Will You Bail Out Pensions?

by Kristina Rasmussen Dennis Byrne’s column poses some interesting questions about the Illinois state pension system — namely, if it goes belly up, will taxpayers be on the hook for paying those benefits? A new analysis prepared for the Civic Committee by the Chicago law firm Sidley Austin says “no”: The opinion acknowledges that the constitution creates a...

by Kristina Rasmussen

Dennis Byrne’s column poses some interesting questions about the Illinois state pension system — namely, if it goes belly up, will taxpayers be on the hook for paying those benefits? A new analysis prepared for the Civic Committee by the Chicago law firm Sidley Austin says “no”:

The opinion acknowledges that the constitution creates a contractual agreement between the workers and the state’s employee pension funds. But it concludes that neither the constitution nor the law say the state is a guarantor of that obligation.

The Sidley opinion argued that the state can become a guarantor only under section 2l2-403 of the Illinois Pension Code. That provision states that if a state pension fund runs out of assets “(a)ny pension payable under any law . . . shall not be construed to be a legal obligation or debt of the State . . . but shall be held to be solely an obligation of such pension fund, unless otherwise specifically provided in the law creating such fund.”

So, does any law creating the pension funds “specifically provide” that the state would become the guarantor? Sidley examined the laws creating the five state pension funds and concluded that while each contains an “obligation of state” provision, none guarantees that the state will step in and pay the funds if they run out of money.

In simple language, that means if the pension funds run short of cash, public workers face the same sort of uncertainties that most workers in the private sector do.

Chances that the funds will run short of cash are high. They’ve already got an $80 billion unfunded liability (more, if you discount their rosy rates of return), and you may recall that the state has no plan on paying its $4 billion annual contribution this year. Read more about our Pension Funding & Fairness Act— it would control spending excesses, require legislators to budget responsibly, and fully fund the annual required pension payment