SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
To subscribe to Capitol Fax, click here.
TRS move creates huge state budget hole

Wednesday, Jun 25, 2014

* Illinois Public Radio

The Illinois Teachers’ Retirement System says it expects a lower return on its pension investments in the next year. That means the state will have to cover more of the cost of teacher pensions.

TRS says it’s still a good assumed rate of investment return at 7.5 percent. That falls in line with similar pension systems nationwide. But it’s not as profitable as 8-percent, which TRS had been using for the previous few years.

Before they were using 8 percent, they were using 8.5 percent.

* More context from the SJ-R

Reducing the estimated rate of return brings TRS more in line with other major state and municipal pension systems. The National Association of State Retirement Administrators found 37 of 126 systems set a rate of return of 7 percent to 7.5 percent. Another 45 had a rate of 8 percent. The average return of those systems was 7.72 percent.

The average was 7.72 percent.

* Crain’s drills down

To give a sense of TRS’ bigger obligations, it helps to consider that if the new 7.5 percent rate had been used to calculate the liability for fiscal 2013, it would have been $99.9 billion, not $93.9 billion, under the 8 percent rate. As a result, the pension’s unfunded liability would have been 60 percent, as opposed to 57.5 percent.

Lowering the rate also automatically increases the amount the state must contribute to the TRS fund, Mr. Urbanek noted. If the 2015 fiscal year contribution had been calculated using the new 7.5 percent rate, the budgeted $3.4 billion contribution would have had to be $500 million higher, he said.

That’s a huge budgetary hit. Huge.

This problem never ends.

* Speaking of the budget

No state historic sites will close for now because of budget cuts, but many could see reduced hours after the Labor Day holiday.

“The governor’s office has given us some direction in how we will move forward with budget implementation,” said Amy Martin, director of the Illinois Historic Preservation Agency. “We will be looking to maintain services as best possible through the rest of this calendar year and hope the budget for IHPA will be restored in November or January.” […]

In addition to reducing hours, the agency will postpone filling vacancies until it sees if its budget will be restored. That will have an immediate effect on the Vachel Lindsay Home Historic Site in Springfield. The site superintendent is scheduled to retire July 1. After that, the home may be open by appointment only or for special events.

- Posted by Rich Miller        

  1. - Plutocrat03 - Wednesday, Jun 25, 14 @ 12:06 pm:

    One can argue that even that estimate is too high.

  2. - Illiana - Wednesday, Jun 25, 14 @ 12:23 pm:

    I have to agree with the move. It doesn’t change the reality of the pension debt, just makes the budgeting (i.e. annual contribution) more in line with what it probably should be. Obviously perfect clairvoyance would be the only way to know exactly what it should be.

  3. - BIG R. PH - Wednesday, Jun 25, 14 @ 12:32 pm:

    ‘…This problem never ends”

    It will end when you change the system of promises that cannot be kept and electing representatives of the real people of Illinois that will stand up to the teachers/state employees and tell them enough is enough!

    But of course that will take Constitutional action which will never happen. (sigh)

  4. - PublicServant - Wednesday, Jun 25, 14 @ 12:34 pm:

    Rich, what is the actual TRS average ROI over the last 30 years? That figure is needed to back up the estimate of 7.5% that is being used.

  5. - Chris - Wednesday, Jun 25, 14 @ 12:36 pm:

    “Obviously perfect clairvoyance would be the only way to know exactly what it should be.”

    What it “should” be is (relatively) higher now, to put the true costs in the present day, rather than kicking the can down the road. If the actual returns exceed the estimate, then in the future it may be possible to put less in.

    But everyone wants to make the problem a “future Illinoisan” problem. And that *includes* the current union members, who presently have to pay taxes to fund the state contribution, but after retirement, won’t have to pay taxes to fund future contributions.

  6. - Phenomynous - Wednesday, Jun 25, 14 @ 12:38 pm:

    Add a another few hundred million to next year’s contribution. Is this the way TRS advocates for the extension of the income tax?

    I don’t envy those who have to deal closely with the FY 2016 budget.

  7. - the Patriot - Wednesday, Jun 25, 14 @ 12:40 pm:

    You don’t need to stand up to teachers. Most of them want out of the union if given the chance. You need to stand up to the union power brokers that know they need the pension to hold over the members to keep them in.

    It ends when you move to a 401k style plan. Yes you will take an initial hit, but within a few years you start phasing out of it and within 35 years the pension problem is over.

    All we are doing now is pushing the cliff date out further, but as this proves, that line moves depending on economic factors beyond our direct control.

