Illinois taxpayers pay no matter how public pensions perform


By Benjamin Yount | Illinois Watchdog

SPRINGFIELD, Ill. — Illinois taxpayers are on the hook for guaranteed public pensions no matter how well the investments perform on Wall Street.

When Illinois’ five pensions systems earned nearly 13 percent on their investments last year, Illinois taxpayers still made pension payments that topped $6 billion. State taxpayers also ponied up the dough when the funds earned less than 1 percent two years ago.

“The fundamental point of this is that there is a guaranteed rate (for benefits) for public-sector workers,” Ted Dabrowski, vice president of policy for the Illinois Policy Institute told Illinois Watchdog. “We have this system that guarantees benefits, yet we can never put enough money into it to make it meet its requirements.”

UP AND DOWN: Illinois Auditor General Bill Holland’s chart tracks pension investment expectations.

Illinois once again is looking at its pension investments after a new report suggests the pension systems may be expecting too much from their investments.

Illinois Auditor General Bill Holland released a report that stating the State University Retirement System and the State Employees Retirement System both should reduce expected return on investments from 7.75 percent to 7.25 percent annually.

The report also suggests Illinois’ largest pension fund, the Teachers’ Retirement System, lower its investment expectations from 8 percent. The report, however, does not say what the new rate of return should be.

TRS spokesman Dave Urbanek said teacher pension managers are comfortable with an 8 percent expectation.

“The TRS actual rate of investment return for the last 30 years was 9 percent,” Urbanek said. “The vast majority of large public pension systems studied annually by the National Association of State Retirement Administrators have an assumed rate of return of 8 percent.”

But Dabrowski said just because everyone is expecting too much, does not make it a good idea.

EITHER WAY, TAXPAYERS PAY: Nekritz says taxpayers pay if pension investment expectations are lowered.

EITHER WAY, TAXPAYERS PAY: Nekritz says taxpayers pay if pension investment expectations are lowered.

“We saw what happened the last few years when the markets tanked,” Dabrowski said. “What happens is, if there is not enough money in the system, the state looks at the pension fund and says we don’t have enough, we’ve got to get taxpayers to put in more.”

In other words, taxpayers pay up when expected investments fall flat.

And taxpayers also will pay if the pension systems lower their investment expectations.

“When you decrease the rate of return, you increase the unfunded liability,” state Rep. Elaine Nekritz, D-Northbrook, said. “In order to pay off (the unfunded liability), the state would have to pay more.”

Nekrtiz, who co-authored Illinois’ recently approved pension reforms, said lower investment expectations also force the state’s annual pension payment to increase.

When the Teachers’ Retirement System lowered its investment expectations two years ago, the teachers’ pension payment immediately jumped $300 million.

Nekrtiz did not have a price tag for how much Illinois’ pension payment or pension debt would increase if the pension systems lowered their expectations in line with Holland’s report.

But Illinois taxpayers are on the hook for at least a $7 billion pension payment in the next budget.

Dabowksi said the only way to break the cycle of boom and bust is to end Illinois’ defined-benefit pensions and move public employees to a 401(k)-style retirement plan.

Contact Benjamin Yount at and find him on Twitter @BenYount.

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