Pensions
Released October 30, 2023
Illinois state government has the responsibility to fund five public pension systems: the Teachers’ Retirement System (“TRS”); the State Employees’ Retirement System (“SERS”); the Judges’ Retirement System (“JRS”); the State Universities Retirement System (“SURS”); and the General Assembly Retirement System (“GARS”). The state’s pension systems are not in a good place fiscally. As of November 2022, which is the most recent data available, the state’s five pension systems collectively had $248 billion in liabilities, but only $109 billion in assets to cover those liabilities. This results in a funded ratio across all five state systems of just 44 percent.
In a poorly conceived attempt to reduce overall costs for the pension systems, legislators passed Public Act 96–0889 in 2010, which modified the Pension Code by creating a new tier of retirement benefits that were significantly less than the benefits payable under the state’s prior plan. Known as “Tier II,” these lesser benefits were applicable to all workers eligible to participate in any of the state’s five public pension plans that were hired on or after January 1, 2011. The concept of using a lesser benefit level to reduce overall costs in the state’s five pension systems was poorly conceived, because all the data show that plan benefits were not the driver of either the creation of the unfunded liability the state owes to its pensions systems, or the growing financial pressure that the pension systems are putting on the state’s General Fund.
Those lesser Tier II benefits created problems. For instance, it clearly is not equitable for the state to charge public workers the same contribution rate for lesser benefits than their peers receive. Of course, because their benefits are less than provided under Tier I, members of the Tier II system have less retirement security than their Tier I peers have, despite providing the same public services. On top of that, from a purely fiscal perspective, the design of the Tier II system will ultimately put Illinois in violation of the Federal Insurance Contributions Act (“FICA”) exemption. This exemption creates a “Safe Harbor” which allows state governments to be exempt from enrolling public sector employees in Social Security coverage—and hence paying into the Social Security system—but only if those employees are provided a “sufficient” pension package from the state claiming the exemption. There is a growing consensus that the design of Tier II, which charges its members the same contribution rate as Tier I members, but pays a much lower retirement benefit, will be insufficient under the aforesaid federal Safe Harbor standards.
The policy questions this raises for decision makers are varied, and include, at a minimum: how can Tier II be modified to provide a level of benefits that would satisfy federal Safe Harbor requisites, create retirement security for Tier II members, and help recruit high quality workers to the public sector generally and teaching specifically?
This report analyzes those questions using data from TRS, which is Illinois’ largest pension system by number of enrollees, liabilities, and asset holdings, and will provide:
- A breakdown of Federal Safe Harbor and Social Security Equivalence standards;
- An overview of TRS;
- An explanation of why Tier II benefits exist in Illinois; and
- A demonstration of how Tier II benefits are in violation of federal standards.
Released June 21, 2023
Illinois state government has the responsibility to fund five public pension systems: the Teachers’ Retirement System (“TRS”); the State Employees’ Retirement System (“SERS”); the Judges’ Retirement System (“JRS”); the State Universities Retirement System (“SURS”); and the General Assembly Retirement System (“GARS”). But what exactly does “funding” a public pension system entail?
According to the United States Government Accountability Office (“GAO”), to be considered financially healthy, a public pension system should have a “funded ratio” of at least 80 percent. A “funded ratio” is determined by dividing the current monetary value of a pension system’s total assets by its total liabilities.
As things stand today, the state’s pension systems are decidedly not healthy. As of November 2022, the state’s five pension systems collectively had $248 billion in liabilities, but only $109 billion in assets to cover those liabilities. This results in a funded ratio across all five state systems of just 44 percent, or fully 36 percentage points below the standard for healthy set by the GAO. It also means Illinois state government faces a significant, as in $139 billion, aggregate “unfunded liability”—read that as “debt”—owed to its pension systems. Which begs the question: how did the state get in this predicament?
The report, “Understanding – and Resolving Illinois’ Pension Funding Challenges” provides some insights into Illinois’ pension crisis by:
- Providing the historical context of how Illinois pensions became so underfunded;
- Explaining where the Illinois pension debt stands today;
- Clarifying that the debt service schedule created under the pension ramp is straining the state’s fiscal system—not the cost of funding benefits; and
- Providing a template for re-amortizing the pension debt in a responsible manner, that would save billions in taxpayer costs while getting all five pension systems healthy.
Released October 16, 2020
Do you still have questions about Illinois’ proposed amendment to the Illinois Constitution, often referred to as the “Fair Tax”? Over the past several months, the Center for Tax and Budget Accountability (“CTBA”) has been compiling some of the most frequently asked questions about the Fair Tax and has created this FAQ to help voters understand this ballot initiative.
Released May 5, 2020
This report shows how the data make it quite clear that: Illinois incurred pension debt—under both Republicans and Democrats-- to mask its fiscal problems, not to pay irresponsibly high benefits; Illinois is not a high spending state, and in fact has cut spending on services in real terms by more than 23% since FY2000; that over $9 out of every $10 Illinois, and frankly every other state in America, spends on services goes to the four core areas of Education (including Pre-K, K-12, and Higher Ed), Healthcare, Human Services and Public Safety—meaning those are the services which are imperiled if the feds don’t come through with a significant relief package for state governments suffering revenue loss from the downturn caused by the COVID-19 pandemic; and the Pritzker Administration has actually pushed a number of fiscal initiatives that are actually responsible and counter some of the poor practices of the past.
Released October 21, 2019
The state of Illinois faces a significant structural deficit into the future. The report highlights the nature of the structural deficit and identifies two key causes: the state’s historically flawed tax policy and the plan devised for repayment of Illinois’ pension debt. CTBA proposes both the adoption of the Fair Tax and a reamortization of the pension debt as described in the report titled: Addressing Illinois’ Pension Debt Crisis With Reamortization. Doing so would allow the State to ensure full funding for the Evidence Based Funding Formula while also improving the status of Illinois’ public employee pension system and eliminating the State’s structural deficit by 2042.
Released October 21, 2019
Illinois' five state pension systems face a debt crisis after years of intentional borrowing from state contributions. The crisis is compounded by a backloaded repayment plan that calls for unrealistic, unsustainable state contributions in future years, putting funding for crucial public services at risk. Because the crisis is about debt, rather than benefits being earned by current and future employees, attempts to solve the problem through benefit cuts have failed. CTBA proposes resolving the pension debt crisis by reamortizing our payment schedule, creating a sustainable, level-dollar plan that saves the state $45 billion and gets the pension systems 70 percent funded by 2045. The state of Illinois has foregone $22 billion in savings since CTBA originally proposed to reamortize the debt in 2018. To bridge the higher contributions called for in the first several years of the reamortization plan, CTBA suggests using bonds to ensure current services do not have to be cut.
Released February 18, 2019
One idea that has been proposed by a number of observers to repay some of Illinois’ pension debt is an “asset transfer.” Under this proposal, the state (or the City of Chicago, which is also facing a large pension debt problem) would make a contribution to the pension systems in the form of a pub
Released May 21, 2018
Illinois' five state pension systems face a debt crisis after years of intentional borrowing from state contributions.
Released February 16, 2018
This week, Gov. Bruce Rauner gave his fiscal year (FY) 2019 budget address, revealing his revenue and expenditure proposals for the upcoming year. The governor’s proposal relies on $1.5 billion in cost reductions to balance the budget, including:
Released October 10, 2017
The changes made to Illinois public pension systems in Public Act (PA) 100-0023 (introduced as Senate Bill 42), the Budget Implementation Act, or BIMP, passed on July 6, 2017, and include two primary elements. First, the BIMP creates a new Tier 3 level of benefits for public sector workers.