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Illinois Pensions Need a Forensic Audit! (HR31)

From the press release, “Disgraced Governor Rod Blagojevich was implicated in potentially corrupt insider schemes involving the pension systems. Recently, the derivatives trading strategy used by some of the pension’s funds using credit default swaps and bets on foreign currencies was challenged as ‘high risk’,” said former candidate for governor, Adam Andrzejewski, CEO of For the Good of Illinois. “Taxpayers and members of the pension systems deserve to know the hard facts about where these systems are financially and if the systems have been administered to properly manage the risks that were taken.”

View the Resolution Here.

FOR IMMEDIATE RELEASE
January 31, 2011
Contact: Rep. Dwight Kay, 618-307-9200, or Adam Andrzejewski, 630-899-9191
Kay Pushes For Comprehensive Audit of Illinois Pension System

Edwardsville, IL…In light of a recent Securities and Exchange Commission (SEC) non-public inquiry into statements made regarding the chronically underfunded Illinois pension systems; Illinois State Representative Dwight Kay introduced legislation urging the Commission on Government Forecasting and Accountability (COGFA) to conduct an audit of Illinois’ pension systems.

According to a report by the Auditor General, the state pension funds collectively were funded only at 38.4% at the end of Fiscal Year 2009 (June 30, 2009). Since then the state has further delayed and ultimately stopped funding the pensions properly.

“With the Illinois pension systems among the worst funded in the nation, retirees and current government workers deserve to know that their pensions are being administered properly and invested prudently,” said Kay. “Not only do the state employees deserve to know how their pensions are being administered, but so do the taxpayers.”

Different measurements and means of valuation of assets make a more precise determination difficult. For instance, the American Enterprise Institute valued the pension shortfall of the Illinois pension systems at $208 billion. The General Assembly needs authoritative information so policies can be properly formed. After-all said Kay, “current and future pensioners have the right to know the truth about their retirement investments. I believe they want us to give them the best information possible.”

“Disgraced Governor Rod Blagojevich was implicated in potentially corrupt insider schemes involving the pension systems. Recently, the derivatives trading strategy used by some of the pension’s funds using credit default swaps and bets on foreign currencies was challenged as ‘high risk’,” said former candidate for governor, Adam Andrzejewski, CEO of For the Good of Illinois. “Taxpayers and members of the pension systems deserve to know the hard facts about where these systems are financially and if the systems have been administered to properly manage the risks that were taken.”

The audit of the pension systems requires a three phase audit. The first phase is a discovery audit that provides a first-glance of the pensions systems. If there is indication of problems such as conflict-of-interest, fraud or mismanagement, a follow-on phase of the audit will investigate. The legislation Kay is proposing requests a competitive bid from third-party accounting firms that routinely conduct audits. The accounting firm will be selected, managed and report to COGFA.

In addition, COGFA and the pensions will begin to quarterly report their financial status so that information is available to the General Assembly and policy makers so pension systems can be properly navigated out of the current crisis.

No funds from the pension system will be used for the audits. The legislation is House Resolution 31.

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9 Responses to "Illinois Pensions Need a Forensic Audit! (HR31)"


  1. Comment by David Jenkins on February 1, 2011 at 3:32 pm said:

    Go, Dwight, go…!!!

  2. Comment by Martin Neumann on February 2, 2011 at 8:26 am said:

    This is a good start if it does not get mired in the slop of our state legislature, which is run by the same people who refuse to fund the pensions in the first place. As a business owner, I find it disgraceful that the state refuses to fund these pensions when all that is required is the same amount I am currently paying into social security for my employees. Would I be a business owner still if I did not pay my portion of social security? In fact, there was a law passed by the state of Illinois that REQUIRES them to fund the pensions.

    A few things that would help the system in my opion:
    1) Issue bonding to fund all required pension payments to those currently in the system as retirees and those within 5 years of retirement. I know 5 years is random but it seems those a the people with smallest time window to make up any planned differences.

    2) End the defined benefit system. All employees with less than 25 years in any of the states systems would have all of their witheld and sunfunded state contributions into the system put into the current state 403b type system. Why do state employees have a pension AND 403bs AND defferred compensation plans anyway? For those that would complain, too bad. Many people would love to have your job at this time.

    3) End the 3% annual increase in the pension payputs. Tie it to a COLA type adjustment.

    4) Require retirees to contribute more to their healthcare costs. Currently a retiree is insured on the State of Illinois system with no cost but deductibles and a spouse and 1 child under 26 can be added to that coverage for under $400 a month. A very good deal.

