Illinois will owe $1 billion more to its pension funds next fiscal year as smaller employee contributions kick in, according to projections released this week by state actuaries.
The 19 percent increase in obligations, to $5.9 billion from $4.9 billion in fiscal 2012, wasn’t anticipated by budget officials when they presented the current plan in February. The higher cost to Illinois’s five retirement funds risks deepening a budget hole as lawmakers consider tax breaks for businesses threatening to leave the state.
The main reason for the increase is the change to the systems, William Atwood, executive director of the Illinois State Board of Investment, said today. While pension reforms effective in January were designed to reduce long-term obligations, the immediate impact of smaller employee contributions has been to increase the difficulty of adequately funding the pensions by 2045.
“You have to increase the state’s contribution” to make up the difference, Atwood said in a telephone interview from the Chicago office of the board of investment, which manages assets for three of the five funds.
The state’s retirement system has assets to pay 45 percent of promised benefits, according to data compiled by Bloomberg. It’s the lowest so-called funded ratio of any U.S. state. Illinois law requires the system to achieve a 90 percent funded ratio by 2045.
Democratic Governor Pat Quinn “is committed to making the full pension payment,” Kelly Kraft, a spokeswoman, said in an e-mail.
Budget pressure is mounting on Illinois, which like other states is dealing with the loss of federal aid and increased demands for Medicaid services.
Meanwhile, CME Group Inc., which operates the Chicago Mercantile Exchange and Board of Trade; CBOE Holdings Inc.; and Sears Holdings Corp. are threatening to leave the state unless their tax load is lightened.
Proposals designed to keep them and satisfy other taxpayers range in cost from $500 million to $700 million a year. Lawmakers are scheduled to return to Springfield on Nov. 29 to consider the tax changes.
Illinois’s general-obligation debt is tied with that of California as the lowest rated by Moody’s Investors Service, at A1. Standard & Poor’s has it at A+, two levels above California.