  8. - Formerly Known As... - Wednesday, Jun 25, 14 @ 12:42 pm:

    “Just wait until next year” - Illinois budgetmeisters and Chicago Cubs fans everywhere

  9. - Judgment Day (on the road) - Wednesday, Jun 25, 14 @ 12:56 pm:

    “….Chicago Cubs fans everywhere”

    There’s some hope there - see the minor leagues.

    The State of Illinois - not so much.

  10. - Hit or Miss - Wednesday, Jun 25, 14 @ 1:03 pm:

    If I remember correctly, the Illinois SERS plan assumes 7.75% and the Illinois University plan assumes 7.75% return on investments. Will these plans also need to lower their assumed return on investment?

    Second, Bruce Rauner has stated that he wants a tax cut and increased spending on education. How will the change in the assumed investment return for the teachers retirement system impact his plan? Is there money to reach Rauner’s two goals and keep up with the needs of the pension systems or will Illinois again need to cut funding of the pensions again?

  11. - Illiana - Wednesday, Jun 25, 14 @ 1:07 pm:

    Chris, I’m not sure if you didn’t understand me or don’t understand accounting. It requires clairvoyance to know what the “true costs in the present day” is.

  12. - SAP - Wednesday, Jun 25, 14 @ 1:21 pm:

    Shorting pension payments is how we got into this problem in the first place. We should thank TRS for trying to stave off a future pension fund shortage.

  13. - forwhatitsworth - Wednesday, Jun 25, 14 @ 1:27 pm:

    To … BIG R. PH - your comments at 12:32 are very offensive! I’m 64 years old, a lifelong resident of Illinois and a retired teacher. I’ve always willingly paid my taxes and dedicated my life to serving others. I consider myself one of the “real people” of Illinois. I don’t appreciate your implied claim that you represent the voice of the real people as you surely don’t represent me! Speak for yourself!

  14. - Person 8 - Wednesday, Jun 25, 14 @ 1:34 pm:

    “Most of them want out of the union if given the chance.”


  15. - Formerly Known As... - Wednesday, Jun 25, 14 @ 1:48 pm:

    Judgment Day - The Cubs’ “prospects” certainly do look brighter than Illinois’ at the moment, both literally and figuratively.

  16. - Formerly Known As... - Wednesday, Jun 25, 14 @ 1:48 pm:

    If only Rauner were still managing those TRS funds… /s

  17. - dupage dan - Wednesday, Jun 25, 14 @ 1:50 pm:

    Well, if Wisconsin is any indication, once the rules were changed, union participation in teachers unions in Wisconsin plummeted. But, I know, Wisconsin ain’t Illinois, right?

  18. - Robert the Bruce - Wednesday, Jun 25, 14 @ 1:52 pm:

    Bad news…but 7.5% sure sounds more realistic. And I imagine that higher expected rates of return can cause investment managers to take more risk, and invest a greater percentage of retirees money in hedge funds.

    I imagine Quinn would’ve preferred they keep their mouths shut about this assumption change until after the election.

  19. - Anyone Remember - Wednesday, Jun 25, 14 @ 2:17 pm:

    =If the 2015 fiscal year contribution had been calculated using the new 7.5 percent rate, the budgeted $3.4 billion contribution would have had to be $500 million higher, he said.=

    Anyone know how much of that $500 million is “current” and how much is “ramp-up past due payments” ??

  20. - Toure's Latte - Wednesday, Jun 25, 14 @ 2:19 pm: page 43 has ROI from 2004 to 2013. The Investment Revenues are on the next page. Older reports will go further back.

  21. - LIberty - Wednesday, Jun 25, 14 @ 3:03 pm:

    Patriot- Where is the money going to come from to go to a 401k like plan? Reality bites.

  22. - Assess - Wednesday, Jun 25, 14 @ 3:36 pm:

    If workers were switched out of their pension to a 401k, then would not the state have to start making Soc Security contributions?

  23. - Sue - Wednesday, Jun 25, 14 @ 3:52 pm:

    In this case timing is everything- As the stock market recovered from its lows of 2009 and the S & P moved from 666 to 1900 the TRS Board significantly moved out of equities and instead increased its exposure to hedge funds(alternatives and real return vehicles) Had the Board left its US equity allocation closer to its historic percentage of 30 percent versus the current target of 18 percent- the unfunded liability would be lower, the annual state contribution would be lower and there would have been no need to screw around with the actuarial hurdle rates. What today’s announcement proves is that the State’s finances should not be left up to the 11(mostly non-investment professionals)TRS Board members. When is someone going to wake up to the facts and finally do something to professionalize all of the State pension fund Boards so Illinois can begin to at least approach the returns of the best run funds

  24. - Jimbo - Wednesday, Jun 25, 14 @ 4:29 pm:

    DuPage Dan, Wisconsin law requires 51% of all potential union members to support the union. That means 51% of folks need to show up and vote for the union. How many elections can you point to that have had that kind of turnout? The law in Wisconsin was designed to make it near impossible to maintain certification. Of course union membership is down when every union is being decertified. The numbers in Wisconsin don’t demonstrate that folks don’t want to be in unions, they show that the intent of Act 10 was to make it impossible to maintain certification and slash union membership.

