The Illinois Senate on Friday passed legislation to pay the full required state contributions to the five state retirement systems — totaling $4.5 billion — for the next fiscal year without selling pension bonds, according to a statement from state Senate Democratic caucus staff.
The vote followed approval by the House on April 1.
The contributions would be for the fiscal year starting July 1, if Gov. Pat Quinn signs the legislation. If passed, fiscal 2012 would be the first in two fiscal years in which bond sales would not be used to fund the state contributions.
Under the legislation, the $34.6 billion Illinois Teachers’ Retirement System, Springfield, would receive an estimated $2.4 billion, and the $13.7 billion Illinois State Universities Retirement System, Champaign, $980.5 million.
The $9.97 billion Illinois State Employees’ Retirement System, the $420 million Illinois Judges’ Retirement System, and the $105 million Illinois General Assembly Retirement System, all based in Springfield, would receive a combined $973.6 million.
Knowing the required contributions are coming will help enable the five pension funds to focus on strategic investment policy rather than have to sell assets to pay benefits because of the lack of timely state contributions, officials at the systems said.
The Illinois Teachers system sold $2 billion in assets in this current fiscal year, almost double what it would normally sell, to pay benefits because of the delay in receiving its contribution, said Dave Urbanek, public information officer. The system, typically has sold from $1 billion to $1.4 billion in assets in each of the previous six years because of its negative cash-flow position, he said.
The legislation isn’t likely to cause the system to change its revised asset allocation, effective July 1, for which it is in the process of developing an implementation plan, Mr. Urbanek said.
“We are very pleased with the decision of the (state) House and Senate,” Mr. Urbanek said.
William R. Atwood, executive director of the Chicago-based Illinois State Board of Investments — which oversees the assets of the Illinois employees, judges and legislative systems — also praised the legislation. “It’s the right thing to do,” he said.
Mr. Atwood said he expects the ISBI to resume allocating to private equity and real estate, asset classes that the board stopped funding as of December because of the need for liquidity.
ISBI sold $960 million in assets this fiscal year to pay benefits, Mr. Atwood said.
“If we have to sell more assets (the rest of the fiscal year), it will be pretty small,” Mr. Atwood said.
ISBI will reconsider at its June 24 meeting its asset allocation, including bringing its 7.4% real estate allocation closer to its 10% target, Mr. Atwood said.
In December, in an effort to conserve liquidity, ISBI stopped ING Clarion, which manages a $500 million separate account real estate allocation, from drawing down a $250 million commitment. In addition, ISBI expects to initiate a search postponed in December for non-core real estate investment managers to run at least $50 million to $60 million, an issue the board likely will take up in September or December, Mr. Atwood said. He said ISBI would hire more than one manager.
Marquette Associates, ISBI’s general investment consultant, and Townsend Group, its real estate consultant, will assist in studying a revised allocation, Mr. Atwood said.
At Illinois SURS, William E. Mabe, executive director, and Daniel L. Allen, chief investment officer, couldn’t be reached for comment.
The combined state contribution to the five systems for the next fiscal year amounts to more than 12% of state revenue estimates for the next fiscal year, the Senate statement said.
When as if the governor would sign the legislation, Kelly Kraft, spokeswoman for Mr. Quinn, said in an e-mail: “The governor has always supported the full funding of pensions” and would review it.
Illinois sold $3.7 billion in pension bonds in February and $3.466 billion in bonds in January 2010 to finance its combined required annual contribution to the five systems.
