Illinois Pension Fund: Where Is It Invested?

The state of Illinois is facing a government-worker pension shortfall of over $111 billion, with 19% of its budget going towards pensions, compared to 4% in other states. Illinois' overall pension debt is 268% higher than its annual revenue, and the state currently has no official budget. Chicago also faces a multibillion-dollar government-worker pension shortfall, and hundreds of municipalities across Illinois are struggling with their own pension crises. Illinois has 675 government-worker pension funds, including five state-run funds and numerous local funds for police, firefighters, and municipal workers. The Illinois Public Pension Fund Association (IPPFA) manages over $18 billion in pension assets, while the State Universities Retirement System (SURS) offers three retirement plans for its members. The IMRF, another pension fund in Illinois, has over $52.1 billion in assets and is funded by member and employer contributions and investment returns.

Illinois pension funds are invested in pension bonds

Illinois is facing one of the worst pension crises in the country, with a government-worker pension shortfall of over $111 billion. This has resulted in a situation where pension costs are overwhelming the state's budget, with 19% of the budget going towards pensions, compared to 4% in other states.

The state's pension woes can be attributed to a few key factors. Firstly, politicians have offered generous pension benefits to government workers, including allowing over 63% of state workers to retire before the age of 60 and providing annual compounded boosts to their pensions. Secondly, politicians have failed to properly fund pensions, often kicking the can down the road and borrowing money to meet short-term obligations rather than seeking comprehensive reforms. Finally, the inherent flaws of pension plans, such as relying on expected investment returns and mortality rates that often fail to materialise, have further increased costs.

To address the growing pension shortfall, various measures have been proposed, including transitioning to self-managed retirement plans such as 401(k)s for new government workers and offering optional 401(k)s to current employees. Additionally, requiring all teachers to contribute towards their pensions and limiting the growth of pensionable salaries have been suggested as ways to reduce the financial burden on the state.

In the past, Illinois has issued pension obligation bonds (POBs) to shore up its retirement systems. For example, in 2003, the state issued $10 billion of General Obligation bonds for pension funding. However, this led to concerns as the debt service schedule rose significantly over the years. The City of Chicago is also considering issuing $10 billion in POBs to stabilise its retirement systems.

While pension bonds can provide temporary relief, they do not address the underlying issues contributing to Illinois' pension crisis. Comprehensive reforms are necessary to align public pensions with the state's fiscal reality and ensure the long-term sustainability of retirement benefits for government workers.

Illinois pension funds are invested in the stock market

The Illinois Municipal Retirement Fund (IMRF), a "multi-employer public pension fund," is funded by member and employer contributions and primarily by investment income. As of December 31, 2023, IMRF had $52.1 billion in assets, with a 13.2% rate of return in 2023. IMRF's goal is to be 100% funded, but as of December 31, 2023, it was 96.6% funded, making it the best-funded statewide retirement system in Illinois.

The State Universities Retirement System (SURS) offers three retirement plans: the Traditional Pension Plan, the Portable Pension Plan, and the Retirement Savings Plan. SURS also recently introduced a Deferred Compensation Plan, providing members with another avenue to save for retirement.

The Illinois Public Pension Fund Association (IPPFA) was founded in 1985 as a non-profit organisation to educate public pension fund trustees. IPPFA members manage over $18 billion in pension assets.

Illinois pension funds are invested in private equity

The Illinois Public Pension Fund Association (IPPFA) is another key player in the state's pension landscape. The IPPFA is a non-profit organisation that provides education and resources to public pension fund trustees in Illinois. Their members manage over $18 billion in pension assets.

In recent news, Illinois' local police pension fund, managing around $11 billion, has expressed interest in investing in loans and private credit. This shift in investment strategy aims to move money from junk bonds to leveraged loans. The fund's staff will recommend a manager and allocation to the board in December, with the goal of allocating about $300 million into leveraged loans.

The state's pension funds are facing a significant shortfall, with a government-worker pension deficit of over $1111 billion. This has resulted in a budget crisis, as pension costs are consuming a large portion of the state's budget. Illinois' overall pension debt is 268% higher than its annual revenue, contributing to the state's low credit rating.

Illinois pension funds are invested in hedge funds

Illinois has a government-worker pension shortfall of over $111 billion, the worst retirement crisis in the nation. The state's pension debt is 268% of its annual revenue, and it has the lowest credit rating of any state. The state's pension funds are invested in a variety of asset classes, including stocks and bonds, private equity, real estate, infrastructure, and securities like gold.

Hedge funds are a type of investment vehicle that pension funds use to meet their financial obligations, diversify their portfolios, and manage risk. Institutional investors such as pensions invest in hedge funds to generate returns that will cover the benefits promised to retirees. While hedge funds can provide high returns, they are also associated with high fees and risks.

In Illinois, the Illinois State Board of Investment (ISBI) previously included hedge funds in its investment portfolio. However, due to their confusing nature, underperformance, and high fees, the ISBI decided to remove hedge funds from its portfolio. This decision resulted in significant cost savings for the state, as it no longer had to pay high management fees.

Despite the risks and challenges associated with hedge funds, they continue to play a role in the investment strategies of some pension funds. It is important for pension funds to carefully consider the potential benefits and drawbacks of investing in hedge funds to ensure the financial security of retirees.

Illinois pension funds are invested in real estate

Illinois has 675 government-worker pension funds that are meant to provide retirement security for over 1 million government workers and retirees. The state's pension system is in crisis, with a shortfall of over $111 billion, the worst retirement crisis in the nation. The state's overall pension debt is 268% higher than its annual revenue, and it has the lowest credit rating of any state.

The Illinois Municipal Retirement Fund (IMRF) is a "multi-employer public pension fund" that administers a program of disability, retirement, and death benefits for employees of local government in Illinois (excluding the City of Chicago and Cook County). The IMRF is not funded by the state of Illinois but rather by employee and employer contributions and investment returns. As of December 31, 2023, the IMRF had more than $52.1 billion in assets under management. The IMRF's investments include both US and international stocks, fixed income, real estate, and alternative investments like private equity, agriculture, and timberland.

The IMRF has an infinite investment time horizon, investing for members of all ages, from those who have just joined to those who are about to retire. The IMRF hires and monitors dozens of professional firms to invest its assets, employing a diversified investment strategy that results in steady and responsible returns.

In 2019, Governor JB Pritzker signed a new law to consolidate the 649 downstate and suburban pension plans into two statewide funds, amplifying their investment power and reducing the burden on property taxpayers. The new funds will leverage their collective buying power of $15 billion in assets to increase investment returns and lower management costs.

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