all its share of the bond proceeds in equity and fixed-income indexed funds based on its current asset allocation until a long-term investment plan can be completed, said Timothy B. Blair, executive secretary of the state employees, judges and legislative systems. ISBI's allocation is 31.4% domestic equities, 20.39% international equities, 22.91% fixed income and cash, 5.49% private equity, 7.02% real estate, 3.36% infrastructure and 9.43% hedge funds, according to an ISBI report.

ISBI could sell a total of about $150 million to $200 million in assets from now through June 30 to pay pension benefits, Mr. Blair said. Because of the bond proceeds, that's considerably lower than the $80 million in assets a month that ISBI has sold since July, Mr. Blair said.

William E. Mabe, executive director of Illinois SURS, and Daniel L. Allen, chief investment officer, could not be reached for comment.

Illinois sold $3.466 billion in pension bonds in January 2010 to pay its required annual contribution for the last fiscal year. In 2003, it sold $10 billion in pension bonds.

As of last June 30, the teachers system was 49% funded; Illinois SURS, 40.2%; State Employees, 37.4%; Judges Retirement, 34.1%; and General Assembly, 26.3%.