With deadline looming, is public pension funding heading in the right direction?

Most public pension systems in Illinois are facing a looming deadline to reach a 90% funded ratio within a few decades.

That’s required most employers to increase required contributions. But despite the extra revenue, some government finance experts warn it may not be enough.

“They've used financial successes over the past couple years to make really smart financial decisions, including supplemental pension payments and paying down debt,” said Mary Wagoner, director of state and local finance with the Civic Committee, a research branch of the Commercial Club of Chicago. “But the job still isn't done though, with pensions specifically.”

Despite the additional funding, financial records from nine Illinois public pension programs show only moderate increases to funding levels over the past decade.

That includes the five state-funded pension systems, which remain less than 50% funded. The combined unfunded liability for the five pension programs — Teachers’ Retirement System (TRS), State Employees’ Retirement System (SERS), State Universities Retirement System (SURS), Judges’ Retirement System (JRS) and the General Assembly Retirement System (GARS) — was nearly $140 billion at the end of fiscal year 2022. The funded ratios ranged between 21.3% and 45.2% at the end of the state’s 2022 fiscal year, financial records show.

Those five pension systems have until 2045 to be 90% funded thanks to legislation passed in the mid-1990s. Infamously known as the “Edgar Ramp” after former Illinois Gov. Jim Edgar who championed the pension funding reform plan at the time, the legislation allowed the state to delay payment of pension obligations until much later.

“What we have is a system that was a boondoggle from the beginning,” said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. “They pushed the cost off and backloaded it in the end.”

The Edgar Ramp, coupled with other legislative decisions that widened the funding gap over the past two decades, created more debt for future taxpayers, experts said. Only recently has noticeable progress been made.

“We’re obviously still a long ways away from the target amount, and both returns on investments as well as any changes to benefits put that at risk,” said Carol Portman, president of the Taxpayers’ Federation of Illinois. “Still, I don’t think it’s as dire as it was a couple years ago.”

In recent years, Gov. J.B. Pritzker’s administration has committed roughly $700 million toward the state’s pension debt in addition to what already is owed. That led to a series of credit rating improvements.

A proposal from the Civic Committee last February to boost pension funding by increasing income taxes for a 10-year span was estimated to generate $28 billion while saving taxpayers $35 billion over the next 22 years.

“If you accelerate the pension payments, you can pay down the debt faster and save money,” Wagoner explained. “If you pay more now, you reduce the cost in the future."

The proposal has failed to gain much traction in Springfield.

Government finance experts suspect that’s because legislators are leery of any tax hike and, while small, there has been improvement in the financial health of the state-funded pension programs over the past decade, as well as other large public pension programs in the state.

“Certainly, the state is in a much stronger financial position overall these days,” said Robert Bruno, professor of labor and employment relations at the University of Illinois at Urbana-Champaign.

The Illinois Municipal Retirement Fund, which covers most local government employees and non-certified school district staff, is 98.2% funded. However, state law requires employers fully pay any pension obligations annually. Still, the funded ratio is at one of the highest levels it’s seen in a decade.

A state law that required hundreds of individual police and fire pension programs — except Chicago — to consolidate into two large public safety pension systems to lower administrative costs and maximize investment potential has helped increase funding levels.

According to data from the state legislature’s Commission on Government Forecasting and Accountability and a new report from the Illinois Municipal League, the downstate police pensions were 62.7% funded in fiscal year 2022, up from 56.9% in 2013.

The firefighters’ pension fund is now 65.7% funded, up from 56.1% a decade earlier.

And the pension fund for Cook County employees also has seen a 10-percentage point increase in its funded ratio over the past decade, financial reports show. It is now 66.5% funded following several years of increased payments by the county board.

Combined, those four pension plans are $18.6 billion from being fully funded, according to state financial reports.

“I don’t have a crystal ball for the years going forward, but if five years ago we were having this conversation, there’d be more consternation about the unfunded liabilities,” Bruno said.