SEC Illinois Pension Fund Probe Confirmed, <em>WSJ</em> Reports

On Monday night, the Illinois state governor's office confirmed that the Securities and Exchange Commission has launched an investigation into public officials' statements concerning the state's chronically underfunded pension fund -- which faces one of the biggest shortfalls in the nation.

The Wall Street Journal reported that the inquiry is focussed on "public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system." According to the governor's spokeswoman, the governor's office is fully cooperating with the inquiry.

The WSJ details what the investigation will be looking at:

"An issue being examined is whether Illinois was taking future savings and treating them as current reductions in the cost of the pension fund, said Robert Kurtter, a managing director in the public finance division at Moody's Investors Service, who said his firm spoke with Illinois officials about the inquiry. One of the measures that Illinois took to save costs was to raise the retirement age for newly hired Illinois workers."

Illinois now joins the ranks of states targeted by the SEC for financial disclosures related to pensions.

Last August, in the SEC's first ever action against a state, the federal regulators accused New Jersey of securities fraud for claiming it had been properly funding the public pension fund.

In October, the SEC accused four former San Diego officials of failing to disclose the size of pension-fund shortfalls when the city sold bonds.

Last year, the SEC announced a special unit for investigating state pension fund disclosures, and more such investigations may be on the way.

Meanwhile, states are growing increasingly desperate as they confront massive debts and diminished revenue. According to two finance professors' estimate, states face a combined pension fund shortfall of $3 trillion, and some state are even seeking paths towards declaring bankruptcy.