Report: Illinois must add $5.4 billion to pension plans

Illinois will have to contribute $5.4 billion to its five state retirement systems and debt service on its pension obligation bonds in the next fiscal year, beginning July 1, according to a report from William G. Holland, state auditor general.

The state will have to contribute a total of $4.8 billion to the five systems and $590.8 million in debt service in the next fiscal year, the report said. By fiscal 2015, required state contributions to the systems will reach a combined $6.1 billion, and the state will have to pay $578 million in debt service on its pension bonds.

Illinois has $17.2 billion in pension obligation bonds outstanding, consisting of $3.7 billion sold in February to fund the state’s annual required contribution for the current fiscal year, $3.5 billion issued in 2010 and $10 billion issued in 2003. The report doesn’t include the February pension bond sale, said Jim Dahlquist, administrative manager in the office of auditor general.

The five Illinois state retirement systems’ combined funding ratio, as of June 30, fell to 38.3% for a total unfunded liability of $85.5 billion using a fair value or market-basis method of valuation. Those numbers are even worse than the 45.4% funding ratio and $75.7 billion unfunded liability reported by systems using a new smoothing method for valuation, the report said.

The systems, as of June 30, had a combined $53.2 billion in assets, using the fair-value method, compared to $63 billion under the smoothing method they are required to use, the report said.

Using the fair-value method of valuing assets, the funded ratios and unfunded liabilities as of June 30 of all five state systems worsened, compared to using an actuarial valuation method enacted into law in 2009 that smoothes asset gains and losses over a five-year period.

The Illinois Teachers’ Retirement System, Springfield, had a funding ratio under fair value of 40.5%, compared to 48.4% under the smoothing method. The teachers system, with $77.2 billion in liabilities, had $31.3 billion in assets under fair value, compared to $37.4 billion under the smoothing method.

The Illinois State Universities Retirement System, Champaign, had a fair-value funding ratio of 40.2%, compared to 46.4% under the smoothing method. SURS, with $30.1 billion in liabilities, had $12.1 billion in assets under fair value, compared to $13.9 billion under the smoothing method.

The Illinois State Employees’ Retirement System, Springfield, had a funding ratio under fair value of 31.4%, compared to 37.4% under the smoothing method. SERS, with $29.3 billion in liabilities, had $9.2 billion in assets under fair value, compared to $10.9 billion under the smoothing method.

The Illinois Judges’ Retirement System, Springfield, had a funding ratio under fair value of 28.8%, compared to 34.1% under the smoothing method. The judges system, with $1.8 billion in liabilities, had $523 million in assets under fair value, compared to $620 million under the smoothing method.

The Illinois General Assembly Retirement System, Springfield, had a fair value funding ratio of 21.8%, compared to 26.3% under the smoothing method. The judges’ system, with $252 million in liabilities, had $55 million in assets under fair value, compared to $66 million under the smoothing method.

David Urbanek, public information officer, for the teachers’ system, said: “We are required by law to use the smoothing method. So that is what we base every one on. That is what we do. (The auditor general) took a look at differences in both methods.”

William B. Mabe, executive director, SURS; Timothy B. Blair, executive secretary of the state employees, judges and legislative systems; and Mr. Holland couldn’t be reached for comment.