IGPA Pension Presentation

Senator Bill Brady’s Remarks

State Pension Summit

IGPA Oct. 3-4, 2011

Financial Condition of State Retirement Systems

As of June 30, 2010 (assets at fair market value)

($ in Millions)

  Accrued Net Unfunded Funded

System Liability Assets Liability Ratio

TRS $ 77,293.2 $31,323.8 $45,969.4 40.5%

SERS $ 29,309.5 $ 9,201.8 $20,107.6 31.4%

SURS $ 30,120.4 $12,121.5 $17,998.9 40.2%

JRS $ 1,819.4 $ 523.3 $ 1,296.2 28.8%

GARS $ 251.8 $ 54.7 $ 197.1 21.7%

TOTAL $138,798.3 $53,225.1 $85,569.2 38.3%

Our unfunded liability of $86 billion does not include the State’s $17 billion in pension bonds. This 38% funded ratio is the worst in the nation.

Conflicting Views of Our Pension Debt

$54

$192$167

$0

$30

$60

$90

$120

$150

$180

$210

IL Systems AEI Study NU Study

Bill

ion

s

The Illinois systems calculated our unfunded liabilities at $54 billion for FY08, but these higher estimates for FY08 were calculated by the American Enterprise Institute and a Northwestern University professor.

$104

$144$153

$30

$0

$20

$40

$60

$80

$100

$120

$140

$160

Bil

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FY15 FY25 FY35 FY45

Projected Unfunded Liabilities

Projected Unfunded Liabilities

Typical Revenue Sources for State Pension Systems

70%

15%

15%

StatePayments

EmployeeContributions

InvestmentIncome

FY 2010 Cash Flow: Negative $1.35 Billion

(Excludes investment income)

(in millions)

SystemEmployees’ Contributions

State & Local Contributions

Benefits & Administration Expenses

NEGATIVE Cash Flow

TRS $ 899.4 $ 2,177.8 $ 3,944.8 $ (867.6)

SERS 246.2 1,095.5 1,402.3 (60.6)

SURS 323.6 700.2 1496.2 (472.4)

JRS 16.0 78.5 92.1 2.4

GARS 1.7 10.4 17.1 (5.0)

Total $ 1,486.9 $ 4,062.4 $ 6,952.5 $ (1,403.2)

Investment Returns

10 Year Average

(Ending FY10)FY11 FY12

TRS 3.3% 23.6% N/A

SURS 3.6% 23.8% -4.9%

ISBI 2.4% 21.7% -4.35%

The pension bond payments ($1.4 billion this year) cover debt service on the $10 billion in bonds sold in 2003, $3.5 billion sold in 2010 and $3.7 billion sold in 2011.

The State’s bond and pension debt has grown from $54 billion in early 2003 ($4,300 per citizen) to $119 billion today ($9,300 per citizen). That’s a 120% increase.

The $54 billion in 2003 included $11 billion in capital bonds and $43 billion in unfunded pensions.

Today’s debt includes $86 billion for pensions and almost $34 billion in bonds. The bond debt includes $17 billion of pension bonds.

Payments on our debt have risen from $2.6 billion in 2003 to $7.7 billion this year. That’s a 200% increase.

Illinois has the 2nd largest bond and pension debt of any state; 3rd highest as a percent of revenue, and 5th highest per citizen.

Our Growing Debt

Normal Costs

TRS: 18% of salary ($1.7 billion). Teachers pay 9.4% and no Social Security.

SERS: 12% of salary ($500 million). Employees pay 4%-12.5%. Most state employees are in Social Security. The State pays 6% to Social Security and employees pay 6%.

SURS: 18% of salary ($630 million). Faculty and staff pay 8.0% and almost all are not in Social Security.

JRS: 29% of salary ($48 million). Judges pay 9.75% and no Social Security.

GARS: 30% of salary ($4 million). Legislators pay 11.5% and no Social Security.

What Are Other States Doing?39 states have enacted substantial revisions to their

state retirement plans over the past two years.These changes include:

Change Enacted Number of States to Adopt Change

(Over past 2 years)

Number of States Where Change Applies to All Employees

Number of States Where Change

Applies Only to New Hires After

Legislation Enacted

Increase Employee Contribution

25 18 7

Changing Eligibility Rules

23 Few Most

Modify How Benefits are Calculated

13 None All

Revise Automatic Benefit Increases

17 3* 6*

* of the nine states that enacted this yearSource: National Conference of State Legislatures

State and Local Government Employees Costs per Hour Worked

Type of Worker

Wages or Salaries

Total Benefits Healthcare Retirement

Public $26.25 $13.85 $4.65 $3.26

Private 19.68 8.2 2.1 0.99

Extra Public Cost

$6.57 $5.65 $2.55 $2.27

Most public sector employees are not in Social Security, while private sector employees are in Social Security. More public employees have college degrees than do private employees.

Reform ProposalsOffer a choice of benefit plans similar to Senate Bill 512:

“Pay to Stay” in Tier 1 lower contributions with lower benefits in Tier 2 or a defined contribution plan.

The State ideally should increase its contributions to pay down our pension debt.

No more pension borrowing – the State should pay in cash, on time.