Gov. Quinn’s projected pension debt growth “slowdown” nothing to celebrate

by Jonathan Ingram The Quinn administration recently released a new projection of how quickly the state’s massive pension debt is growing. As a result, some are celebrating the fact that the governor is predicting that Illinois’ pension debt will only grow by $5 million per day during fiscal year 2014, as opposed to his projection of $17...

by Jonathan Ingram

The Quinn administration recently released a new projection of how quickly the state’s massive pension debt is growing. As a result, some are celebrating the fact that the governor is predicting that Illinois’ pension debt will only grow by $5 million per day during fiscal year 2014, as opposed to his projection of $17 million per day for fiscal year 2013.

First of all, should anyone really be celebrating the fact that the pension debt may grow by only another $1.9 billion next year? Should anyone really be celebrating the fact that the pension debt isn’t expected to stop growing until fiscal year 2031?

Second, we should ask: will the growth in the state’s pension debt really slow? Keep in mind that this projection isn’t based on the pension systems’ actual performance during the past year. The projection is instead based on actuarial projections made in fiscal year 2012. It’s based on the assumption that all five pension systems will meet their investment targets both in the current fiscal year (ending June 30, 2013) and in fiscal year 2014.

That’s no sure bet. The Teachers’ Retirement System, for example, expected 8.5 percent investment returns last year. Instead, the system earned less than 1 percent on its investments. That’s not a single-year dip, either. TRS’s five-year average return is just 0.7 percent, and its 10-year average return is just 6.4 percent. It’s the same story in each of the other four state pension systems. Missed investment targets have added at least $17.2 billion to the state’s unfunded liability since 1996.

These projections also assume that all other actuarial assumptions will be completely accurate, including life expectancy for current and retired government workers, salary increases for current employees, and the likelihood of an employee retiring, becoming disabled or leaving government employment. These assumptions have also added billions to the state’s unfunded liability, given that many of them have turned out to be mistaken.

And this isn’t the first time the state has predicted that the growth in the state’s unfunded liability would slow. Indeed, the exact same prediction was made last year based on the actuarial projections made in fiscal year 2011. The systems predicted that the unfunded liability would grow by “only” $5.3 billion in fiscal year 2012. Instead, it grew by $11.7 billion. The systems have predicted that the unfunded liability’s growth would slow in other recent years, as well, only to see it skyrocket further.

When the pension systems’ perform their actuarial valuation for fiscal year 2013, we’ll know how much the unfunded liability actually grew during this past year. They’ll also make a new projection of how quickly they think it will grow in fiscal year 2014. And at the end of fiscal year 2014, we’ll find out if they were right.

Those currently celebrating the news of the pension debt “slowdown” may want to wait until the actual results come in. Right now, they’re excited about a year-old projection of what could happen next year that doesn’t reflect the true performance of the pension systems during the past year.