The Illinois state pension funds are among the worst-funded in the nation. Yet, a new state law allows less money to be put toward that purpose.
The largest state pension system covers Illinois teachers outside of Chicago. Each year, an estimate is made on how much the state should contribute. But a change approved this summer means Illinois is paying a half a billion dollars less than that amount.
Dave Urbanek, with the Teachers Retirement System, said the state is following the law and that's the problem.
“Yes, they are providing what they are supposed to provide. But that is not the actuarially correct amount,” he said. “The bottom line is, they are shorting the system of money that should be coming in to the Teacher's Retirement System."
It's all tied to something called "smoothing", a term that means the state can take longer, up to five years, to cover changes in the contribution amount.
All of the pension funds are impacted. TRS has $71 billion in unfunded liability. The TRS Board last fall certified a state contribution of $4.564 billion. The revised amount, based on the new law, is $4.034 billion. Actuaries estimate for the state contribution to be at "full funding" for the year, $6.873 billion would be needed. So Illinois will come in well below that level.
"It's another example of kicking the can,” said Urbanek. “You're not paying the full cost in one year. You're paying 20-percent of the cost in one year. But you still have to pay the full cost down the road."
Lawmakers did sign off on other new laws, including creation of a Tier 3 plan that is designed to slow the growth of future pension costs. But Urbanek said that does nothing to bring down the current debt factor for those now in the system.
One of the main reasons Illinois’ pension systems are so underfunded is decades of the state putting too little money toward them. Funds were instead spent on other needs.
Urbanek said for every dollar not deposited toward pensions today, $3 will be needed in the future to cover the gap.