Public pension funds shortchanged in contributions by their states could be permanently hurt by the 2008 market meltdown and be forced to liquidate some investments to pay benefits.
State pension plans in Illinois, New Jersey, Colorado and Kentucky are among those feeling a severe pinch.
In Illinois, executives for statewide public funds already are selling assets and warning they might have to sell off up to 10% of their investment portfolios during the current fiscal year to pay benefits unless state lawmakers come through with significant cash infusions.
In an interview, Dave Urbanek, a spokesman for the $33.1 billion Teachers' Retirement System of the State of Illinois, Springfield, said the pension fund liquidated $200 million in stocks and bonds in July, and another $290 million in August. Portfolios then were rebalanced to their targets.
Mr. Urbanek said it was unclear what investments the system, which is supposed to get $196 million a month from the state, might target for liquidation next.
“It's not good policy to limit ourselves,” Mr. Urbanek said.
“We're only doing this because we didn't get the state contribution,” Mr. Urbanek continued. “If the contribution shows up, everything is flush,” he added. “If not, we're losing 10% of our portfolio.”
In New Jersey, massive state underfunding forced the Division of Pensions and Benefits — which oversees benefit payments for public pension funds with $68.3 billion in assets — to shell out $3.6 billion more in benefits and other obligations than what was contributed by employers and employees in the fiscal year ended June 30, 2009, according to New Jersey's financial report for 2009. Splashing gas on the fire was a $12.3 billion investment loss during that same fiscal year, according to the report.
State executives are not commenting on the financial performance for the fiscal year that ended June 30 or the current fiscal year, said William Quinn, a spokesman for the New Jersey Department of Treasury, which oversees the division. Mr. Quinn confirmed the state was liquidating some assets, but would provide no details.
“These pension funds have had problems for years because of underfunding and overpromising of benefits,” said Andrew Pratt, another Treasury Department spokes-man.
A shortfall in contributions in Colorado resulted in the $35.3 billion Colorado Public Employees' Retirement Association, Denver, paying out $1.4 billion more in benefits and other obligations than it received in employer and employee contributions during calendar year 2008, according to PERA's annual report.
The impact of the contribution shortfall was aggravated by a $10.4 billion investment loss, according to the report.
During 2009, the system also paid out $1.5 billion more than it received in contributions, according to PERA's 2009 report. But the contribution shortfall in 2009 was offset by a $4.9 billion return on investment, the report said.