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Illinois’ Unfunded Pension Liabilities $500 Million More Than Expected

The state retirement system’s unfunded liabilities rise to $137.3 billion.

By Michael Katz

Illinois’ unfunded liabilities rose to $137.3 billion during the 2019 fiscal year, $500 million more than the state’s Commission on Government Forecasting and Accounting (COGFA) predicted it would be in April.  The Commission attributed the increase primarily to “the continued actuarially insufficient state contributions and lower-than-expected investment returns.” 

The losses could have been even bigger, but actuarial gains from SERS members who elected to participate in pension buyout plans, as well as net actuarial gains reported by SERS and GARS, helped offset the cumulative actuarial loss of the systems. The funded ratio for the combined systems edged up to 40.3% in fiscal year 2019 from 40.2% in fiscal year 2018.

The total unfunded liabilities of the state systems were led by the Teachers’ Retirement System (TRS), which has unfunded liabilities of $78.1 billion and assets of $53.4 billion. As the largest of the state’s five retirement systems, TRS accounts for approximately 56.9% of the total assets and liabilities of the systems combined.

The State Employees’ Retirement System (SERS) had unfunded liabilities of $30.3 billion and assets worth $18.4 billion, and accounts for approximately 22.1% of the total unfunded liabilities of the systems. And the State Universities Retirement System (SURS), which had unfunded liabilities of $26.8 billion and assets of $19.7 billion, representing 19.5% of the total.

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Although the main reason for the increase in unfunded liabilities was insufficient state contributions, the COGFA cited two other factors that worsened the unfunded liability. One was an actuarial loss that resulted from lower-than-assumed investment returns by all of the systems. The other factor was the “unfavorable experience” from demographic and other factors, mainly by TRS and SURS, such as earlier retirements than assumed, which increased the unfunded liability.

COGFA also said that from fiscal year 2004 through fiscal year 2018, the combined unfunded liabilities of the systems increased $98.4 billion based on the market value of assets. It said the main factors for the increase were actuarially insufficient employer contributions, changes in actuarial assumptions and demographics, and other miscellaneous actuarial factors, along with lower-than-assumed investment returns.

The Commission also said that if Illinois continues funding its state pensions according to Public Act 88-0593 the projected accrued liabilities of the state retirement systems will increase to $331 billion at the end of fiscal year 2045 from $229.3 billion at the end of fiscal year 2019. At the same time, the projected actuarial value of assets is projected to increase to $297.9 billion from $92.5 billion. Public Act 88-0593 requires the state to make contributions to the systems so that their total assets will equal 90% of their total actuarial liabilities by fiscal year 2045. The contributions are required to be a level percent of payroll in fiscal years 2011 through 2045. 

Related Stories:

Illinois Passes Police, Fire Pension Consolidation Bill

Plan to Merge Strapped Illinois Local Pension Plans Raises Doubts

Illinois Pension Buyout Program Falls over $400 Million Short of Goal

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Home > News > Asset Allocation > Pennsylvania SERS Returns 0.32% in Q3, 12.39% Year-to-Date
Asset Allocation

Pennsylvania SERS Returns 0.32% in Q3, 12.39% Year-to-Date

Board addresses transparency concerns, and hires firm to find new CIO.
By Michael Katz

Under Interim CIO James Nolan who is serving upon the departure of Bryan Lewis,  $29.6 billion Pennsylvania State Employees’ Retirement System (SERS) reported third quarter and year-to-date investment returns of 0.32% and 12.39% respectively. The SERS board also recounted its progress in addressing transparency and stress testing-related concerns, as well as hiring a new CIO.

Real estate and fixed income were the top performing asset classes for the fund during the quarter that ended Sept. 30, returning 2.06% and 1.8%, respectively.  Private equity earned 0.97% while multi-strategy and cash returned 0.57% each. Global public equity was the worst-performing asset class, losing 0.47% for the quarter.

Despite underperforming the rest of the asset classes for the third quarter, global public equity was the top performer for the first three quarters combined, returning 16.27%.  Multi-strategy was next, returning 11.7%. Fixed income and real estate earned 8.9% and 8.76%, respectively, for the first three quarters. Private equity and cash earned 7.16% and 1.82%, respectively.

Pennsylvania SERS’ board also said it has taken “significant steps” to address several of the transparency and stress testing-related objectives outlined in last year’s Public Pension Management and Asset Investment Review Commission (PPMAIRC) final report. The report identified potential cost savings of nearly $10 billion over the next 30 years for the state’s two largest retirement systems.

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The board has been working closely with investment staff and has reviewed and approved standard formats for specialty consultant performance reports, staff memos, consultant memos, and a recommended template for manager presentations. All will be posted on SERS’ website.

It also approved a stress testing and risk assessment report that reviewed a wide range of investment-related, contribution-related, and demographic-related risks that could affect the long-term health and stability of the fund.

“The need for greater transparency and stress testing were among the key findings of the pension review commission’s final report,” Terri Sanchez, executive director for Pennsylvania SERS, said in a statement. “Since then, our board members have worked closely with staff to review, prioritize and act on those recommendations. We believe the actions taken today represent significant steps in the ongoing effort toward greater public transparency and accountability.”

The board also adopted the SERS Defined Benefit Plan Investment Policy Statement based on the recommendation of its investment committee. The statement outlines the investment philosophy and practices of Pennsylvania SERS and serves as the governing policy for the management of the system’s defined benefit assets. The board also decided to adopt the policy target asset allocation set forth in the statement.

The target asset allocation is intended to achieve the retirement system’s investment return assumption (7.125% effective Dec. 31), reduce investment management fees, and increase liquid assets. This would aim to maintain enough funds to pay retirement benefits and obligations during prolonged periods of market decline and potential budget constraints.

In other Pennsylvania SERS’ business, the board hired executive search firm EFL Associates to help it find a new CIO, which it said it hopes to have in place by the summer of 2020. Former CIO Bryan Lewis left the retirement system in August to become CIO of US Steel.

The board also approved new commitments of up to $150 million in new private equity investments, including up to $75 million with Clearlake Capital Partners VI, L.P. and up to $75 million with Insight Partners XI, L.P. Both commitments are follow-on investments with existing general partners.

Related Stories:

Pennsylvania Pensions Could Save Nearly $10 Billion over 30 Years

Bryan Lewis, Pennsylvania SERS’s CIO, Is Leaving

Pennsylvania SERS to Cut Return Rates, Hedge Fund Allocations

 

 

 

 

 

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