Illinois politicians are not honest about the depth of the state’s pension crisis. They chronically understate the scale of the problem to taxpayers and state workers. According to the federal Securities and Exchange Commission, the state has mislead investors as well.
Today the SEC announced it was charging Illinois with securities fraud. From a press release:
“…that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.”
Illinois has the nation’s worst credit rating and it can’t afford to give investors more reasons to pull their money out of Illinois. January’s failed $500 million bond issue shows that investors are already concerned.
Bondholders and taxpayers alike are being misinformed and should be cautious of any pension reform plans that continue to keep politicians in control of state worker retirements.
Politicians have proven they can’t manage retirement systems based on unpredictable defined benefit plans and irresponsible repayment ramps. Any new plan needs to get politicians out of the pension business. The SEC further said:
“The statutory plan structurally underfunded the state’s pension obligations and backloaded the majority of pension contributions far into the future. This structure imposed significant stress on the pension systems and the state’s ability to meet its competing obligations – a condition that worsened over time.”
Illinois’ current pension system is so complex and unmanageable it’s not surprising that politicians have gotten it wrong again. Illinois legislators need to follow the lead of the private sector and move away from defined benefit plans. Nearly 85 percent of the private sector now uses 401(k)-style plans to manage worker retirements.
Illinois’ government worker retirement system needs to be modernized. State Reps. Tom Morrison and Jeanne Ives have sponsored a pension reform plan, House Bill 3303, that would do just that. HB3303 expands the existing State Universities Retirement Systems 401(a) plan, the best solution for taxpayers, government workers and bondholders. HB 3303 ends the failed defined benefit system and gives state workers control over their retirements going forward.
Only bold and transparent reforms like those in HB 3303 will set the stage for renewed investor confidence in Illinois.
Ted Dabrowski
Vice President of Policy
Illinois Policy Institute
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