SEC Investigates Illinois Over Pension Woes

Illinois’ underfunded pension fund is now facing scrutiny by the Securities and Exchange Commission (SEC), which has launched an inquiry into public statements made in 2010 by Illinois officials to help shore up the retirement system.

The inquiry was revealed in a recent report by Moody’s Investors Service.

Illinois’ pension system is only about 50% funded and has liabilities of about $136 billion, according to Moody’s. The underfunding, one of the worst among states in the nation, is partly the result of the state frequently skipping its recommended contributions to the fund.

The inquiry into Illinois’ pension fund comes on the heels of heightened efforts by the SEC to seek greater financial disclosure from funds nationwide. This past summer, the SEC initiated its first action against a state when it accused New Jersey of securities fraud and of fraudulently portraying its pension funds as being adequately funded after issuing $26 billion in bonds between 2001 and 2007.

A recent study by the Pew Center on the States found that at the end of fiscal year 2008, there was a $1 trillion gap between the $2.35 trillion states and participating localities had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.

The Pew study further showed that 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four – Florida, New York, Washington and Wisconsin – could make that claim.