  3. Comment by Roland G. Ley on February 3, 2011 at 10:42 am said:

    As as retired CPA and partner with large auditing firm in Chicago this is an excellent proposal. I do not see how the legislature can turn it down. The cost is minor compared with the benefits for everyone.

  4. Comment by Vern Magnesen on February 3, 2011 at 12:13 pm said:

    An immediate audit is essential to discover and eliminate the bloated pension management system. Also, serious pension reform must occur. (1) An upper yearly limit of $100.,000/year should immediately be put into place for anyone currently retired and future retirees; (2) Anyone with less than 15 years to retirement should be put on a 401k system and left to control their investments and retirement as private sector employees do; (3) Retirement age for pensions should immediately be changed to age 65 for all current employees; (4) Individuals who accept out-of-state public sector positions should be ineligible for Illinois-funded health insurance.

    All public pension systems should have similar requirements. Unless serious reform occurs, all current retirees and all those within 15 years of retirement will discover that money to fund their pensions will be drastically reduced or totally unavailable.

  5. Comment by B. Limberg on February 4, 2011 at 7:40 am said:

    Long overdue! Good luck with Resolution 31.

  6. Comment by Val Kroenlein on February 4, 2011 at 8:30 am said:

    The problem with cutting the 3% annual increase of pensions is that some people took the level income option and when they reach age 65 their pension will be cut substantially. If they don’t have these increases they will be hard pressed to make ends meet. Contrary to some beliefs, there are many retirees who do not receive even $20k a year. They took their benefits based on contracts made to them by the pension fund.

    Also, if they had to pay for their insurance some would not even receive any benefits. Again, contracts were made with the pension fund in good faith.

    Obviously, legislators were unaware of the discrepancies, so were the annuitants.

    I know it’s easy to say cut their pay, cut their insurance but many people worked 30+ years not knowing that the state was playing tricks with member contributions and not making their contributions.

  7. Comment by Todd Rudolph on February 5, 2011 at 1:28 am said:

    “many people worked 30+ years not knowing that the state was playing tricks with member contributions and not making their contributions.”

    You’ve got to be kidding, right?

    I find that hard to reconcile. These people did live and work in Illinois, correct? ILLINOIS. Four out of our last six governors are convicts, to cite, oh, just one example that might have caused one to pay attention to how things are done here. Then I consider how the vast majority of these same folks know how to save sick days and cash them in at the end to pump up their pension basis. And they are just fine with the ‘special bonuses’ and ‘severence packages’ that routinely are paid out for the same purpose. Double dipping too? Sure, mastered those parts of the system, didn’t we? But these folks and the broke, powerless, uninformed, no-influence, no-seat-at-the-table-in-Illinois unions that represent them have just been hoodwinked.

    Captain Renault: I’m shocked, shocked to find that gambling is going on in here!
    [a croupier hands Renault a pile of money]
    Croupier: Your winnings, sir.
    Captain Renault: [sotto voce] Oh, thank you very much.

  8. Comment by Richard Brown on February 5, 2011 at 3:49 pm said:

    The following (in my opinion): I am a SURS retiree. I am drawing a gross pension of just under $16,000 for 20 years, 3 months credit of blue collar custodial work to the taxpayers of Illinois. I have no problem disclosing this to the taxpayers of Illinois. I am an early window retiree at age 55 (mandatory 5 year contract w/State of IL at age 50).At this time at age 50 (in 2004) jobs were plentiful, I believe unemployment was at around 5%. For people that may not be aware, this early window clause was designed to hire new employees at a less salary to save the taxpayers money by replacing older retirees (yours truly). I signed this mandatory termination contract at age 50. I am thankful to the taxpayers for this pension. I have earned every penny of this sometimes working double shifts, weekends etc… as needed. Part of the retirement deal was to receive the 3% living increase in January of each year.This is a contractual agreement so in my case the State of IL should honor/grandfather it for the remainder of my life. In closing I have done blue collar work all my life (a lot of times at minimum wage and just when a person is making a decent salary it’s layoff time, or chapter 7 etc. bankruptcy time etc.. This is why I risked going to work for the State back in 1991. Thanks to all taxpayers who read and respect my views as I respect yours. Very sincerely, Richard D. Brown (age 56).

  9. Comment by Rosalie Neece on May 27, 2011 at 11:18 am said:

    As a retired teacher, I urge you to veto SB512. We teachers have worked hard and contributed to enjoy our pension in our later years. It seems like the state is always trying to come after us either our pension or health care.