Judges’ Retirement System posts negative returns

Another one of the state’s five pension systems has posted negative investment returns for 2012, highlighting yet again the problems caused by Illinois’ politician-controlled defined-benefit plans using taxpayers as a backstop. For the third time in the last five years, the Judges’ Retirement System, or JRS, has posted a negative investment return. Although the pension...

Another one of the state’s five pension systems has posted negative investment returns for 2012, highlighting yet again the problems caused by Illinois’ politician-controlled defined-benefit plans using taxpayers as a backstop.

For the third time in the last five years, the Judges’ Retirement System, or JRS, has posted a negative investment return. Although the pension fund predicted it would earn $41.5 million in fiscal year 2012, it actually lost $69,096.

The fund posted an investment return of -0.01 percent, far below the 7 percent it expected.

Of course, this isn’t the first time JRS investments have come in below expectations. The five-year average rate of return is -0.1 percent. Even before this year, the five-year average rate of return was only 3.1 percent, and the 10-year average was just 4.5 percent. And when investment returns come in under projections, it falls on taxpayers to make up the shortfall.

Ultimately, there are only two numbers that matter: the amount of money the pension fund will pay out for earned benefits and the amount of money it has on hand. Between now and 2045, JRS is scheduled to pay $6.9 billion to retired judges. It has just $578 million on hand. For these assets to cover future payouts, JRS would need to see average investment returns of 25.1 percent per year.

JRS is broke. Under new accounting rules, the fund has less than 18 percent of the money it should have in the bank today to make its pension payments. That makes it one of the worst-funded plans in the state, second only to the plan for retired lawmakers. The system doesn’t even have enough money on hand to pay out benefits to the judges who have already retired.

The longer lawmakers delay action, the worse Illinois’ pension debt crisis will become. Only major reforms, like moving to defined-contribution plans for all future work and tackling the automatic, compounded cost-of-living adjustment, can get the problem under control.