Illinois Teacher Pension Fund Projections Drop to 7%
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The Illinois Teachers’ Retirement System, TRS, has voted to lower the fund’s future investment return assumption, causing it to drop from 7.5% to 7%. The move will require taxpayers in the state to pay the additional $ 421 million toward pensions for 2017 alone.
Governor Bruce Rauner had pushed to block the Downstate and suburban teacher pension system from causing the state government, which is already facing budget issues, to be left to pay the remainder of hundreds of millions of dollars.
“I don’t know about the legality of the move, but that’s devastating,” Gov. Rauner said. “That’s going to divert money away from our human services. It’s going to take money away from the classroom.”
The discussion was over whether the Illinois TRS should lower their expectations concerning how much the fund could possibly earn in the stock market. For the past two years, it has been assumed that investments would typically earn a return of around 7.5%. However, actuaries believe the figure should be closer to 7%, arguing that retirement funds will not continue to perform as highly as they previously have.
If the new percentage was approved by the board, the state government would be responsible to make up the difference, an estimated $ 400 to $ 500 million per year, beginning in July. It would be left to the governor and lawmakers to find the money, while at the same time facing a budget impasse that has continued over the course of the last year.
If the 7.5% figure had continued, the state would not have been responsible for the entire bill right away. However, if investments had not reached the benchmark, the shortfall would have been included in the $ 65 million debt connected to the pension fund, reports Kim Geiger for The Chicago Tribune.
“With less than two hours’ notice, Illinois taxpayers including our social service providers and small business owners were just handed a bill for nearly a half-billion dollars,” said Rauner spokesman Lance Trover in a statement. “While questions remain about the legality of today’s action, it further underscores the need for real pension reform in Illinois.”
Rauner’s administration adds that such a decision could result in an increase in taxes or possibly a “devastating impact” for both education and social services.
TRS previously cut its expected rate of return two years ago, dropping the rate from 8% to 7.5% in June 2014. The State Employees Retirement System did the same in 2016 when it dropped its investment return assumption to 7%.
As a result of these changes, hundreds of millions have been added to the contributions made by taxpayers to the state pension systems. This has caused yearly pension costs to account for over 25% of the state’s general fund budget, while at the same time causing a reduction in spending on social services, higher education, and almost every other necessary government service.
Illinois currently has the worst-funded pensions of any state in the country, with $ 111 billion in unfunded liabilities.
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