Wednesday, June 27, 2012

Even through rose-colored glasses, Illinois pensions look terrible

Illinois is cooking the books:

A quick bit of pension accounting 101- -The “funding ratio” (currently 46% according to this article) is basically how much money the fund will have as a percentage of how much it should have (so, in the case of Illinois, even if the fund magically doubled they still wouldn’t be where they need to be).

-The “return target” is a number used to calculate the funding ratio (a higher return target makes predictions more rosy). Illinois Teachers’ return target of 8.5% is extremely high; if they lower it to 7.5%, where Tennessee is, the funding ratio will go way down (and make things look much worse).

Bottom line: things look terrible even using overly optimistic assumptions; it’s going to get nasty if and when they use more appropriate ones. They are already having to sell billions of assets every year to meet their payroll. ... I don’t know how this plays out, but I do know it’s going to hurt.

No comments:

Post a Comment