241

Billion

Unfunded Liabilities

The Pension Collapse Is Starting in Illinois

Illinois legislators are grasping at straws. According to a recent report, the state has $15 billion in unpaid bills and $251 billion in unfunded liabilities. $119.1 billion of those unfunded liabilities are tied to shortfalls in the state’s failing pension program. 

After months of desperate number crunching, Illinois finally passed a budget this week. But legislators employed massive tax hikes to make it happen — a 32% increase on state income tax and 33% increase on state corporate tax. 

Illinois’ new budget doesn’t mean much, though. It raises a paltry $5 billion, just a drop in the bucket when you look at the state’s $15 billion deficit.

The situation in Illinois is taking center stage right now, but several other states are poised to follow. And when Illinois does fall, it will only accelerate their demise. 

Kentucky, New Jersey, Arizona, and Connecticut are at the top of the list. Their pension woes and budgetary shortfalls are nearly as big as Illinois’. 

And the rest of the country? It’s only marginally better off. Bloomberg reports that just 15 states have pension funding ratios above 80%. 

U.S. public pensions are underfunded by at least $1.8 trillion, possibly as high as $8 trillion, according to expert estimates. They’re paying out more money than they’re taking in, plain and simple. And they’re falling hopelessly short on their projected returns too. Most funds aim for approximately 7.5% return, but they barely broke 1.5% last year. 

All this shows is that, more than ever, pensions are snowballing into insolvent oblivion. And sadly, a collapse is the only thing that will stop them.

 DYI:  Since 1978 old school – defined benefit plans – pensions have been systematically replaced by 401k’s for the majority of workers in the private sector.  This change over was, and for the few that remain today, been a true nightmare as corporation look to reduce costs by shedding their obligations.  Leaving employees in the lurch with significantly reduced pension payments and to fend for themselves in the new environment of self funding and management of their 401k’s.

Now the shoe is on the other foot; State and local government employees as over promised pension benefits and insane assumed rates of returns impossible to attain have jeopardized any sense of retirement.  The next ten plus years as one State after another will move from defined benefit to defined contribution (401k type plans) placing the entire financing and management onto their employees.  They will have no choice as these States are simply bankrupt even though States are disallowed bankruptcy. This is only a beginning for many of our States.  A slow motion crash spread out over the next ten years plus.

DYI