NEW YORK ( TheStreet) -- The U.S. Securities and Exchange Commission is investigating disclosures by Illinois concerning the state's pension funding method. Federal regulators want to determine whether the state fully explained its funding method to bond buyers or misled bond investors about the risks. A recently filed prospectus said that the SEC contacted the state last September about the potential long-term savings from a pension reform law. The document detailed the state's plans to offer $3.7 billion taxable pension bonds in February. Illinois is looking to use the proceeds from the sale to contribute to its weakly-funded pension funds. "The SEC has informed the state that the inquiry should not be construed as an adverse reflection on any entity or individual involved, nor should it be interpreted as an indication by the SEC or its staff that any violation of the federal securities laws has occurred," the document said. The state also said it was looking to improve its pension funds before it heard from the SEC. The Illinois state governor's office is fully cooperating with the inquiry, a spokeswoman for Governor Pat Quinn said on Tuesday. "We feel our disclosures have always been accurate and complete," spokeswoman Kelly Kraft said. Last August the SEC brought its first case against a state. The commission accused New Jersey of securities fraud for making false statements about its pension fund and claiming to have assets that did not exist. Now the SEC wants to look into Illinois' major pension system reform, which passed in 2010, to determine whether it treated future savings as current reductions in pension fund costs, Moody's managing director Robert Kurtter told the Wall Street Journal. --Written by Theresa McCabe in Boston. >To contact the writer of this article, click here: Theresa McCabe. >To follow the writer on Twitter, go to @TheresaMcCabe. >To submit a news tip, send an email to: email@example.com.