Illinois General Assembly Retirement System Only 13.52% Funded

Tyler Durden's picture

Authored by Michael Shedlock via,

Despite a massive rally in the stock market, Illinois public pension liabilities continue to grow.

GARS, the Illinois General Assembly Retirement System, is only 13.52% funded, down from 17% funded in 2013. How long can GARS last?

Meanwhile, Illinois has accrued a combined net pension liability of roughly $130 billion on which it assumes a 7% return.

Effectively, that is an interest liability of $9.1 billion a year even though that liability technically does not bear interest.

This is a guest post from Michael Lucci at the Illinois Policy Institute.

Interest on Illinois’ Pension Debt is $9.1 Billion Per Year

Illinois isn’t covering the interest payments on its pension debt. Those interest payments total $9.1 billion a year.

This is the reason Illinois’ pension debt continues to grow. As with personal credit card debt, until the interest is paid off none of the actual debt gets erased. Illinois’ pension debt is so large that it’s unlikely payments will cover the interest on the pension debt until 2028, according to a November 2016 special pension briefing from the Commission on Government Forecasting and Accountability.

Illinois politicians have known for years about the state’s pension crisis, even if they have not taken serious steps to address the problem. Gov. Bruce Rauner recently spoke out on the cost of interest on the pension debt. Former Gov. George Ryan weighed in as well, saying:

“First off, the biggest problem we got with the budget right now is the interest they are paying on the debt. If I were the governor, … I’d say we are never going to be able to pay the full debt back, so let’s eliminate half the debt right now and write it off.


“If that’s not constitutional, it might be worth changing the constitution. That would dramatically reduce the amount of interest that they’re paying. The bond ratings would go up and the interest would go down.”

Ryan seemed to be referring to the annual “interest cost” on Illinois’ pension debt, which is about $9.1 billion per year, or $25 million per day. The portion of interest cost that isn’t covered each year is simply added to the debt.

Why Illinois’ pension debt keeps growing

Illinois has about $78 billion in assets on hand to pay for pensions. But the present value of the state’s accrued liability is $208 billion. That leaves a difference of $130 billion, which is money the state owes – but doesn’t have.

Illinois pension math assumes an annual investment return rate of just over 7 percent on $208 billion in pension assets. If pension assets end up returning less than 7 percent per year, then the actual pension liability will end up being much larger than is currently assumed.

However, $130 billion of that accrued pension liability doesn’t exist, which is considered the pension debt. This debt does not bear interest like a bond does – but it functions the same way in reality. Because $130 billion is missing, Illinois will automatically miss out on the 7 percent annual investment return on that nonexistent $130 billion. This “missed” investment return is about $9.1 billion per year, and is essentially the interest cost on the $130 billion pension debt.

Illinois’ type of payment plan, which fails to cover interest, is called “negative amortization.” The debt principal continues to grow because the pension payment does not cover the interest cost. The portion of the interest payment that isn’t covered is added to the debt.

As actuary Tia Goss Sawhney explained, a full pension payment is made up of three parts:

Full payment = Employer normal cost + interest cost + principal reduction payment

However, Illinois’ scheduled pension payments are too small to cover the normal cost and interest cost, causing the unfunded liability to go up. For example, in fiscal year 2018, Illinois will make an $8.9 billion pension payment, which will cover the $2.1 billion employer normal cost and $6.8 billion of annual interest cost. However, the annual interest cost is actually $9.1 billion, meaning that after the employer’s portion of the normal cost, Illinois will come up $2.3 billion short on the interest payment. The unpaid portion of the interest cost is added to the debt, just as if a person didn’t cover the full interest payment on a home loan or credit card. In Illinois’ case, that $2.3 billion shortfall will be added to the pension debt.

The reason the principal reduction payment is negative is because the debt grows.

Illinois needs a constitutional amendment to allow for real pension reform

As Ryan pointed out, Illinois’ pension math might never add up without reducing the $130 billion pension debt, which the Illinois Constitution currently protects from being restructured. Even though Illinois is already overtaxed, and pension costs are driving up taxes more each year, the state still can’t cover the interest cost on the pension debt until 2028. On top of that, many local communities like Chicago have pension problems that are even more severe than the state’s problems. And the math gets even worse if Illinois doesn’t hit investment returns of 7 percent per year.

A golden rule of finance is this: Debt that can’t be paid won’t be paid. The state should develop a contingency plan to repeal the Illinois Constitution’s pension protection clause and restructure pension obligations to pull Illinois out of a potential death spiral should the need arise. Such a plan should preserve benefits for government workers with modest pensions while means-testing the richer pension benefits. This would almost certainly be challenged as a violation of the contracts clause of the U.S. Constitution, and the U.S. Supreme Court might ultimately decide the matter.

