Prairie State Wire

Financial insiders said pension funds already beset with under-funding problems are taking a huge additional hit with the closing of businesses, job loss and tumbling markets due to the COVID-19 pandemic.

“People have no money,” Cook County Treasurer Maria Pappas told the New York Times.

Even before the pandemic dealt a body-blow to the economy, Pappas said she counted a record 57,000 delinquent property taxpayers in the county. Property taxes contribute to over 400 municipal pension funds in Cook County, including some that were already close to bottoming out before the pandemic.

“It’s like a rubber band that’s been stretched too thin,” Pappas said. “What I’m telling you is, the rubber band is about to break.”

Mary Walsh, a financial reporter covering the crisis, told the Times that pensions were already chronically underfunded and weakened programs have taken major hits to their investment portfolios as markets collapsed over the past month. The virus outbreak has also triggered widespread job loss and business closures that threaten to wipe out state and local tax revenues.  

Walsh said economists have been warning for years that public pensions should be shifting to safer investments as their members age. Andrew Biggs, an economist at the American Enterprise Institute who specializes in retirement financial issues, said public pension systems didn’t heed the warnings.

“This was completely predictable,” Biggs said. “They are holding tons of equities when they’ve also got tons of retirees.”

As of 2018, state pension funds on average invested 74 percent of  their money in what Biggs described as high-risk assets, including stocks, private equities, hedge funds and commodities. That was up from 69  percent in 2010, after the 2008 Great Recession, and up from 61 percent in 2001, when economists first began criticizing the way public pensions are run. 

Walsh told the Times state law in Illinois has constitutional provisions that make pension programs inviolable; they are mandated to be paid, regardless of a crisis. Attempts to reduce benefits in meaningful ways in the past have often faced stiff opposition and ultimate failure.

In one example in 2015 the Illinois Supreme Court issued a unanimous decision ruling pensions had to be paid, even those in which public workers had not yet earned the funds.