Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion

Tyler Durden's picture

As we've noted before, Defined Benefit Pension Plans are, almost by definition, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities: classic Ponzi.  But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit.  Everyone from government officials to union bosses are incentivized to maintain the status quo - public employees get to sleep better at night thinking they have a "retirement plan," public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees. 

That said, certain states are better at the ponzi game than others and the great state of Illinois, we must say, is one of the best.  As we noted a few months ago, Illinois governor Bruce Rauner even admitted to being a willing participant in his state's pension ponzi warning that should his largest public pension fund do what it should have done long ago, it would put a big dent in the state's already fragile finances and lead to "crippling" pension payment hikes.  But, if you ignore the problem then surely it will just go away...good plan.

And, while the pension ponzi can likely outlast Rauner's term as governor, eventually funding for current claims can only be borrowed from future generations for so long before finally running out of cash.  As the latest "Special Pension Briefing" report from Illinois' Commission on Government Forecasting and Accountability (CGFA) points out, that time may be getting very near.

Per the latest actuarial valuations, the 5 largest publicly-funded Illinois pensions are now $130BN underwater and only 37.6% funded.

IL Pension


As a guide, here is a recap of the acronyms used by CGFA:

TRS = Teachers' Retirement System


SERS = The State Employees’ Retirement System


SURS = State Universities Retirement System


GARS = General Assembly Retirement System


JRS = Judges’ Retirement System

Illinois' unfunded liabilities really started to surge in 2008 due a combination of lower returns on assets and lower corporate bond yields which drive down discount rates used by actuaries resulting in substantial increases in the present value of liability streams.  As we've pointed out in the past, given the long duration of pension liabilities, even small swings in discounts can have a material impact on underfunding levels.

IL Pension


Meanwhile, even though Illinois has taken the prudent step of reducing their assumed returns on assets...

IL Pension


...they apparently didn't reduce them enough as only 1 of the 5 largest pension funds managed to actually generate a positive return in FY 2016.  That said, we're sure a lot of hedge funds were still able to collect very nice fees for generating these negative returns.

IL Pension


But, don't worry, there is hope for Illinois pensioners yet.  As CGFA points out, all the state has to do is funnel $10-$20 billion of taxpayer money into these pension funds each year and earn a consistent 7% annual return on assets and in a matter of just 28 years the funds should be 90% funded!  That seems like a very reasonable plan.

IL Pension


But don't worry teachers of Illinois, just keep electing politicians who tell you that everything is fine and we're sure this problem will just go away. 

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mary mary's picture

I think the FED's zero interest rate policy is the biggest problem.

Infocat's picture

Falling EROI in the Oil industry is the reason and its gonna kill the economy sooner or later.

PrayingMantis's picture

   ...> "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion" ...

... that's wonderful news for Chicago's free-spending Mayor Rahm (POTUS' gay bathhouse buddy >>> who vows to protect illegal alien criminals and gangs from deportation and tells those illegal immigrants he will protect them from Trump ...


>>>  here >>>

Son of Loki's picture

Rahm was counting on a bailout from Hillary and her gang. He must be seriously depressed now and strikes out in his usual passive-aggressive hatred against Trump and American voters.

Somehow these thick-headed Left Wing Extremists like Rahn don't get it---when they bash Trump, they are also bashing the 60 million + hard working Americans who voted for him and his policies.

Vatican_cameo's picture


Rahm better not be counting on too much.  After his "Sanctuary City" remarks, there will be even Less money flowing into Illinois (specifically Chicago).  That Twat doesn't realize that "When digging yourself a hole, the last thing you should be asking for is another shovel".

Jim Sampson's picture

I know who's getting a dead fish for Christmas!!!

Vatican_cameo's picture


"I know who's getting a dead fish for Christmas!!!"


I hope they have the decency to wrap it in the New York Times.


letsit's picture

Don't you just love this jargon: "unfunded liability." Jeez. No wonder our financial system's a mess.

undertow1141's picture

Yeah "Bill you can't pay" is much more direct.

Stuck on Zero's picture

I'm looking forward to a follow-on to this article after the S&P drops 40%.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Vatican_cameo Nov 17, 2016 2:27 AM

A shovel to dig his own grave? I think that already happened. Hilarious.

undertow1141's picture

To punish Chicago, you punish all of Illinois. Cut all federal funding to the whole state, until the state cleans up/out the sanctuary city riff raff. No school money , no highway money, no medicaid money, nothing. Problem will sort it self out quite quickly. Same with all the sanctuary problems. You punish the qwhole state and be very clear why and who is responsible.

Government needs you to pay taxes's picture

What would Republicans stand to lose if they brought down the Federal funds hammer on a state like NY, IL, or CA?

Observant's picture

They would lose nothing while at the same time begin to turn those respective state's voters against the Demonrat party. They could literally turn those states into at leaast purple in two election cycles, imho.