Illinois might be one serious recession away from a financial death spiral. A deep recession would reduce the value of pension assets while also causing tax revenues to decline. Illinois’ pension obligations would increase just as tax revenues dried up. After such a recession ended, out-migration would likely surge as Illinoisans increasingly realized the impossibility of financing their government’s spending promises. If financial assets fall and do not recover, Illinois’ pension math might be doomed.

The battered ship of Illinois’ finances is lurching toward a rocky shore. Lawmakers should develop a contingency plan for an emergency situation, and be prepared to enact it in order to salvage the state’s finance.

Michael Lucci

Start Mish Comments – Death Spiral

Lucci noted: “Illinois might be one serious recession away from a financial death spiral.”

He is too optimistic. Illinois’ pension is in a financial death spiral whether a recession hits or not.

Despite a massive rally, state of Illinois pension liabilities grew. It will not take a recession for a crisis to hit. Illinois is in a crisis now.

That crisis will be obvious to everyone when a big correction hits the stock market. Like it or not, a big correction is guaranteed at some point.

Blowing Bubbles

Thanks to the monetary policies of the Fed, ECB, Bank of China, Bank of Japan, and central banks in general, stock markets have now surpassed the 1929 high in bubbliness.

Only the dot-com bubble was bigger.

John Hussman has an excellent write-up of the bubble in When Speculators Prosper Through Ignorance.

Pater Tenebrarum at the Acting Man blog continues the discussion with Speculative Blow-Offs in Stock Markets – Part 2

Destructive Bubbles

Central banks’ seriously misguided attempts to fight routine consumer price deflation, fueled very destructive asset bubbles that eventually collapse.

Worse yet, many pension plans did not even benefit from the speculative boom, but they sure will participate in the next collapse.

GMO 7-Year Forecast

As of the end of 2016, GMO forecast real (inflation-adjusted) losses in both US stocks and bonds for the next seven years!

Things are so bubbly now, that GMO now foresees nominal losses in US equities. At this juncture, even gains of say 3.5% for the next seven years would sink the system.

Pension Reality

Public unions are already screaming for tax hikes to bail them out. Giving in to such an approach would do nothing but further drive businesses and wealthy Illinoisans out of the state, compounding the problem.

It’s time to admit reality: The Illinois pension system is insolvent, and not just at the state level. Illinois cities are also impacted.

Illinois Cure

  • At the municipal level, we need bankruptcy legislation so that cities and municipalities can shed liabilities in bankruptcy proceedings.
  • At the state level, we need pension reform. I propose taxing pension benefits above a certain level at a high enough rate to make the system solvent.

How likely is that?

For the answer, please recall my opening remarks: GARS, the Illinois General Assembly Retirement System, is only 13.52% funded, down from 17% funded in 2013.

Illinois is in a pension crisis. Forced admission of that fact will soon be thrust on Illinois politicians who will undoubtedly have an eye on your pocketbook. In fact, they already do: Mary Pat at Stump reports Illinois wants to tax ALL THE THINGS!

National Problem

Lest you think only Illinois is affected by this mess please consider:

  1. Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time (For Dallas, Houston, LA, Oakland, Chicago, etc)
  2. Criminal Witch Hunt in Dallas Pension Fiasco
  3. In Search of a Fix (When None is Possible): What Happens?

National Cure

Every state in the union will be affected as soon as the stock rally subsides. Even flat returns for seven years would bankrupt most state pension systems.

Corrupt states like Illinois will never address the problem properly.

We need national bankruptcy legislation to allow municipal bankruptcies in every state, national right-to-work legislation, and the end of prevailing wage laws to lower cost burdens on cash-strapped cities and states.

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Cognitive Dissonance's picture

Outgo exceeds income plus investment returns minus expenses.

3...2...1....BOOM! As in Big Bada Boom

For many private and public pension plans, this dear boyz and girlz is the "New Math".

Shemp 4 Victory's picture

Wait, Illinois General Assembly Pension System? For the state legislature?

Fuck 'em! They're responsible for the damned mess. Stop all the payments to retired crooks immediately, seize the fund, and pay all the vendors that end up waiting for months to be paid.

SubjectivObject's picture

I love the smell of cooked bureaucrat in the morning.

Smells like ...

espirit's picture


Time to harvest these mofo's.

Bio-diesel them.

MagicHandPuppet's picture

With respect to the prospective entertainment value immediately following the "ka-boom", I'm not exactly sure if this is good news or bad news.

