Actuaries have indicated that a revision of the pension plan in Illinois would necessitate an annual expenditure of about $17 billion. However, the proposed budget for 2027 calls for significantly less.
Governor J.B. Pritzker’s budget plan allocates $5.4 billion less than what actuaries recommend for the five state retirement systems.
House Bill 0131 and Senate Bill 2512 outline a budget for fiscal year 2027 that designates around $11.6 billion for contributions to these systems. This amount is in line with a 1995 state law known as the “Edgar lamp.”
While the plan complies with legal standards, it fails to meet the fiscal responsibility benchmarks set by the state actuary. According to them, the national pension system requires funding of $17.02 billion annually for the next two decades to ensure comprehensive funding and begin addressing pension debt. This figure exceeds the proposed budget amount by about $5.4 billion.
If the state doesn’t pay the full actuarially determined contributions yearly, taxpayers might face increased financial burdens to manage the debts. In 2023, the Commission on Government Forecasting and Accountability (COGFA) estimated that $14.9 billion annually would be sufficient to address the debts, a figure which has recently been raised to $17.02 billion.
Illinois’ pension deficit, which is the gap between state contributions and what actuaries deem necessary, is widening. For 2023, the disparity between the statutory contribution and the amount deemed necessary is $4.1 billion, which is significantly more than the $5.4 billion suggested for fiscal year 2027.
The state has a dual challenge regarding taxpayer contributions to pensions. While employees within the plan are expected to contribute to retirement benefits, taxpayers end up covering part or all of these costs for some members of the State Employees’ Retirement System.
The total estimate for these “pension pickups” in the budget stands at nearly $7.6 million.
All of these issues are exacerbating debt, complicating state management. The unfunded liability for fiscal year 2025 is projected to be around $143.5 billion. This situation likely pushes the pension system’s unfunded liability over $100 billion.
The funding percentages for the five systems hover just below the threshold of viability, with rates around 48%. Experts warn that plans with funding below 60% are in serious danger, and those below 40% are often considered beyond recovery. Falling under 40% heightens the risk of bankruptcy and may necessitate significant benefit reductions.
Illinois ranks among the top 10 most underfunded pension systems in the U.S., and it’s crucial for lawmakers to seek balanced solutions that consider both public servants’ needs and taxpayers’ capabilities.
A proposed constitutional amendment could allow for minor adjustments to missing benefits, ensuring sustainable retirement income for civil servants while avoiding severe tax hikes. Additionally, expanding buyouts and introducing optional 401(k) plans might alleviate some debt and provide retirees with more choices.
