State-sponsored pensions in Illinois will be allowed to enrollnew hires in hybrid 401(k) plans, a provision of that state’srecently passed budget designed to give some relief to the state’sworst funded pension plans.

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Five of the 17 pensions sponsored by the state—the StateUniversities Retirement System, Downstate Municipal/Suburban Fundfor teachers, the State Employees System, and theJudges/Legislators pension—have an aggregate funded ratio of 40percent and about $130 billion in unfunded liabilities.

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Related: PBGC multiemployer deficit charts newrecord -- again

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The unfunded liabilities at those funds grew by nearly $108billion, or 675 percent, between 1996 and 2016, according to theBetter Government Association, a Chicago-based watchdog group.

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The controversial budget was passed after a rancorous impasse ofmore than two years and took a last minute defection of 15Republican lawmakers to override a veto from Republican Gov. BruceRauner. It raises $5 billion in new revenue by immediatelyincreasing the individual tax rate from 3.75 percent to 4.95percent and the corporate rate from 5.25 percent to 7 percent.

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Related: NFL pension plan isunderfunded

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Full details of the new defined contribution retirement optionhave not been released, but according to reporting in the ChicagoTribune, newly employed workers, like teachers, will have theoption of choosing a hybrid plan that would defer 6.2 percent ofsalary to a defined benefit plan, and 4 percent to a definedcontribution plan.

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The state’s contribution to the plan would be limited to 2percent, while local employers, like school districts, would haveto come up with the rest of employer contributions. The budgetassumes the hybrid plans will result in $500 million in annualsavings. Some Democrat legislators want to count the savingsimmediately, even though it is expected to take some time todevelop and implement the plans, a tactic Gov. Rauner isfighting.

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The new $36.1 billion budget is a decrease of $3 billion fromthe previous operating budget.

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Since the budget passed, some economists have suggested thespending cuts and tax increases may be too little too late.

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And ratings agencies have signaled Illinois may become the firststate in history to have its debt rated at junk bond status, whichwould significantly increase the cost of borrowing for the state.The budget includes $6 billion in new bond issues to begin to paydown the $15 billion the state currently owes in unpaid bills.Illinois’ rating has been downgraded eight times since Gov. Raunertook office.

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The TRS System for downstate and suburban teachers is Illinois’largest pension and has about $45 billion assets to cover $118billion in liabilities.

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In 2016, taxpayer-funded contributions from the state to thefive worst funded pensions were $6.8 billion, or more than aquarter of the day-to-day operating budget.

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Last year, Illinois’ Supreme Court struck down a measure thatwould have allowed the state to cut pension payments.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.