New Illinois Law Authorizes $1 Billion in Pension Obligation Bonds and Extends Buyout Option

Illinois Governor J. B. Pritzker signed into law House Bill 4292 last Thursday. The bill extends state employees’ ability to exercise pension buyout options to June 2026, as opposed to the previous deadline of 2024. Buyout options allow pension recipients to take a lump sum of money now as opposed to waiting to retirement to receive the pension. The hope is that doing so could decrease the state’s struggling pensions’ unfunded future liabilities.

Illinois’ state budget for fiscal year 2023 also authorized an additional $500 million in payments to the state pension fund and $1 billion in pension obligation bonds.

“I believe in fiscal responsibility and in responsible fiscal management,” said Governor Pritzker. “That means taking every action possible to address our pension obligation while honoring promises made to current and retired workers. Promises made by governors and legislators on both sides of the aisle.”

Illinois’ pension funds are among the worst funded in the country. As of fiscal year 2021, the state’s pension plans were 46.5% funded, significantly lower than the national average of 72.8%, according to the National Association of State Retirement Administrators.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The Plus Side of Rising Interest Rates: Lower Pension Liabilities

Providence Pension Mulls Issuing $515 Million in Bonds, Following POB Trend

Tags: House Bill 4292, Illinois, J. B. Pritzker, Pension Buyouts, pension obligation bonds

Time was that the FAANG stocks, those sparkling mega-cap exemplars of a bright new technological tomorrow, led the stock market. Today, they’re tarnished, their share prices slashed.

But Bank of America’s strategists have come up with a new FAANG list, more tilted to harsher realities like survival: military weapons to fight off enemies, agriculture to feed a food-short world, and gold, the ultimate refuge asset.

They call it FAANG 2.0. A research piece written by two top figures at Merrill and Bank of America Private Bank—Joseph Quinlan, head of CIO market strategy, and Laura Sanfilippo, investment strategist—argues that the fledgling FAANG is better positioned for a new geopolitical age marked by inflation, war, and other unpleasantness.

Unlike FAANG 1.0, BofA’s new grouping is of sectors, not individual stocks. The sectors are: fuels, aerospace and defense, agriculture, nuclear and renewables, and gold and metals/minerals. Take the first letter of each, in boldface in the previous sentence, and you get FAANG.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

This new bunch is doing well in the market. The bank crunched the numbers for all the sectors in the playbook, and year to date they have collectively advanced 22%. The S&P 500 is down 13%.

To get a picture of the new grouping’s internal dynamics, look at exchange-traded funds that represent these sectors. For the new FAANG, all are—with one exception—in the black this year.

The Energy Select Sector SPDR Fund is ahead 46.4% in 2022, the iShares U.S. Aerospace & Defense ETF is up 1.2%, the VanEck Agribusiness ETF clocked 2.9%, and SPDR Gold Shares rose 4.1%.

The lone exception is the nuclear power fund, which follows uranium producers. The debate is ongoing over nukes, which emit no carbon but do generate radioactive waste. The Global X Uranium ETF is down 1.9%. In relative terms these days, though, losing so little is almost a victory.

Meanwhile, the original tech-centric FAANG stocks have lost 21% this year, by BofA’s reckoning. All five stocks are in the red. They are Facebook, now Meta Platforms, which has dropped 38.4% this year; Amazon, 31.7%; Apple, 13.9%; Netflix, 68.5%; and Google, now Alphabet, 19.5%. Formerly investors’ can’t-miss darling, tech has, to say the least, fallen out of the market’s favor.

“This cohort is emblematic of a world undergoing profound change,” Quinlan and Sanfilippo write about FAANG 2.0. They say, for instance, that “energy security is now the top priority of most governments—just ask Poland and Bulgaria, cut off from Russian gas last week.”

What’s more, they note that global military spending hit $2 trillion in 2021 and is going up. Food prices worldwide are at record highs, amid shortages due to the Ukraine war. “Nuclear is poised for a comeback,” they declare. And gold “is now the preferred asset of central banks thanks to geopolitics.”

You’re out of free articles!!

Don’t leave before subscribing!