Broken bonds: underfunded pensions.

• Author: Shackford, Scott
• Position: Citings - Brief article

THE $100 billion shortfall in the pension funds for Illinois public employees did not happen overnight. Throughout the last two decades, the state systematically reduced its contributions to the funds, resulting in a pension plan that covers less than half its liabilities.

This fiscal irresponsibility affects municipal bond investors as well as state and local government employees. In March the state Commission on Government Forecasting and Accountability reported that an investigation by the Securities and Exchange Commission (SEC) had "revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009." The commission noted that "Illinois failed to disclose that its statutory plan significantly underfunded the state's pension obligations and increased the...