Illinois pension obligations발음듣기
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Illinois pension obligations
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In the last video, we talked about pensions and how they're defined benefit plans and how they could to get underfunded or how there could be temptation for people to underfund them.발음듣기
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In this video, I want to make things a little bit more concrete by looking at actual numbers, especially at the state level.발음듣기
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They've set aside 83% of the right amount of money to fund their pension obligations, not 100%.발음듣기
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But one of these states is probably jumping out at you, probably because it has been shaded in red.발음듣기
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And that is the state of Illinois, and Illinois is in trouble because it's only funded 45% of its pension obligations.발음듣기
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And Illinois really jumps out because it's in red, but there's a lot of states that are pretty close to Illinois.발음듣기
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And this is an issue because they've set aside, in the past, very little money for the pension obligations that are starting to hit now, especially that you have a retiring baby boomer population.발음듣기
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And in order to meet those obligations, those promised obligations, they're going to have to dig into money that was being spent other places, that going in the past when they were underfunding the pension, they were able to fund other things nicely, but not fund the pension and kind of kick the can down the road.발음듣기
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But now that the can can't be kicked any further, it's going to have to go the other way around.발음듣기
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In this kind of yellow ochre color - and I'll circle it in yellow ochre - they were talking about the total liabilities.발음듣기
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And just to make this graph clear, it's not just the yellow ochre part that's total liabilities.발음듣기
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The entire height of each of these bars is the total liabilities, and you see how it has just completely blossomed here.발음듣기
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And there's a lot of things that go into the total liabilities, the same things that we talked about in the last video.발음듣기
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If you are in a low interest rate environment, like we are now - for example, my money in my savings account, I think, is getting like 0.4% interest.발음듣기
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If you're in a low interest rate environment, if you're not getting good returns - and a lot of pensions tend to go into very safe assets, but those are getting very low returns.발음듣기
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You're going to have to set aside more money, and so you see these obligations essentially just growing dramatically.발음듣기
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These are attempts at kind of factoring in inflation, how much things are costing in that region.발음듣기
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And sometimes, and especially in the case of Illinois, they've grown faster than the rate of inflation.발음듣기
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And so you have these liabilities, and you see that they're getting less and less well funded.발음듣기
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And the green is the ratio of the red or is the ratio of what is funded, essentially this higher part.발음듣기
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And 85 or 86 billion of that is unfunded, that they have to figure out some way to get the money because the right amount of money was not being set aside.발음듣기
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And now the state, they're going to have to - in order to get to a funded position, they're going to make up for all of the underfunding of the past and also the other factors that are making this obligation even larger.발음듣기
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So you see right over here in yellow, these are the contributions that they're going to have to make for the pension.발음듣기
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But what's really fascinating about this graph is it's passing up total education funding in the state.발음듣기
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So the cost of funding retirements for people who have already done service for the state but aren't in service to the state right now is going to pass up - and this is happening very soon - is going to pass up actual spending on a state-wide basis on education.발음듣기
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So it's going to be passing up a major expenditure, very important expenditure for the future of the state based on past obligations.발음듣기
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And to understand where this is going - and just to understand Illinois' situation, there's 750,000 Illinois - I don't know how to say this - Illinoisans, Illinoisans, who are members of the state's five pension system.발음듣기
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There's many more teachers who've been retired, many who have been in the state universities.발음듣기
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So you see that they're pretty reasonable, especially for the judges, although they are a small fraction.발음듣기
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The probably took lower compensation while they were working with the expectation that they would be able to get these benefits once they retired.발음듣기
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This is a way of retaining employees, because they knew that they were going to get this benefit.발음듣기
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But at the same time, these people probably sacrificed other things in order to get these benefits now.발음듣기
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But at the same time, you're like, well, this is really cutting in - and this is just one thing that I'm showing.발음듣기
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So the whole reason of really just surfacing this, this whole pension issue, is just to put this in.발음듣기
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And hopefully people understand what the issues are, because that's the only way that fairly hard decisions are going to have to be made, decisions on cutting necessary investment or restructuring or who knows what it might be.발음듣기
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