Budget shortfalls in Illinois and Kentucky have forced public pension plans there to sell off assets to meet obligations. Although officials at the funds downplayed the moves, they conceded that if their underfunded status and benefit liabilities continue into next year, they might have to reconsider their funds’ investment strategies and shift out of illiquid investments. Although it’s difficult to determine how widespread the problem may be, observers note that with many states facing budget woes, it’s conceivable that many more pension funds will begin selling assets to meet liabilities.
Pension funds have routinely sold assets as part of a normal investment cycle. But problems arise when they must sell more — and sooner — than planned. Five Illinois plans will do both, selling 10 percent of their total assets in 2011. Next door, the Kentucky Employees Retirement System is selling $30 million of its holdings, slightly below 1 percent of total assets.
“If your unfunded liability approaches 70 percent, you’re headed for a bad time,” says David Urbanek, public information officer for the Illinois Teachers’ Retirement System, which has a 52.1 percent funded ratio.
— Money Management Letter
