Illinois Pension Plans Dumps $1 Billion in Value Stocks to Self Manage


An Illinois pension plan just pulled a billion dollars from an underperforming value fund to seek better returns.

If you have been waiting for a bell-ringer, perhaps Illinois is singing your tune.

Please note Illinois Municipal Pension Fund Pulls About $1 Billion From BMO

The Illinois Municipal Retirement Fund is pulling about $1.1 billion from BMO Global Asset Management due to poor performance.

The pension fund is terminating a portfolio of U.S. large cap value stocks managed by BMO and plans to oversee the money internally, according to a statement issued on Monday.

“Both performance and the opportunity to save fees by managing the money internally were factors,” John Krupa, a spokesman for the Oak Brook, Illinois-based organization, said in an email.

Earlier this month, the California Public Employees’ Retirement System said it would reduce the use of external emerging equity fund managers.

The top chart is from Tax Foundation analysis on July 17, 2019 as of 2017 (the most recent data).

Circling the Wagons

Recall that on October 10, Illinois Governor asked for Major Local Pension Fund Consolidation.

Illinois Governor J.B. Pritzker on Thursday called on state lawmakers to pass legislation this fall to consolidate nearly 650 police and firefighter retirement systems that are causing funding headaches for many local governments.

The Democratic governor said the current system of governments maintaining their own pension funds “is failing,” noting that the formation of two new statewide funds would generate as much as $2.5 billion in additional investment returns over the next five years.

If adopted by the General Assembly, it would be a monumental achievement in the history of our state,” Pritzker told reporters.

Monumental Achievement Coming Up

I cannot possibly think of a better time to dump value and plow into risk than now.

What can possibly go wrong?

Meanwhile please note

  • The aggregate funded ratio for firefighter and police retirement systems outside of Chicago fell to 55.47% in 2017 from 57.58% in the prior year, according to a July report from the Illinois Legislature’s Commission on Government Forecasting and Accountability.
  • Unfunded liabilities rose by $1 billion to $11 billion.

Bear in mind after the biggest bull market in history, the average municipal funding ratio outside of Chicago is 55.47%.

Some plans are 30% funded.

Chicago and State Pensions a Separate Issue

Pritzker said Chicago’s problem as well as the state’s own $133.5 billion unfunded pension liability will be examined in the future.

That alleged $133.5 billion is actually understated.

Illinois Pension Debt Soars to $137 Billion

The Illinois Policy Institute reports Illinois Pension Debt Soars to $137 Billion Despite Record Taxpayer Contributions.

In fiscal year 2019, state estimates of Illinois’ total unfunded pension liability rose to $137 billion from $131 billion, despite paying more than $10 billion to the funds – the largest annual contribution in state history. Those contributions include both pension benefits and interest payments on debt the state issued to make past pension payments.

While taxpayers poured record amounts into the state retirement systems during the fiscal year that ended in June, the systems’ average funding levels held flat, remaining just 40% funded. The record contribution and growing debt came despite a robust stock market that should have yielded solid investment returns to the five plans.

What’s more, the severity of Illinois’ pension crisis could be obscured by the state’s highly generous accounting. Independent researchers such as Moody’s Investors Service put the state’s pension debt nearly twice as high as state estimates, at $241 billion, by using more disciplined analyses.

How Much to Bail Out Chicago?

One year ago I reported Each Chicagoan Owes $140,000 to Bail Out Chicago Pensions.

On October 24 I noted Chicago's Death Spiral: There's No Can Left to Kick.

In that post, Wirepoints provided the answer as to how much worse things got for Chicago.

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Too Late to Fix

It is simply too late to fix. And the state does not allow municipal bankruptcies.

So Lightfoot, like all the mayors who proceeded her will attempt another can-kicking exercise. Alas, there is no can left to kick.

The same applies to the state level where even with optimistic accounts, pension plans are only 40% funded.

Get the Hell Out

Taxes are sure to rise because that is all the Democrats know to do.

This is why I suggest Escape Illinois: Get The Hell Out Now, We Are

Mike "Mish" Shedlock

Comments (27)
No. 1-11

US pensions are horribly managed. That’s why I keep telling you to to move north to Canada, where the pensions are better managed. If you move to the province of Ontario, they have the highly admired Ontario Teachers Pension (105% funded), Hospital Pension (121% funded) and Municipal Employees Pension (96% funded). It’s the same in the other Canadian provinces.

