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Old 06-22-2018, 09:30 AM
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Mary Pat Campbell
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I'm not sure why they would stress test. It's not like they're doing all that well even in a baseline scenario

Some states “stress test” public debt, Illinois not participating
What would happen to Illinois’ largest outstanding debts if another recession hit?

Some states are asking the question. Illinois isn't.

Illinois owes at least $130 billion in unfunded public pension debt. The pensions are funded by tax money and investment returns. When the market tumbled in 2008, those returns went with them.

Some have criticized the system for using “political math” to give the pension debt a much rosier ledger than the funds contend they have. This includes expectations of annual returns on investment that are often unlikely to be met and not accounting for how long pensioners will live to draw from the funds

A number of states are using a simulation called “stress testing” to see how state pension funds would fare in an economic downturn. In some, like Colorado, the tests have exposed insolvency risks that have prompted state lawmakers to change laws, said David Draine, senior researcher with Pew Charitable Trusts.

“Their policies were unsustainable or at least exposed workers and taxpayers to too much risk and they made changes to try to address that,” he said.

New Jersey enacted a law in January that requires stress testing for its pension funds. Pew found that the debt represented a serious threat of insolvency should the economy crash.

Draine said that Illinois' public data appears to disclose enough for a third-party to perform a stress test and recommends that the state make the exercise a regular occurence.

“Between the legacy underfunding and the strong legal protections for promised benefits, dealing with that is, ultimately, a financing challenge,” Draine said.

Illinois’ Teachers Retirement System conducted internal stress tests in 2017 and found that there were scenarios in which the pension system would face insolvency in 2036, putting teachers’ retirements at risk.

Some economists see the next recession around the corner. In a survey conducted by the National Association of Business Economics, half of the economists they asked expect another recession as early as next year.

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