As we've noted before, Defined Benefit Pension Plans are, almost by definition, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities: classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo - public employees get to sleep better at night thinking they have a "retirement plan," public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

That said, certain states are better at the ponzi game than others and the great state of Illinois, we must say, is one of the best. As we noted a few months ago, Illinois governor Bruce Rauner even admitted to being a willing participant in his state's pension ponzi warning that should his largest public pension fund do what it should have done long ago, it would put a big dent in the state's already fragile finances and lead to "crippling" pension payment hikes. But, if you ignore the problem then surely it will just go away...good plan.

And, while the pension ponzi can likely outlast Rauner's term as governor, eventually funding for current claims can only be borrowed from future generations for so long before finally running out of cash. As the latest "Special Pension Briefing" report from Illinois' Commission on Government Forecasting and Accountability (CGFA) points out, that time may be getting very near.

Per the latest actuarial valuations, the 5 largest publicly-funded Illinois pensions are now $130BN underwater and only 37.6% funded.

As a guide, here is a recap of the acronyms used by CGFA:

TRS = Teachers' Retirement System SERS = The State Employees’ Retirement System SURS = State Universities Retirement System GARS = General Assembly Retirement System JRS = Judges’ Retirement System

Illinois' unfunded liabilities really started to surge in 2008 due a combination of lower returns on assets and lower corporate bond yields which drive down discount rates used by actuaries resulting in substantial increases in the present value of liability streams. As we've pointed out in the past, given the long duration of pension liabilities, even small swings in discounts can have a material impact on underfunding levels.

Meanwhile, even though Illinois has taken the prudent step of reducing their assumed returns on assets...

...they apparently didn't reduce them enough as only 1 of the 5 largest pension funds managed to actually generate a positive return in FY 2016. That said, we're sure a lot of hedge funds were still able to collect very nice fees for generating these negative returns.

But, don't worry, there is hope for Illinois pensioners yet. As CGFA points out, all the state has to do is funnel $10-$20 billion of taxpayer money into these pension funds each year and earn a consistent 7% annual return on assets and in a matter of just 28 years the funds should be 90% funded! That seems like a very reasonable plan.

But don't worry teachers of Illinois, just keep electing politicians who tell you that everything is fine and we're sure this problem will just go away.