Ratings agency: Illinois’ pension costs to grow as health insurance pressures mount

(The Center Square) – Illinois is making some progress on paying for pensions, but a credit ratings agency is sounding the alarm that not enough is being done.

S&P Global Ratings announced a report on Illinois pensions this week. Analyst Joseph Vodziak said Illinois is working through some of the funding issues.

“It is a big hole, they’ve got a lot of digging to do and they’re making progress on that and there’s still some risks and some difficulties on the way out,” Vodziak told The Center Square.

At around 42% funded, the state-run pension plans have an unfunded liability of around $140 billion, among the poorest funded pensions in the country.

S&P projects pension costs to increase by 2.2% over the next decade. Compounding the funding issues are future other post employment benefits, or OPEB costs.

“We’ve seen medical costs inflate at a higher rate than the normal [consumer price index] does. We’ve seen a track record of that which could lead to higher insurance costs, higher premiums and the state was going to have to make up that with higher contributions in the future,” Vodziak said.

Around 1 out of every 5 dollars the state takes in in taxes goes to the state’s pensions, or a total of nearly $10 billion for the coming fiscal year.

Illinois’ plan is to increase spending on pensions in the years ahead to get to 90% funded. Todd Kanaster with S&P said that’s not fully funded.

“They’re funding the 90% so they don’t have a plan to fund fully,” Kanaster said. “That tends to be one of the factors for shorting the contributions for the year.”

With S&P’s most recent report on Illinois pensions, Kanaster said the agency’s message is progress is being made, but not enough.

“They are poorly funded, there’s a lot of risk, they’ve taken some steps both on the liability side and on the asset side to start to address this, some of these risks,” Kanaster said.

S&P’s pension report does not constitute a ratings action for Illinois, which despite several credit upgrades in recent years still has among the worst rated credit in the country.