Illinois Group Wants Municipal Pension Consolidations

An organization of Illinois municipalities seeks to consolidate the state’s 650-plus downstate public safety funds.

The separate funds and their investment assets would be transferred into the Illinois Municipal Retirement Fund. They would create two new omnibus funds: one for all downstate police, the other for all downstate firefighters. By placing their individual accounts into a larger entity, the group’s thinking is that the money would get a better return.

All local pension boards would be reduced to determining pension payouts and disability eligibility. Investments would be managed by the municipal funds as separate accounts, similar to how a bank operates. This means the assets of better funds would not be used to prop up plans in worse shape.

Another proposal of the Illinois Municipal League is to extend the amortization, or debt payment period, by 10 years, from 2040 to 2050. It also wants to cut the funding target requirements from 90% to 80%, calling for a comprehensive study be done regarding the costs and benefits of full consolidation.

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“These bills show the forward-thinking,” wrote Brad Cole, the group’s executive director, in a February email to the legislature and other state officials detailing the bills.

According to the municipal league, Illinois is burdened with $11.1 billion in unfunded liability from its municipal funds. In total, the state has about $133.5 billion of pension debt.

In a meeting last week with Dispatch-Argus-QCOnline.com editorial board members, Cole and Moline Mayor Stephanie Acri said that the league’s studies show that consolidation alone would earn the funds “$1.7 billion,” or “at least 2 more percentage points” from dividends.

“The issue is, we are wasting all this money in duplication,” he said at the meeting. “We’ve got to do something about all the money we’re losing.”

A problem Cole and Acri both pointed out is that more often than not, taxpayers end up paying for retirement fund liabilities in ways such as raised property taxes.

“You hear from people who are concerned about the plowing of their streets who pay a lot in real estate tax, but they don’t understand the nuance of how the real estate tax is invested in the community and in those pensions,” Acri said at the meeting.

Illinois Gov. J.B. Pritzker has created two task forces to determine if consolidation would be the best move.

While consolidating small pension funds has been on the state’s radar for some time, a lack of contribution payments from municipalities has hobbled its finances. Most of the public debt is in the larger plans, such as the teachers and employees’ retirement systems. Politicians have also long-addressed their desire for reform, but little usually happens, and state budgets tend to swallow up what would have been proper payments.

This only grows two things: the unfunded liability, and next year’s contribution promises in the state budget. Pritzker’s current budget calls for $7.1 billion. It is expected to be around $8.2 billion the following fiscal year, increasing to roughly $9 billion by fiscal 2022.

Cole could not be reached for original comment. Acri declined comment.

Illinois’ New Governor Installs Two Pension Taskforces

Tags: Illinois, Illinois Municipal League, Illinois Municipal Retirement Fund, Illinois Pension Consolidation, Pension

Due to an aging population and dwindling workforce, China’s state pension fund could become insolvent by 2035, according to a report from the Chinese Academy of Social Sciences.

“The basic pension system has long faced the challenge of being unable to make ends meet,” said the Pension Fund Actuarial Report 2019-2050. “If it had not been for the financial subsidies, the pension funds would have already begun the net outflow this year.”

According to the report, the urban worker pension fund, the heart of the country’s pension system, held a reserve of 4.8 trillion yuan ($715.5 billion) at the end of 2018. The report forecast the system will peak at 7 trillion yuan in 2027, then steadily decline to zero by 2035.

The report calculated the sustainability of the pension fund until 2050, and expects the number of insured workers, which currently numbers 270 million, will increase by 1% to 2% per year. However, by 2035, the increase ratio is expected to slow, and by 2047, the number of insured workers is forecast to peak at 345 million, after which it is expected to start declining. By 2050, the total number of insured workers could fall to 341 million, and the dependency ratio of the insured workers is expected to increase to 81.8% in 2050 from 37.7% today.

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The number of insured workers paying their premium is expected to peak at 290 million by 2048, and then drop to approximately 289 million in 2050. And the dependency ratio of the pension fund contributors who have actually paid their premium will increase to 96.3% in 2050 from 47% 2019. This means that if two workers are supporting one retiree in 2019, only one worker will support one retiree in 2050. At the same time, the insured retiree population is expected to increase to 278 million in 2050 from 102 million in 2019.

The report also found that there will be a rapid increase in the income and expenditure of the pension fund over the next 30 years. The fund’s income is expected to be 3.71 trillion yuan, or 3.9% of China’s GDP this year, but will increase to 23.63 trillion yuan in 2050, or 6.0% of GDP. The pension fund expenditure, which is expected to be 3.6 trillion yuan this year, will increase to 34.91 trillion yuan in 2050, accounting for 8.9% of China’s GDP.

In an op-ed in state-run English-language newspaper China Daily, Zheng Bingwen, director of the Chinese Academy of Social Sciences’ Center for International Social Security Studies, said it was time for pension reform in the country.

“Since the aging population trend cannot be reversed, we can do the next best thing: expedite the pension fund reform and take measures to make the pension fund system more sustainable,” wrote Zheng. “For instance, the retirement age could be raised, and the minimum 15 years’ pension insurance payment period extended. Also, the pension premium collection and payment system should be improved.”

China to Raise Debt to GDP Ratio, Tighten Infrastructure Investments

Tags: China, Chinese Academy of Social Sciences, Pension, Sustainability