Tag Archives: Counter Credit Default Swaps

Game Over for Illinois Teachers’ Pensions

The Market Ticker advises Illinois residents to “Move. Now.”

According to documents obtained by Medill News Service, Illinois pension plans invested in derivatives to make up for market losses. The Illinois Teachers’ Retirement System (TRS) has the fourth riskiest balance sheet of all pension plans in the country, with 81.5 percent of its investments classified as risky.

As with most state pension plans, the TRS assumed an 8 percent annual return on pension asset investments. With market performance down, plan managers have turned to higher risk/higher return “exotic investments” to make up the difference.

TRS is on the risky side of the Over-the-Counter Credit Default Swaps. TRS is selling and writing OTC derivatives thereby guaranteeing payment in the event of default to buyers.

The European debt crisis in turn guarantees that TRS is “going to bleed money.”

Illinois’ Day of Reckoning is imminent and they aren’t alone. Joshua Rauh calculates when other states can expect to run out of funds to pay pension benefits.