TeethVillage88s's picture

I watched someone use a propane torch to start the cooking on a pig in Latin America. I'm not sure exactly the process. I think the crispy skin is like what you get at the stop and choke. Pork skin rinds. But think the whole pig goes in the oven after that.

Or maybe you can cook a big pig with just a blow torch kind of thing.

Freddie's picture

Please compared to politicians, Deep State scum, NeoCons,zio vermin, CONGrezzio, white American males who worship NBA, NFL and NCAA Trayvon thugs - pigs are far far more NOBLE creatures.

flicker life's picture
flicker life (not verified) Freddie Mar 15, 2017 5:53 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

peippe's picture

have you ever smelled a rendering plant?

just not worth it.

GUS100CORRINA's picture

Let me think for a moment ... let's see ... Who came drom Illinois?

Lincoln ... He's OK

There is someone else ... now who was it????




Chuck Walla's picture

HA! This isn't bad news, it's good news. This means there are still a few loose dollars left for the Pols to steal.  When you control taxation and how it's spent, there are no worries about feathering your own nest.  Any "pension reform" will grandfather the sweetest deals. 

TeamDepends's picture

By Commie Core metrics, 13 out of 100 ain't bad.

E.F. Mutton's picture

The number 13 has been discriminated against for centuries.  It should be compensated into at least 68 or something.

ebworthen's picture

I'm shocked I tell you, shocked!

Generations of workers fooled with false promises by .gov and Wall Street?  Inconceivable!

scrappy's picture

Gordon T Long does excellent analysis on this looming problem.

He covers many other macro issues and I highly recommend learning from him.

This is his tipping points chart, though dated, you will get the idea from it

His new stuff.


Big hat tip to Mish, he led me to ZH many moons ago, thanks Mish!

Rufus Temblor's picture

The 7% return assumption is laughable. We will soon see how assets yielding 7% when first purchased deliver nothing but losses. Thank you Janet Yellen, Ben Bernanke and Alan Greenspan.

gregga777's picture

Between them and Arthur F. Burns they've controlled the Goldman Sachs Feral Reserve System for 4 out of the 5 preceding decades.

Proctologist's picture

Keep that 7 % assumption up and Cook County will turn the rest of Illinois into a Greek Colony by 2025.

My Dad used to run Michigan's system. The problem with adequately funded pensions is, he was always grumbling about keeping the legislature's hands out of the cookie jar.

The next bubble will likely force the State of Illinois to declare bankruptcy.

It's scary to think of what could make Chicago affordable;)

Arrow4Truth's picture

Chicago is soon to be Chicongo.

A_V's picture

More likely Chicomgo...the damn Chinese will buy the place up...

ClassicalLib17's picture

Where our state constitution guaranteed pension funds really lose is with the annual guaranteed 3% compounding pension increase for retirees. That and the annual increase in pay which just multiplies the future retirement pension calculation. The top 100 retirees from academia take over 28 million dollars out of the TRS, annually. Local police and fire retire at 20 years of service at 50% of final salary and 30 years at 75%. Compounding each and every year by 3%. Our state legislature couldn't have possibly hired an actuary to represent this reality making these bad deals. I recently spoke to a spokesperson for an Illinois think tank asking why they, and our republican governor, don't reveal this largesse over the media and he said he would look into it. I used to give them a 100 dollar a year tax deductible contribution. Our only fully funded pension fund is the Illinois Municipal Retirement Fund. And the local politicians game that as well. But the rules demand the local payment to fully fund current obligations or the law provides that IMRF can seize taxpayer funds to comply. Some system, Hah!

GoonerDog's picture

Impressive. Last year it was only 13.51% funded...

TalkToLind's picture

What stops a state from raising its debt ceiling? Uncle Sugar does it all of the time.


Cognitive Dissonance's picture

Only the Federal Government gets money for nothing and the chicks for free. All states must eventually abide by real life accounting.


Rufus Temblor's picture

Pls excuse the down vote.  I hit the wrong button.  Uncle Sam prints money to buy its own bonds.  States can't do that, so a debt ceiling isn't relevant.  When IL can no longer pay pensioners, state police, other state workers, etc. etc., a lot of people are going to move out to other states.

Rufus Temblor's picture

Each state government in the US is like Greece. We have 50 Greeces (rhymes with feces.)

laser's picture

10K IL teachers collecting $100K+ pensions this year. 20K teachers by 2020.

