In 2013, the Securities and Exchange Commission (SEC) charged the State of Illinois with securities fraud for misleading municipal bond investors about its pension funding obligations. The SEC’s investigation found that Illinois, between 2005 and 2009, misrepresented the risks associated with its pension funding schedule when offering more than $2.2 billion in municipal bonds. The state failed to disclose that its statutory plan significantly underfunded pension obligations, thereby increasing financial risks. In 2013, Illinois agreed to a cease-and-desist order to resolve SEC charges under Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. (link to the SEC Cease-and-Desist Order)
One of the remedial measures cited in the cease-and-desist order was Illinois’ disclosure, in its February 2011 bond offering, of the difference between pension contributions calculated under the Illinois Statutory Funding Plan and those determined using actuarial methods and assumptions in accordance with standards set by the Governmental Accounting Standards Board (GASB). Contributions calculated under GASB standards are referred to as Actuarially Required Contributions (ARC) or Actuarially Determined Contributions (ADC).
SEC’s Legal Framework for Antifraud Provisions in Municipal Securities
The antifraud provisions of the federal securities laws—specifically Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5—prohibit municipal issuers from making materially misleading statements or omissions. According to a 2020 SEC Staff Legal Bulletin, these provisions apply to any public statements reasonably expected to reach investors. They extend beyond bond documents to include press releases, public statements, and financial materials—such as budgets—when they are likely to influence investor decisions.
Governor Pritzker’s Statements and Potential Concerns About Pension Funding Disclosures
In the fiscal year 2026 budget brief, Governor J.B. Pritzker asserts, “The FY26 budget proposal fully funds the certified pension contribution of $10.6 billion from the General Funds.” In his corresponding budget address*, Pritzker emphasizes that the budget pays the “full pension payments.” Both of these statements refer to the statutorily required contributions.
While the budget brief and the corresponding 634-page operating budget discuss the statutorily required contributions, they do not mention the Actuarial Determined Contributions (ADC). These omissions may not fully disclose the extent of the structural underfunding of Illinois’ pension system. The SEC’s 2013 order specifically criticized the 90% funding plan for exacerbating the state’s financial burden and misleading investors about the true risk of pension underfunding. Pritzker’s statements may suggest that adhering to the statutory funding schedule constitutes full pension funding when, in fact, the SEC previously ruled that such a structure “increased the unfunded liability, underfunded the State’s pension obligations, and deferred pension funding.”
Potential Concerns About SEC Compliance
Governor Pritzker’s statements may reflect a communication approach similar to the one that prompted SEC scrutiny in 2013. His statements could downplay the risks associated with the pension funding schedule in a manner that echoes concerns raised by the SEC in 2013, when the agency found that Illinois’ pension disclosures understated financial stress and risks.
Given the SEC’s ongoing focus on municipal securities fraud and the application of antifraud provisions to any public statements reasonably expected to reach investors, concerns are raised about the accuracy and completeness of Illinois’ pension funding disclosures, especially regarding the exclusion of the Actuarial Determined Contributions.
Conclusion: Need for SEC Review and Monitoring
Despite Illinois’ agreement to the 2013 SEC cease-and-desist order, aspects of Governor Pritzker’s public statements may warrant further scrutiny to determine whether the state is providing accurate, complete, and non-misleading information regarding its pension obligations and funding practices. In light of the SEC’s continuing focus on municipal securities disclosure, it may be appropriate for the agency to re-examine Illinois’ municipal bond disclosures and related public statements to assess compliance with federal securities laws.