You have to be careful looking at pensions

I saw an interesting article on Zerohedge the other day about the ongoing pension problems in Illinois:

Illinois to Delay Pension Payments Amid Budget Woes

What caught my eye, in particular, were the charts at the end of the article showing the funding of the plans. It was surprising to see that the funding percentages had not improved since 2009 – the general stock market levels have basically doubled since then. Here’s the chart showing the funding levels of of the Teachers’ Retirement System in Illinois, for example:

Screen Shot 2015-10-16 at 11.46.13 AM

To get a better understanding of what’s been going on with the teachers retirement system in Illinois, I dug into the financials on their website:

Illinois TRS website

Here is one surprising thing that I found in the numbers.

At the end of the 2004 financial reporting year, the actuarial accrued liability of the plan was reported as $50.95 billion. During the following 10 years, these were the payments that were made from the plan for (i) benefits, (ii) refunds, and (iii) administrative expenses:

2005: $2.61 billion
2006: $2.95 billion
2007: $3.19 billion
2008: $3.50 billion
2009: $3.72 billion
2010: $4.00 billion
2011: $4.32 billion
2012: $4.66 billion
2013: $5.00 billion
2014: $5.34 billion

For the 10 year period, total payments are $39.29 billion.

So, the actuarial accrued liability was roughly $51 billion at the end of 2014, and in the next 10 years a bit over $39 billion in payments were made. What would you estimate the reported actuarial accrued liability of the plan was at the end of the 2014 reporting period?


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