Illinois' Unfunded Pension Liabilities $500 Million More Than Expected

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.