Theta_Burn's picture

And saying publicly he won't enforce laws against illegal criminals certainly wont get him invited to the inaugural ball..

NoPension's picture

The Game is Airplane.

The first people in and out win.

Normalcy Bias's picture

No worries! They can just raise property taxes 200% ...for starters.

bidaskspread's picture

He'll get bailout if they fail first. Not because Trump wants to but to provide assurance and prevent a massive rush of redemptions for all other underfunded PBOs across the US.

The Saint's picture
The Saint (not verified) Infocat Nov 16, 2016 11:01 PM

I guess that's why Illinois voted for Hillary.  They need a massive bailout from the Hillary government.  Trump won't give them crapola.


JoeSexPack's picture

Rahm will tax illegals, problem solved!!

Surging Chaos's picture

Yup, it's market distortion at its worst.

8% returns year after year was a fantasy, but people thought that was possible because the Fed controlled interest rates to the point where it was assumed the boom years would never stop.

bsdetector's picture

Yes, it's the problem for pensions. But ZIRP is salvation for the federal budget. Just think what the budget deficit would be if interest rates were 3, 4 0r 6%. The government would probably be forced to cut expenditures.

Stormtrooper's picture

Really, YUH don't say!  Never thought of that!


King Tut's picture
King Tut (not verified) mary mary Nov 16, 2016 10:13 PM

The Fed is only partly to blame- overpaid dipshit .gov employees and their unions are almost completely to blame

Midas's picture

How much longer until we can blame Trump?

Son of Loki's picture

Rahm needs to sit down wit da teechers and renegotiate all their contracts and pensions since they were fraudulently unrealistic to begin with.

NoPension's picture

Let's use this opportunity to blow up .gov unions.

They should have never been approved to start with.

boattrash's picture

Do you know why, after the War of Northern Agression, the North got the unions, and the South got the blacks?

The South got first choice.

Vaktbikkja's picture

You wrote:

I think the FED's zero interest rate policy is the biggest problem.


What you probably ment was:

I think the FED is the biggest problem?

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) mary mary Nov 17, 2016 2:00 AM

Usury and ponzi are the biggest problems.

Jethro's picture

LOL!  Tis but a flesh wound....

Cognitive Dissonance's picture

Go ahead and eat disburse them. We'll just make print more.

<One is Lay's potato chips, the other fake fiat 'dollars'.>

InTheLandOfTheBlind's picture

Must be fake.  I heard that from the liars and whores of the oil-soaked , spy-riddled, monopoly press

wisehiney's picture

If I was an IL pensioner, I would mortgage everything and buy precious metal.

When the pension fund fails, let the bank repo all.

Except for that skyrocketing asset they do not know about.

Government needs you to pay taxes's picture

They'd send over an MRAP-lovebus so that you could volunteer your gold horde 'for the good of public safety'.

wisehiney's picture

This is why they are so angry.

Trump ain't gonna bail em out.

Yen Cross's picture

  Illinois =  sanctuary Banana Territory.\  Rahm Emanual is an absolute disgrace.

Jdhank's picture

Yep, why just today Rahm said he won't be needing any more federal funds ie, he prefers Chicago to remain a sanctuary city over continuing to receive said funds from President Trump et al.

Bananamerican's picture

his wish is Trump's command

shimmy's picture

Smehow these liberal idiots will blame Trump for this. Can't wait for that as it'll be a good laugh.

Bill of Rights's picture

Ahh yes the liberal promise of " not to worry it will be there " ... sure it will.

tarabel's picture



I'll bet the Illinois General Assembly will get right on this-- starting with the General Assembly Retirement Fund. Get that one all topped up and then see what can be done about the rest of them.

boattrash's picture

I tend to find people living in Blue States are mathematically challenged. I think I might check w/my State Legislature to see if we can build a wall.
I don't want them down here when their state goes tits-up.

OccamsCrazor's picture

The great state of ILL-annoyed ! 


Michael Madigan, the most corrupt legislator in the history of Illinois, is single-handedly resposible for all $130 Billion.  


Note: He is none other than a demoncrat. 

King Tut's picture
King Tut (not verified) OccamsCrazor Nov 16, 2016 10:15 PM

Blago was a saint compared to Madigan and Cullerton

pitz's picture

Its only going to get worse with rising interest rates destroying the value of bond, and even US stock portfolios.  Inversely correlated assets are the only hope at this point, but so much of the US stock market is correlated to long-term bond prices which are in an obvious bubble.

bidaskspread's picture

The first ones out will likely fair the best..  i.e Illinois. Much much bigger problem, OECD countries given per report issued by Citi earlier this year puts the current underfundings at 78 trillion.  Massive problems ahead in the next correction.

Jethro's picture

I wish that pension disbursements were only valid in the locale they were issued in.  Yankee retirees fuck up every single place they land in, with no exceptions.

NoPension's picture

Good point, Jethro.

If you collect , and don't live in the state you " worked" in.....the percentage goes down. 50% sounds like a good start.