Illinois Resolves SEC Inquiry: Pension Disclosures from 2005 to early 2009
From Gov. Quinn's Office
The State of Illinois and the U.S. Securities and Exchange Commission (SEC) entered into a settlement order Monday ending an inquiry into pension disclosures in bond offerings made by the State between 2005 and early 2009. The order acknowledged the proactive steps taken by the State to enhance its pension disclosures and related processes since 2009. The State began these enhancements prior to being contacted by the SEC.
The State believed it to be in its best interests to enter into a settlement with the SEC. The State has cooperated fully with the SEC throughout the inquiry. The State neither admits nor denies the findings in the order, which carries no fines or penalties.
The settlement order describes the long, complicated history of Illinois’ pension-funding issues over the decades. After taking office in early 2009, the Quinn administration began taking steps to proactively address these issues, including forming a Pension Modernization Task Force and providing additional information in its bond offering documents.
In August 2010, the SEC announced it was entering into a cease and desist order with the state of New Jersey concerning its pension disclosures. In response to the SEC’s New Jersey action, the State thought it prudent to proactively hire legal counsel to review Illinois’ pension disclosures. The State subsequently enhanced its pension disclosures in its bond offering documents and made changes to its disclosure practices, including:
• The retention of a single law firm to act as disclosure counsel to provide a consistent, proactive and continuing review of the State’s bond disclosures; and
• The adoption of formal policies and procedures that include review of the State’s pension disclosures by the pension systems themselves.
A month after the New Jersey order was issued, and after the State had hired legal counsel to review its pension disclosures, the State was notified by the SEC that the agency would be examining Illinois’ pension disclosures. The State has disclosed the SEC’s inquiry in all bond offerings since the inquiry began in September, 2010, as widely covered in the press.
While the State had disclosed various aspects of the under-funded status of its pensions, the SEC contended the State had not adequately described the impact of the 50-year payment schedule adopted by the General Assembly and signed into law in 1994. That plan established a non-traditional funding method, including, among other features, a “ramp” period of escalating payments from 1995 to 2010 and a 90 percent funding target over a 50-year period. The SEC also contended that the State had not adequately described the effect of the State’s reduced contributions to its pension systems in 2006 and 2007.
Attorneys from the Governor’s Office and the Office of Management and Budget worked with the Illinois Attorney General’s Office and outside counsel to advise the State during this inquiry.