Illinois implicated in pension fund fraud scandal

The government of Illinois was forced to settle with the U.S. Securities Exchange Commission (SEC) this week following allegations that state officials purposefully misled investors of pension system debt about the risks of those assets. According to The Wall Street Journal, which reported on the scandal on March 11, the acts have left that system financially impaired and could force taxpayers to pay millions of dollars in potential expenses.

In an unusual move, the SEC announced that Illinois, following the resolution of the problem, will not be forced to admit any wrongdoing. Rather, it will be required to implement transparency changes to prevent this situation from occurring in the future. However, regardless of the fixes, the state will still be left struggling to pay for a system that only has roughly 40 cents for every dollar it owes in future pension payouts. 

"The state also did not inform investors that rising pension costs could continue to affect its ability to satisfy its commitments in the future," the government financial watchdog stated, according to the source.

At the heart of the issue is year's of intransigence by Illinois state politicians, who routinely ignored warnings about the economic health of the pension system. The SEC alleged that "no one person fully accepted responsibility for identifying and analyzing potential pension disclosures," which led to a general lack of understanding among investors.

Financial issues such as this pose a unique threat to the U.S. economy because of uncertain levels of taxpayer support that could be needed down the road. Investors with an interest in municipal-level debt may want to scrutinize their portfolios closely to make sure that the risks are clearly stated. Other forms of investment, such as cash flow real estate, can help offset potential losses by creating a steady form of income. To learn more, visit today.