Illinois pension report: unfunded liability rose 1.8% in 2023

Illinois' Commission on Government Forecasting and Accountability on Thursday released its Special Pension Briefing on the state-funded retirement systems' fiscal 2023 actuarial reports. The report said the five pension systems' unfunded liability climbed to a market value of $142.2 billion at the end of fiscal 2023 on June 30 from $139.8 billion in 2022, with the Teachers' Retirement System responsible for the biggest jump in liabilities.

The market value of TRS's unfunded liabilities rose to $81.9 billion, comprising 57.6% of the total unfunded balance. TRS has the largest portfolio of all the retirement systems, each of which saw salary hikes that drove the overall unfunded liability increase in 2023. Also fueling the increase in unfunded liabilities were employer contributions and demographic trends. 

Last year, TRS was 44.8% funded. That's compared to a 45.4% funded ratio for the State Universities Retirement System, a 43.6% funded ratio for the Judges' Retirement System, a 43.4% funded ratio for the State Employees' Retirement System and a 22.8% funded ratio for the General Assembly Retirement System.

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The biggest contributing factor to the growing unfunded liability was a shortfall in contributions by the state to its pension systems. COGFA stressed the distinction between statutorily sufficient contributions and actuarially sufficient contributions, the latter being a higher bar to clear.

The state is making the contributions it is required to by law — more than required in recent years — but they remain short of what is actuarially needed to fund the systems.

To drive this point home, COGFA included a comparison of the actuarially determined contributions for fiscal year 2025 and the state's contributions in its report. For TRS, there was a $3.9 billion difference between the actuarial figure and the state contribution. For SERS, there was a $595.7 million difference. SURS had a $349.8 million gap. JRS had a $29.7 million shortfall, and GARS a $7.6 million disparity.

The total unfunded liability has risen steadily from $77.8 billion in 2009 to 2023's figure, which is second only to 2020's $144.2 billion high.

The only years in which it decreased, albeit slightly, were 2011, 2017 and 2021. COGFA attributed the 2021 drop to "exceptional investment returns."

In a given year, if any particular factor is markedly different from system actuaries' assumptions, noticeable changes in unfunded liabilities can result. For instance, 2023 brought "larger than expected salary increases" across all five pension systems, COGFA said.

Most of the total unfunded liability comes from the three top pension systems, known as the "Big Three": TRS, SERS and SURS. The Big Three, but especially TRS, are still paying down pension liabilities that shot up particularly sharply between 2008 and 2009, when the pension system suffered steep investment losses.

In 2023, TRS saw a 7.09% rate of return on its investments. SERS saw a 6.32% rate of return. SURS saw a 5.34% return, JRS a 6.33% return and GARS a 6.16% return. 

Fitch Ratings assigns Illinois a rating of A-minus, outlook stable. Kroll Bond Rating Agency recently rated the state's Build Illinois Series 2024 junior sales tax bonds AA-plus, outlook stable. Moody's upgraded Illinois' issuer rating to A3 from Baa1 in March, with a stable outlook. S&P Global Ratings upgraded the state to A-minus from BBB-plus, outlook stable, in February 2023.