State pension funds project asset sales

Wednesday, August 25, 2010

Illinois employee pension funds are sending up flares warning they may have to sell off as much as 10 percent of their investment portfolios unless lawmakers find a way for the financially hobbled state to make its pension contributions this fiscal year.

The step would be equivalent to farmers selling their seed corn, pension executives say, because the five major pension funds rely on investment returns, together with contributions from the state and employees, to make annual benefit payments to retirees.

The funds avoided permanent trims of their asset bases last fiscal year because the state borrowed $3.47 billion to make its annual contribution to what is the nation's most underfunded pension system. But legislators recessed this spring without approving a plan to cover this year's pension obligation, and they have balked at Gov. Pat Quinn's proposal to borrow again for that purpose. No movement on the thorny issue is expected before the November elections.

In the interim, the five major pension funds are projecting potential asset sales of more than $5 billion this fiscal year, which began July 1.

•The Illinois State Universities Retirement System said Tuesday it may have to sell $1.2 billion, or close to 10 percent of the fund's $12.2 billion in assets. "I can't reiterate enough how important it is for the state to make its contribution," said William Mabe, executive director of the university system.

•The Illinois Teachers' Retirement System estimates it may need to sell $3 billion, or about 9 percent of its $33.1 billion in assets.

•And the Illinois State Board of Investment may need to sell $960 million, or nearly 10 percent of its $9.9 billion in assets, said William Atwood, the executive director. The board manages the assets of the Illinois State Employees' Retirement System, the Illinois Judges' Retirement System and the Illinois General Assembly Retirement System.
The possibility of asset sales was first reported by Pensions & Investments, a trade publication.

While waiting to see if there will be relief from Springfield, the teachers fund is selling assets to meet its monthly benefits obligations, as it did last year, said Dave Urbanek, a spokesman for the system. Last fiscal year it sold $1.3 billion in assets for this purpose.