The general condition of the pensions operating under the laws of Illinois may be correctly described as one of insolvency. That is to say, viewed from the standpoint of sound finance and of having the necessary reserves to carry out the payment laws, there are immense deficiencies in the existing funds.”

Why does the state’s Constitution include such strict, locked-in language for pensions? At the 1970 Constitutional Convention, delegates were aware of a persistent problem in Illinois. Pension funds were suffering, and police and fire unions led a fight to protect their benefits. In the 1930s, when New York state was faced with the same problem, it established a new clause that made sure New York was stuck with the benefits it had promised. Under the threat, the state got its act together and shored up pension payments.

Illinois delegates took the language from New York with the hope that if it worked there it could work anywhere.

Full Article

In the wake of the flap about the Dallas Police and Fire Pension System, many have questioned whether other Texas plans face similar problems. My sense is that the Dallas situation is extraordinary and not likely to be repeated elsewhere.

The Dallas Police and Fire Pension System story is one of wild investments – Dallas had nearly 70% of its assets in alternatives and real estate compared to an average of 22% for our sample of 160 state and local plans — and those investments produced very large losses. At the same time, Dallas has a very large and generous Deferred Retirement Option Program (DROP). (A DROP is an arrangement under which employees entitled to retire continue working and have their monthly benefit deposited in a notional DROP account where it earns interest and can be taken out as a lump sum.)

The DROP balances accounted for 55% of plan assets in January 2016, meaning that more than half of plan assets were available for immediate withdrawal, which seriously exacerbated the plan’s financial problems.

Full Article

Across the nation, public pensions are in crisis, and have been so for a long time. Funding pension costs is a political issue in cities, counties, and states from California, to Illinois, to Rhode Island. The rising expense of public employee pensions has become a political hot button justifying cuts to education and other necessary government investments, causing acrimonious debate, court cases, protest marches, and more. All the recent incidents of municipal bankruptcies have been blamed, at least in part, on pension obligations. Most famously, this was the case in Detroit, Michigan, but has also been true in the cities of Stockton and Vallejo in California, Prichard, Alabama, and Central Falls, Rhode Island.

The city of Chicago is currently feeling some of the warning tremors. According to its own estimates, the city’s various pension funds have only half the funds in hand needed to pay its pensions. This leaves a $28.6 billion difference between the assets and the present value of the debt to all the current and future retirees in the system. This difference, known as the “unfunded liability,” was cited as the primary reason that Moody’s, the bond-rating firm, downgraded Chicago’s bond rating to “junk” status in May of 2015

The other common measure of a pension system’s health is the ratio between the assets and the future liabilities, known as the “funding ratio.” Chicago’s funding ratio hovers around 50 percent, but the condition of the pension funds managed by the state of Illinois is even worse, showing a 39 percent funding ratio, with $111 billion worth of unfunded liability

Full Article

Welcome Elk Grove Village Fire Pension Fund to IPPFA.

Some of the workers and retirees around the country who count on having a government pension surely get nervous when they see headlines about the most troubled state and local plans – in places like Illinois, New Jersey, Connecticut, Chicago, and Detroit.

A broader perspective on retirement benefits, however, shows that the results are more mixed.  A study by the Center for Retirement Research, which sponsors this blog, estimated long-term costs for pensions, retiree health benefits, and general debt service as a share of revenues for the 50 states, 178 counties, and 173 cities.

The findings are summarized below:

States:

Full Article

Gov. Bruce Rauner used his third budget speech Wednesday to break his silence on the Senate’s “grand bargain” and say he is against raising sales taxes on food and medicine and wants a permanent property tax freeze to compensate for a permanent income tax increase.

But what else is in the budget plan? Here’s a quick look at 12 facts.

Full Article

The brief’s key findings are:

• While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
• This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
• The results show that TDFs:
  • often invest in specialized assets (e.g., emerging markets and real estate);
  • charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
  • earn returns that are broadly in line with other mutual funds.

Full Article

CHICAGO A bipartisan deal aimed at ending Illinois’ long-running budget impasse stumbled on Wednesday when a key pension measure failed to pass in the state Senate.

Following the passage of three other bills tied together in a legislative package, a measure to ease Illinois’ $130 billion unfunded pension liability was rejected in a 29-18 vote, with 10 members voting “present.”

Even though Senate Republican Leader Christine Radogno crafted the package with Democratic Senate President John Cullerton, she still urged her members not to vote in the affirmative because disagreements remained on some of the 12 bills, particularly on school funding and workers’ compensation.

Full Article

Pay off debt, or save for retirement?

Never has that quandary been more acute than it is right now for the younger members of today’s workforce. Millennials are confronting often-crushing debt from student loans — more onerous than perhaps any other generation has faced — and trying to save for their eventual golden years.

Depending on the level of education, young professionals could be saddled with student loans totaling anywhere from $100,000 to as high as $400,000 for doctors and attorneys, financial planners say.

“The level of student debt this generation is shouldering is unprecedented,” said Jennifer Putney, vice president of participant engagement at Prudential Financial (PRU). “It’s huge.”

Still, those starting to weave their way through their careers need to try to figure a way to set aside money for retirement. With concerns mounting that Social Security may not survive the latter half of this century, it’s imperative that the nation’s largest demographic somehow make provisions for life after those careers are over.

Full Article

A new report from the American Legislative Exchange Council (ALEC), released December 14, 2016, charges that public pension funds are intentionally making “inferior investment decisions” in order to “advance political agendas” of many pension plan officials and lawmakers. Instead of managing pension fund investments for the exclusive purpose of providing retirement benefits to government employees, ALEC charges that many state and local government pension fund assets are being invested in “a misguided attempt to boost their local economies, provide kickbacks to their political supporters, reward industries they like, punish those they don’t and bully corporations into silence and behaving as they see fit.”

ALEC is a nonprofit organization of conservative state legislators and private sector representatives that drafts and shares model state-level legislation for distribution among state governments. It has been described by The Guardian as “a dating agency for Republican state legislators and big corporations, bringing them together to frame rightwing legislative agendas in the form of ‘model bills.’” According to The New York Times, “special interests effectively turn ALEC’s lawmaker members into stealth lobbyists, providing them with talking points, signaling how they should vote, and collaborating on bills affecting hundreds of issues like school vouchers and tobacco taxes.” And Bloomberg Businessweek has described the organization as a “bill laundry” that “offers companies substantial benefits that seem to have little to do with ideology.”

Full Article