Illinois Pension Crisis
Illinois Pension Crisis-the Problem
The story of Illinois pension has been on for more than 20 years. The Pension scheme in the state is characterized with many reforms aimed at putting the five state run government pension systems on sound footing. However, the reforms failed upon their implementation. Despite repeated efforts to reach a solution, Illinois pension debt has increased considerably. It is five times more that it was back in 1995, hence Illinois pension crisis.
Government employees and taxpayers are shell shocked because of the status of the pension scheme. More money and tax is directed towards the scheme every year and they do not understand how things got to this level. Legislators and pension managers have also underestimated the cost of pensions. Today, the systems official unfunded liability stands at $100 billion. Illinois now has the worst funded pension system in the nation.
The true value and cost of pension to taxpayers has been a major issue due to missed expectations and faulty assumptions that are widespread of the benefits that come with the system. As a result, the uncontrolled and unfunded liability has been increasing exponentially.
Neither nether actuaries nor the state has been able to offer realistic status of the systems, government workers and taxpayers should not be expected especially to take on the actuarial projections. Actuarial data is not transparent and it needs to be open to the public. This is to ensure the government is held responsible for its poor performance especially in the management of pensions and to ensure that mistakes made in the past twenty years regarding pension policy are not repeated.
Unfunded liabilities and Illinois Pension Crisis
Some of the major causes of the pension crisis in Illinois are unfunded liabilities and missed expectations. It is common knowledge that law makes and by extension tax payers have not paid into the pension system in the state. In real sense, this is a faulty assumption and the missed expectation of Illinois actuarial calculations hence, largely responsible for the pension crisis. On many occasions, these errors go unchecked despite the fact that they occur on regular basis.
About $8billion have been raised by taxpayers since 1996 compared to the 1995 plan that was enacted by the then Governor Jim Edgar. The unfunded pension liability at the same time has dramatically increased.
The state has also repeatedly demanded more cash from taxpayers to cater for its pension needs. However, none of the fixes has been successful because the state of Illinois underestimates future pension costs. When Edgars plan was put in place, the shortfall on the system was less by about $20billion. In 2003, unfunded liabilities had also grown to more than $ 43billion.
The state in response added an extra $10 billion to the pension funds from the sale of pension obligation bonds. However, it did little to stop the growing pension crisis . By 2008, unfunded liabilities had already grown to $54 and the state sold about $7.5 in pension obligation bonds in 2010 and 2011. The state once more tried to fix the problem but failed. As a result, unfunded pension liability grew to $97 billion in 2012.
The Illinois pension crisis became worse with a shortfall of about $76billion and according to the Supreme Court; Illinois has to figure out how to get $105 billion to the pension funds by the year 2045. This followed the ruling of the court that drew out the landmark 2013 pension reform law.
Nearly $45 billion of the shortage is attributed to faulty assumptions and missed expectations including unplanned benefit increases for employees as it costs tax payers $5.4 billion, changes in actuarial assumptions, $8.8 billion, investment returns for the state’s five pension funds that were relatively lower that the assumed 8 percent costing taxpayers $17.2 billion.
Possible solution for Illinois pension crisis
Illinois should consider transparency in its pension scheme. The actuarial data should be made public to private actuaries, public watchdogs and policy institutions as they can challenge, analyze and confirm the real status of pension systems in the state.
The Illinois General Assembly in the state should also ensure that all state pension funds operating under local government and authority of the state should release their participant data and offer a complete profile of relevant features. They are essential for private institutions in analyzing status of the pension system.
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Sources
http://www.chicagotribune.com/news/opinion/blog/ct-illinois-pension-crisis-info-20150512-story.html
http://www.nytimes.com/2015/05/26/us/politics/illinois-pension-crisis.html?_r=0
http://www.illinoispolicy.org/reports/illinois-pension-system-lacks-transparency/