Illinois Could Consider $107 Billion Pension Bond Gamble

Scrambling for a solution to shore up its pensions and eliminate its $129 billion pension debt, Illinois lawmakers will meet Tuesday to discuss a proposal that could see the largest municipal debt sale in history.

Reported by Bloomberg, who corresponded with Rep. Robert Martwick, the State Universities Annuitants Association’s (SUAA) proposal wants Illinois to issue $107 billion in bonds in order to fully fund its flailing retirement system. This debt sale, of course, would assume that the pension system’s investments would produce more yield than its interest payments.

“We’re in a situation in Illinois where our pension debt is just crushing,” Martwick, who chairs the SUAA, told Bloomberg. “When you have the largest pension debt in the world, you probably ought to be thinking big.”

While selling bonds for pensions is nothing new—especially for the Prairie State, which had previously sold $10 billion worth of pensions for bonds in 2003—it has never been done on this grand a scale. In addition, the strategy does not have the greatest track record; Bloomberg reports that when New Jersey, also very underfunded, and Detroit had given this concept a shot, their pensions continued to shortfall—with the Motor City’s 2005 and 2006 trials experiencing engine failure in the form of bankruptcy in recent years.

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Because Illinois’s current pension debt grows at the same rate that the retirement system expects to earn on its investments, the SUAA’s plan is expected to save Illinois an estimated $103 billion by 2045.

Although the S&P 500 Index had done well recently, increasing 19% last year while still climbing strong today, it’s all about timing the market, and with economists predicting increasingly higher chances of a 2018 market correction, it may not be the best time for a plan as risky as this one to be pushed forward, experts say.

“Those types of deals are not typically positively received by the rating agencies or investors,” Eric Friedland, Lord Abbett’s director of municipal research, told Bloomberg. “That type of issuance could definitely be a credit negative.”

Tags: Bonds, Debt Sale, Illinois, Pension, Robert Martwick, State Universities Annuitants Association

After months of negotiations, UK postal services provider Royal Mail and the Communication Workers Union (CWU) have finalized the details of a tentative deal to end an ongoing pension dispute.

“We have indeed now reached a negotiators agreement with Royal Mail Group on all of the issues of concern and all of the issues that we campaigned on,” said Terry Pullinger, deputy general secretary postal of CWU, in a video announcement to members. “The negotiators believe that it does match the right balance between all of the issues we wanted to take forward.”

The agreement also covers issues such as pay, a shorter working week, culture, and operational changes. The CWU’s Postal Executive Committee will hold a two-day meeting on Jan. 30 and Jan. 31 to go through the agreement and make a final decision.

Details of the agreement were not released, however, in a joint statement, the two sides said an announcement with the specifics of the final agreement “will be made in due course.”

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The two sides are reportedly in favor of Collective Defined Contribution (CDC) pension plans, which were authorized by UK legislation in 2015, but still require regulations before they can be deployed. CDCs differ from defined benefit plans in that the employee is not promised a certain retirement income, but instead has a target amount that will be paid out based on a long-term, mixed-risk investment plan. They differ from defined contribution plans in that they invest savings in a collective pot, rather than make each individual determine how to best invest their retirement savings.

The dispute began last year when Royal Mail announced it would end its defined benefit pension plan, and move workers into a defined contribution plan. In October, Royal Mail workers voted overwhelming in favor of going on strike, with 89.1% of those casting ballots calling for industrial action. However, Royal Mail won a High Court injunction preventing a planned 48-hour strike by postal workers.

“I absolutely believe that we have now, with this agreement, laid the foundation for the right attitude and approach to the future of our business,” said Pullinger. “This agreement will be seen as an excellent achievement by this trade union.”

Tags: Pension, Royal Mail, UK