The SEC has launched another inquiry into state pension funding practices. A few months ago New Jersey was charged with issuing bonds based on fraudulent fiscal information. This time the SEC's focus is on Illinois' planned $3.7 billion pension obligation bond offering. The practice of issuing bonds to make the state's contribution to its pension system is a technique that's been employed since the 1990s in several states including New Jersey, Texas, Connecticut, California and with some frequency, Illinois.
Illinois Governor Pat Quinn. Image via Wikipedia
The SEC is again trying to determine if Illinois is misleading investors about its true fiscal condition before it makes the bond offering. Mary Williams Walsh reports at The New York Times that what tipped off investigators was an earlier NYT article noting Illinois' "unusual actuarial technique" used to shrink current state contributions. In essence the calculation is made based on future cuts to not-yet-hired employees. As Ms. Walsh writes, "Illinois has begun funding its plans as if current workers were already earning the smaller benefits of the future." This practice is not actuarially sound, and actuaries are expressing concern that other governments may mimic it to save money.