Ill. Teacher’s Pension Worst-Funded in Country

-By Warner Todd Huston

Rack up another “win” for Illinois. Illinois ranks at the top of the worst list in nearly every category these days, so it shouldn’t be a surprise that the Land of Lincoln has gained another plaudit in the worst-of categories. Crain’s notes that the state’s teacher’s pension system is in more trouble than any other.

But according to Crain’s, it gets worse. Not only is the pension the worst-funded major pension plan in the country — at only 46.5% of the funds needed to cover current retirees — plan administrators have launched a desperate plan to get faster and larger returns on their investments by investing in high-risk investments, not to mention using accounting methods that “pension experts say understate its funding shortfall.”

Crain’s article is a long one filled with lots of money-talk, but the upshot is embodied in a quote by Robert DiMeo, a consultant at Chicago-based DiMeo Schneider & Associates LLC who mainly works with corporate and non-profit retirement plans and some public pensions.

They’re pushing the envelope, to be sure. They’re probably in the top quartile in terms of risk. And they’re probably in the bottom quartile in terms of funding status, and those two probably go together.

Worse, the plan is investing is very risky overseas derivatives in Brazil, Italy and Spain.

It’s all to bad effect, according to Crain’s.

Illinois taxpayers are already on the hook for most of the $81.3 billion in TRS’ long-term obligations because the state is required to fund the lion’s share of TRS benefits. That liability will keep expanding, likely at a faster rate than assets, unless fund administrators and lawmakers can make up the $43.5-billion shortfall. If the plan defaults, the state will be lobbied hard to come to the rescue.

“Taxpayers are, one way or another, going to end up bearing a large portion of this burden,” says Joshua Rauh, an associate professor at Northwestern University’s Kellogg School of Management who has co-authored several studies on pensions.

So add this to all the other rankings where Illinois is among the worst of the worst. On top of this pension mess — and the teachers pension isn’t the only public pension in trouble in Illinois — Illinois is the worst of all worlds for regulations, too. Even as other states are beginning to see the sense of working with their business communities, Illinois treats its business community as an enemy. Then pile obstreperous federal agencies on top of that from Illinois and it is no wonder that the Land of Lincoln is at the bottom of the barrel having one of the most un-favorable business climates and worst legal climates, most troublesome unions and sports some of the worst unemployment in the country.

Thank you Illinois Democrat Party.

(H/T Doug Ross)