Plus you would get health care, low federal debt (compared to the US), and very friendly people (according to most studies).


There's a reason that ship builders do not install screen doors on submarines.


In my state can you guess who the highest paid state workers are?

That’s right. The retirement system managers.


All it will take is one sane city or county to challenge if public pensions are guaranteed under bankruptcy and it is over. Some cities across the country have already won court injunctions to restructure their pensions. There are no guarantees under bankruptcy. This will end in tears for state and local pension holders in many states. My wife works at a private Corporation who's pension is 120% funded currently. At the peak of the financial crisis it was 90% funded.


Won't they eventually just massively inflate the money supply to pay the pensions. Isn't this the plan all along?


The idea of self managing a fund is a good one imo.

Firstly there is a dead weight cost of paying for a fund manager. They aren't usually any better than the man in the street, but they cost a lot more. At worst they can be corrupted into putting other people's money into investments rigged to profit the other side. So self managing is probably a good idea.

That said, if I were investing, I would be looking at value stocks all the way. The massive run up in 'growth stocks', particularly in the US, looks like a bubble to me. Hope for the sake of the pension scheme members my opinion is wrong.


Self-manage all the way to zero.

Tony Bennett
Tony Bennett

"The pension fund is terminating a portfolio of U.S. large cap value stocks managed by BMO"


The question left hanging ... actually screaming ... is performance of fund(s) terminated? Not sure of what fund(s) involved but BMO but ALL of their large cap value funds had double digit ytd positive returns. What performance precisely are they looking for / expecting?

Note that index funds have higher return ... shows where central banks running the show ANY sort of hedging leads to lagging performance. Best bet is to go with max leverage long index funds ... sit back and enjoy ... until you get wiped out ...


I heard that Illinois is looking at moving assets into lottery tickets; followed by Nigerian worm farms run by Princes there.....


"Taxes are sure to rise because that is all the Democrats know to do."

Change know to want.


Printing money to save the banks and everybody! History repeat itself with small variants. My only concern is that it has always ended in pain and tears.

Our European developed economies in the nineties were used to live with a yearly 2 per cent average inflation rate. That means grossly that a money printing ratio of 2 per cent of the PIB (which is also grossly the total of wages and replacement revenues in a country) was considered as an acceptable practice although that already was a steal in respect of the savers when interests rates were too low..

Here and there we see developed countries printing around 10 per cent of their PIB. almost since 2011.They claim their inflation remain tame however. Do they need magnifying glasses? . Let us take an extreme similar case of money printing (discussed by MSM about the European Central Bank possible projects): assume that the central bankers decide to print money as they think that it would be good for the banks and the economy in general that all people monthly revenues be equal whether they work or not. They consequently grant to every inhabitant not working.a monthly sum of money equal to the average monthly salary of the ones working.(sound like previous USSR)

Direct cost of living (based on wages) will not go up immediately as the producers of basic living supplies dont pay their workers more monthly. So no necessity at first sight to fear inflation.

But there will of course be a slower inflation linked to the rising DEMAND. Where will the excess monthly money be spent ? Some debts will be of course partially repaid and the banks could recover somewhat. There would be heavy investments in the rocket powered real estate (with more debt created) and stocks (with more leverage debt also) markets

Finally, as production in the country will not increase because one pay peoples not contributing to PRODUCTION of goods and services, IMPORTS need to rise a lot. So low priced producers in initially poor and undeveloped countries abroad would profit a lot thanks to our imports and the greed of our deep state billionaires lobbying for a "ONE WORLD ONE COUNTRY " system.

In case of free money markets (not the case as of now), the value of the money would collapse internationally and all imported products would cause inflation adding to the inflation in real estate and stocks (zombies companies with horrible too high wages). So finally wages of the workers (and grant to the non-workers) would have to rise. That would be visible inflation or money DEVALUATION.

Add to that the fact that soon or later the real estate and stock market bubbles would burst.

However in the mean time everybody ( last but not least, the politicians) should be happy because of this ECB decision.

Global Economics