Thursday, October 31, 2013 3:31:05 PM
Illinois Pension Plan Blames Low State Contributions for Serious Underfunding
The Teachers’ Retirement System of the State of Illinois recorded a drop in funded ratio to 40.6% and an increase in unfunded liability to $55 billion this year.
2013) — The Teachers’ Retirement System (TRS) of the State of Illinois recorded
further underfunding despite a higher rate of return on investments during the 2013 fiscal year.
its latest report, TRS’s unfunded liability rose to $55.73 billion from
$52.08 billion at the end of fiscal year 2012. The increase also dragged down
its funded ratio—to 40.6% as calculated under state law and 42.5% using market
value of its assets.
lining was found in its investment returns, as the plan gained a 12.8% rate of
return this year. It also recorded an 8.7% rise in total assets to $39.5
billion from $36.3 billion last year.
Executive Director Dick Ingram stressed the importance of long-term investment
performance in their financials, as the plan maintains relationships with
current teachers and retirees for decades.
“It’s important to note that the TRS
30-year rate-of-return at the end of fiscal year 2013 was 9% per year on
average,” Ingram said in the report. “Our assumed return rate of 8% also is a
30-year expectation. TRS investments over time are more than right on target.”
said positive returns did little to mask the pension plan’s serious
underfunding issues. “Despite these strong returns, TRS cannot invest its way
out of the funding hole we are in,” he said.
problem—and the solution—lies in the Illinois government, Ingram said: “This
increase in the system’s unfunded liability, even with good investment results,
is another wake-up call to state officials and our members that TRS long-term
finances continue to head in the wrong direction.”
said the formula with which state contributions are calculated does not meet
the requirements of standard actuarial practices commonly used in other states. Contributions,
according to actuarial standards, should be $4 billion, rather than the $3.4
billion currently being paid.
contribution from the state that is required by the law continues to be far
short of the amount required to ensure our long-term sustainability,” Ingram
said. “Without changes to the pension code to ensure sustained and adequate
funding, TRS faces the very real possibility that in a few decades the system
will not have enough money to pay benefits to retirees. We cannot guarantee
that TRS will have enough money to pay the pensions promised to every member.”
Ingram went on to say that not only has TRS never received a full actuarial
contribution from the state of Illinois since its inception in 1939, but it is
owed a total of $16.9 billion since 1970. “This consistent underfunding is the
primary reason that TRS carries an underfunded liability,” he said.
underfunding issues are only the tip of the iceberg. Illinois’ public pensions
are currently facing a $145
billion pension problem as well as a credit ratings downgrade
Investors Service also identified Illinois as the state with the highest
pension burden according to its new liability measurement. Using a market-based
discount rate Illinois' liabilities totaled 241% of the state government’s annual
Employees’ Retirement System of Illinois also recorded a decline in funded
ratio—as of June 30, 2012, it was 34.7% funded, compared to 35.6% in 2011.
Day, Another Cut Lifeline for Illinois’ Public Pensions, Fitch
Downgrades Illinois over Pensions Mess, Liabilities
Sink 2012 US Public Pension Gains, Testing
Public Pensions’ Sensitivity to Investment Returns