Illinois’ pension problems are big—far bigger than the $100 billion funding gap the legislature said it tackled earlier this week with a new set of reforms. The funding gap is actually double that—well over $200 billion—when calculated on a fair-market basis.
Illinois is committed to fully funding the actuarial liability (and some are encouraging the system to sue the state should the government not pay it). This is one of the reasons the state is in such a hole—they are well behind on payments, and those payments are calculated based on the overly optimistic expectation that they will earn 8 percent a year on investments.
The new law proposes to save $160 billion over 30 years with the following reforms:
a) Curtail cost of living adjustments for retirees on a sliding scale.
b) Offer a 401(k) option for employees.