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Illinois Pension Plans Should Go Dutch
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Illinois uses a discount rate of about 8% for its pension liabilities. This makes them look smaller than they really are. The 8% represents expected return on assets. Illinois's five pension pllans assume returns ranging from 7% to 8.5%, yet their average 10 year returns ranged from 2.4% to 3.6%. The Netherlands uses a discount rate equal to government borrowing rates, which would be 4% for the U.S. And Dutch plans have to be fully funded or take steps to make up the difference. Illinois will have its plans 90% funded by fiscal 2045. Canada uses a government return adjusted for inflation and an additional premium, which is about 6%. The Ontario Teacher's Pension Plan for instance uses a discount rate of 5.4% and is about 85% funded. The Ontario plan's CEO, Jim Leech, says his fund would be 200% funded if it used the Illinois approach. Which raises the question is the Illinois approach realistic and isn't the best approach to be realistic about the finances.
How U.S. states overstate the extent to which pensions are funded.
10/16/2010
Using a discount rate of 4% (for government borrowing costs) would correctly show the extent to which pensions are funded in Illinois, than the rate currently used rate of 8%. Using Illinois methods Dutch plans would be 200% funded says an expert in Holland. With lower savings of American workers as they approach retirement adequately funded pension systems are critical to the safety net.
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Pension Pinch Busts City Budgets
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Illinois Legislature Approves Retiree Benefit Cuts in Troubled Pension System
New York Times 12/03/2013
American states' pension funds: A gold-plated burden
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Chicago Mayor Seeks Alterations to Repair Badly Underfunded Pension Plan
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The U.S. State Budget Crisis Task Force Report on Illinois's finances
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The task force led by Richard Ravitch and Paul Volcker has strong words for the dismal state of Illinois's finances describing the state's handling of its finances as an high-wire act without a safety net.
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Illinois Pension Plans Should Go Dutch
Wall Street Journal 02/19/2011
SEC Says Illinois Hid Pension Troubles
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