(The Center Square) – It’s unclear how far-reaching recent bank failures are for various pension funds in Illinois, but one lawmaker is ringing the alarm that the state is one deep recession away from insolvency.
Sunday, the federal government took over New York Signature Bank. Days before, Silicon Valley Bank collapsed. While President Joe Biden announced depositors will be made whole, he said investors will lose out.
Of several pension funds messaged for comment on liabilities in troubled banks, the Illinois Municipal Retirement Fund said it’s impacted by about $3 million from SVB.
“While we are always concerned about any losses, for context, IMRF holds about $49 billion in assets,” IMRF Communications Officer John Krupa said. “So these shares make up a very small part of our total portfolio – about 0.006% (a fraction of a percent).”
IMRF is the retirement fund for non-fire and police municipal employees across the state. The fund said members, local governments and taxpayers should know the fund is strong.
“We are about 98% funded, which makes us one of the best-funded public pensions in the nation,” Krupa said. “Any potential losses associated with SVB Financial Group will have no impact on IMRF’s ability to pay benefits. We will continue to monitor the situation closely and adjust in accordance with our investment policies.”
The Illinois Police Officers’ Pension Investment Fund says it had minimal exposure to the SVB, Signature Bank and Silvergate turmoil.
“[A]s of Feb 28, 2023, our exposure to SVB Financial Group, Signature Bank and Silvergate Capital Corp was minimal,” CIO Kent Custer said. “Totaling $1.2 million, the investments represented 0.014% of the IPOPIF’s total asset value of $8.9 billion.”
Illinois state Rep. Steven Reick, R-Woodstock, said while recent U.S. bank problems may “hit” pensions, what happens in Europe could be the “real canary in the coal mine.”
“When the Saudis pull their funding from Credit Suisse, how many other European banks have got similar arrangements with these oil nations, and if they pull their funding for whatever reason, we’re going to have a European bank crisis and that’s going to translate over to here,” Reick told The Center Square. “That is the bigger problem.”
The House Personnel and Pensions Committee heard testimony from various union representatives and government officials about pensions. Some were looking to increase the cost of living allocation for pensioners, others were looking to address problems they said are there for Tier II pensions, which are fewer benefits than Tier I for public employees hired before 2011.
State Rep. Stephanie Kifowit, D-Oswego, chairs the committee. She said they’re hearing everyone out.
“So for the fiscal stability for the state of Illinois, this is an issue that I’m committed to making sure that we have a suitable and a strong policy to fix this problem,” Kifowit said.
Reick said Illinois is “walking on eggshells” with unfunded liabilities around $140 billion for state funds. Something drastic needs to be done, he said, like Congress expanding bankruptcy for states. That would allow an override of the Illinois Constitution’s pension protection clause, Reick said.
“There are only three ways we’re going to fix our pension problems, it’s going to be revenue increase, benefit cuts or a complete collapse of the system,” Reick said.
If nothing is done except bringing in more tax dollars, Reick said the state won’t be able to continue providing essential services as nearly a quarter of every tax dollar collected goes to pension costs.
Reick said there has to be a “grand bargain” to address Illinois’ unfunded pension liabilities, which are among the worst in the nation. He suggests before the bottom drops out, there needs to be a combination of benefit reductions and revenue increases.