The state of Illinois reached a settlement with the SEC on Monday over charges that its pension fund shortcomings misled municipal bond investors.
“Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system,” said George S. Canellos, acting director of the Securities and Exchange Commission's Division of Enforcement, in a statement.
The state neither admitted nor denied the findings in the order, which carried no penalties or fines.
The SEC inquiry into Illinois' pension disclosures focused on the state's pension funding schedule as it sold more than $2.2 billion worth of bonds from 2005 to early 2009. According to the SEC's settlement order, the state set up a 50-year pension contribution schedule in 1994 that “proved insufficient” in covering benefits and the unfunded actuarial liability and “backloaded the majority of pension contributions far into the future.”
The SEC order recognized the “multiple steps” taken by the state beginning in 2009 to correct process deficiencies and enhance its pension disclosures.
Abdon Pallasch, spokesman for Illinois Gov. Pat Quinn, said in a separate statement that the state began making the enhancements before the SEC made contact.
“That level of detail is certainly in stark contrast to what they were doing before,” Elaine Greenberg, chief of the SEC's Enforcement Division's Municipal Securities and Public Pensions unit, said in an interview.
Illinois officials decided to settle with the SEC after learning of a similar settlement with New Jersey in 2010 regarding similar pension disclosure weaknesses, Mr. Pallasch said.
Ms. Greenberg said pension funding disclosure during bond offerings “continues to be a priority of our unit. Municipal investors are no less entitled to truthful risk disclosures than other investors.”
