Illinois Pension Contribution Holiday Created $2.3B in Funding Setbacks

July 27, 2006 (PLANSPONSOR.com) - Illinois will have to boost its pension contributions into the state's pension system by $10.3 billion over four years in part because of legislation that halted contributions for one fiscal year, according to a recent report.

The Illinois legislature approved a plan a few years back to give early retirement incentives to lure higher paid workers into retirement, the Quincy Herald-Whig reported.

According to a report  that the Illinois Commission on Government Forecasting and Accountability published in June, people accepting early retirement began leaving in July 2002, which left the system with 15,000 less workers and bringing the state’s payroll down to a total of 71,000 workers.      

The Herald-Whig reported that the savings from reduced payroll and administrative costs totaled $562.2 million in fiscal 2004, but they have been falling since then because the state could have expected long-term retirees to retire by then even without the early retirement incentive.

The paper reported that the payroll savings for this year dropped to $386 million.

When legislators passed the incentive, they expected the saving to be funneled into the state’s ailing pension system, which has earned the reputation as the most underfunded system in the country. The 2005 legislation to skip contribution set the state back even farther ($2.3 billion) with the contributions it needed.

The pension manager for the commission who authored the report told the newspaper that carrying the debt, further aided by the pension contribution holiday, has helped put the state budget under constant pressure.   “In the long run, the true cost of the ERI will be approximately $8.5 billion,” because of the pension holiday and some offsetting short-term financial benefits, manager Dan Hankiewicz told the Herald-Whig.

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