Illinois deals with deep pension debt
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Steve Chiotakis: States are gonna have to pay nearly $3 trillion in public pension benefits in the coming decades. And while many states are on track to handle these hefty bills, a handful, such as Illinois, are in big trouble. Reporter Jay Field has more.
Jay Field: Illinois budget analyst Laurence Msall has this bad news to share:
Laurence Msall: The state has not been funding its promises to its employees and its retirees, and instead has either borrowed or just skipped payments.
Using the pension money to cover essential services like education, without having to jack taxes. That's left the state retirement system nearly $80 billion in debt -- the largest unfunded pension liability in the nation.
Msall: And that is why we're calling for very significant reform of the pension system in Illinois.
For one thing, Illinois plans to reduce benefits for new lawmakers and judges. But Msall says there's something else Illinois can do: It can adopt a model for a well-run pension fund that is headquartered right here, west of Chicago, in the city of Oak Brook.
Louis Kosiba runs the Illinois Municipal Retirement Fund for city workers from librarians to trash collectors. Last year, it earned a 25 percent return.
Louis Kosiba: In 1994, I ran the Chicago Marathon. And that is probably the most physically demanding thing I did, until I climbed to the top of Mt. Kilimanjaro.
Summiting Kilimanjaro is something people have to do slowly. Kosiba says he's worked at the fund the same way.
Kosiba: Analyzing the risks that you take, it means having a broadly diversified portfolio.
And the fund has one other big reason for its success: The state legislature gave its Board of Trustees special power to force municipalities to pay into the fund, even when they're broke.
When Illinois lawmakers set up state pension plans decades ago, they saw no reason to do the same. They figured the state would always make good. But it hasn't. And now reformers say it should adopt the same rule the municipal fund did to break the cycle of shirking and borrowing.
In Oak Brook, Ill., I'm Jay Field for Marketplace.