TeethVillage88s's picture

If they discuss claw back of the Mercedes pensions

THEN why not discuss claw back of FIREs fees charged to said pension?

directaction's picture

This only impacts Illinois public employee pensions, right?
Then, who cares? Let it collapse.
These bloodsucking parasites can save for their retirement like the rest of us.  

nmewn's picture

The problem with crony-socialism is, eventually you run out of other peoples...

TeamDepends's picture

Thought they had all this fixed with their lottery chiselling?

TeethVillage88s's picture

I thought we were discussing rape or specifically anal ra..

TeethVillage88s's picture

But Bloomberg said Pensions are not a problem.

Dear President Trump;

Do you think we have a pension problem or will need 'Pension Bailouts' any place in these 50 states? My info is that PBGC pays out $6 Billion a year and is subsidized somehow.


your brother in the fight, Teethvillage.
Government social benefits: To persons: Federal: Benefits from social insurance funds: Pension benefit guaranty (B1044C1A027NBEA)
2015: 3.8 Billions of Dollars, Not Seasonally Adjusted
Supplements to wages and salaries: Pension, profit-sharing, and other retirement benefit plans: Pension benefit guaranty (B1043C1A027NBEA)
2015: 3.9 Billions of Dollars, Not Seasonally Adjusted

Monthly Treasury Report 30 Sep 2002, shows Pension Benefit Guaranty Corporation under Department of Labor

2016 Pension Benefit Guaranty Corporation outlays = $6.2 Billion
2015 Pension Benefit Guaranty Corporation outlays = $6.1 Billion
2014 Pension Benefit Guaranty Corporation outlays = $6 Billion
2013 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2012 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2011 Pension Benefit Guaranty Corporation outlays = $5.9 Billion

2010 Pension Benefit Guaranty Corporation outlays = $5.6 Billion (new Normal)
2006 Pension Benefit Guaranty Corporation outlays = $4.4 Billion
2005 Pension Benefit Guaranty Corporation outlays = $3.6 Billion
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion

slightlyskeptical's picture

This is good information but you also need to be including the inflows (which are less than what they spend..but still...incomplete info does no one any good). 

gregga777's picture

And Bloomberg is a member of which group that profits from all of the Goldman Sachs Feral Reserve System rackets That have bankrupted American workers pension plans?

MsCreant's picture
"Illinois General Assembly Retirement System Only 13.52% Funded"

Bet this number is a fraudulent exaggeration, that it is not funded that well.

scoutshonor's picture

For the sake of argument let's say this is a company and an auditor is asked to come in and audit them.

Can anyone see any other assesment than: "has long since ceased to be a going concern and anyone who has signed off on this goat turd for several years running should be bitch slapped and locked--up."


TeethVillage88s's picture

I'm with you. Govt managers can get a way with all kinds of stuff through plausible deniability (CIA Model).

But Finance guys have to have years of study, classes, certificates, and they have a duty, fiduciary duty(Which I should go look up again).

Officers of a corporation, Officers of a BoD, Officers of FIREs, Financial Officers, Independent Accounting & Auditing Firms... they all have responsibility. Would think a finacial rating firm might be involved too.

Proving Govt managers broke the law seems a bridge too far.

But Union Pension Funds, Private Pension Funds... there should be Rule of Law, Standards, IRS Rules, Corporate Rules, State Rules...

BUT IF LAYWERS & BANKERS ARE INVOLVED, there may not be any real rules??

gregga777's picture

The Law does not apply to government and the 1%. The Law exists only to keep the 99% under the thumb of the government and the 1%.

Grandad Grumps's picture

The school systems dump teachers on the state retirement system by giving teachers juiced up partying gifts, such as inflated salaries for pension purposes, as an incentive to retire, oftent before the teachers reach age 60. Then the school systems hires young, less expensive teachers and waste the excess on unnecessary things. The public school system in Illinois has very nice facilities, overpaid teachers and massively overpaid administrators all protected by unions.

It sucks to be an Illinois taxpayer.

vealparm's picture

Or a California, NY, NJ or Connecticut taxpayer. I can't wait till the first of these state pension scams implodes and the fucking leeches get their haircuts. They'll scream like stuck pigs.

GoonerDog's picture

Sorry to disagree with you, but I teach in Central Illinois and I make $40,000 a year. It's the ones in the Chicago area who are making the huge bucks. Most teachers in Central and Southern Illinois don't make shit. Just didn't want to be lumped into the same pile as the Chicago teachers.  I think that point really needs to be made more often.

gregga777's picture

Productive people must leave Illinois NOW. If they don't the exit taxes, mechanized by extortionate state tax audits by the extremely corrupt Illinois political parasites, will bankrupt them AFTER the SHTF.