Explainer: What is GARS?

<p>It’s the General Assembly Retirement System and it’s virtually broke—a sorry situation shared by other major state-backed employee pension plans, which must increasingly rely on taxpayer-supported &nbsp;financing and accounting gimmicks to shore them up.</p>

It’s the General Assembly Retirement System and it’s virtually broke—a sorry situation shared by other major state-backed employee pension plans, which must increasingly rely on taxpayer-supported  financing and accounting gimmicks to shore them up.

The General Assembly Retirement System (GARS) is the smallest of the five state pension plans but that doesn’t diminish the size of its growing financial problems.

Presently, GARS provides retirement benefits to 286 retirees, 118 survivors (mostly spouses) and 182 active non-retired members, who are paying into the system. Benefits are guaranteed for life and state pension reforms, passed last year, only affect new entrants. (See Part 1)

The pension fund’s board of trustees, who broadly oversee GARS’ investment strategies, consists of six current legislators and a lone retiree. Michael Madigan, speaker of the Illinois House of Representatives, and Illinois Senate President John Cullerton, appoints the trustees while the lone retired trustee is voted in by the system’s retirees.

GARS trustees monitor the fund’s investment strategy, although the Illinois State Board of Investments manages the fund’s daily investment portfolio of stocks and bonds, along with those of the state’s four other major public pension funds.

The GARS board oversees a pension plan that’s in sorry shape.
GARS, is only 26 percent funded, because over the last decade lawmakers did not allocate enough state money to properly fund their retirement plan. The fund had assets of $66.2 million and liabilities of $251.8 million as of June 30, 2010.

In the private sector, any pension fund that’s below 65 percent funded is considered in trouble, according to federal pension law. In addition, GARS' current investment returns are not picking up the slack.

Since 1996, GARS actuaries assumed an 8 percent annual return—a prediction that held up for a while but tanked since the 2008 global stock market meltdown and credit crunch that sparked the biggest U.S. recession since the economic depression of the 1930s.

GARS lost more than $19 million on investments in 2008 and 2009, wiping out a $13 million gain in 2007. Last year, the plan earned $4.8 million.

As a result, the 8 percent assumed return is going to be reviewed by the plan’s actuaries this summer and a recommendation to the trustees is expected by fall, says Timothy Blair, GARS executive secretary.

Eight percent is an overly ambitious prediction for any pension fund these days and such assumptions will have to come down, says William Even, a business professor and economist, who studies pensions at Miami University in Oxford, Ohio.

Brett Chase is a Chicago-based freelance reporter and BGA investigator.