  25. - Jimbo - Wednesday, Jun 25, 14 @ 4:30 pm:

    Seems I repeated myself. I also said basically the same thing in two consecutive sentences. :)

  26. - anonymous - Wednesday, Jun 25, 14 @ 4:38 pm:

    Sue you may have a point. I am a TRS retired and for a number of years in the 2000s they told us that our investments were up there with the top pensions in the country. Since they started with all these hedge funds and such a couple years ago we never hear how our money is doing, only that the TRS is broke and the COLA has cut.

  27. - Sue - Wednesday, Jun 25, 14 @ 4:55 pm:

    Public Pension plans always compare themselves within a universe of similarly sized funds- In the late 90’s and through 2004 TRS was routinely in the top 20 percent of the largest plans- The Board in the last several years seems to have fallen in love with hedge funds at exactly the worst time-Stocks have done great and hedge funds have lagged- Seeing how the TRS investment returns can deepen the State’s budget hole(next year by 500 million)- it is time the Governor and the legislature focus on the returns and the folks responsible for the subpar returns- Isn’t it ironic that the TRS chief investment officer is the highest or one of the highest paid employees in Illinois- we seem to be getting a great return on that salary(OR NOT)

  28. - wordslinger - Wednesday, Jun 25, 14 @ 5:30 pm:

    I don’t see why TRS is going so large and paying the juice to the hedgies. TRS is in for the long haul, they don’t need to pay juice for quick scores.

    The annualized rate of return over the last 50 years for the S&P 500 is 10.2% Problem solved.

  29. - Sue - Wednesday, Jun 25, 14 @ 7:17 pm:

    Anyone looking at the TRS asset allocation targets set out in its June 24 news release announcing the change in actuarial rates will understand why the Board is dropping its hurdle rate- the taxpayers deserve representation on the TRS Board since it is the taxpayers who are being called upon to pay for these misguided investment decisions- Governor Quinn’s appointments to the Board apparently hasn’t added any Wall Street type expertise- Maybe Quinn deserves to be replaced

  30. - Arthur Andersen - Wednesday, Jun 25, 14 @ 8:11 pm:

    Sue, are you advocating for “experienced businesspeople” to sit on that board?

    I think that’s been tried. See Levine, Stu. And over at IBHE, biz titan Carrie Hightman did a heckuva job as the OEIG just pointed out.

    From experience in the field, what usually happens when “Wall Street types” or LaSalle Street types here in Illinois get on this kind of Board, they either a) want to do their own due diligence b) are too busy at the day job to make the meetings or c) have a firm in mind for half the business before the Board.

    It’s easy for you to sit in your Jammies and critique other people’s work; in fact, using the search box, the only topic you seem to post on here is TRS investments, always snarky and critical. Why don’t you tell us your bonafides as an investment professional before we write you off as a troll?

  31. - Sue - Thursday, Jun 26, 14 @ 7:27 am:

    AA- I am just someone who knows how to use Google- For the year ending June 30, 2013 the date most Public Pension funds use for performance- City of Jacksonville(22 %);Nevada(19.7%)SD(19%);MS,NH(18 %)OK TRS(18%)- If Illinois approached these numbers taxpayers would save some $$$$ in annual contributions leaving more $$$$ for other pressing needs- If Illinois pays as much $$$$ in admin and outside fees as do other funds- where are the returns- why defend mediocrity

Sorry, comments for this post are now closed.

* Here we go...
* Question of the day
* Kirk's confidence
* Unclear on the concept; And pot, meet kettle
* *** UPDATED x2 *** The supreme power of video
* More lip service
* A union overreach?
* Duckworth fires back against Zopp for "cheap political" shot
* Republicans side with unions in court case
* Rauner pushes Gaming Board to back off fantasy sports site issue
* No known impact of Rauner opposition to refugees
* Benton circulating against McCann
* SUBSCRIBERS ONLY - Today's edition of Capitol Fax (use all CAPS in password)
* Yesterday's blog posts

Visit our advertisers...







Search This Blog...

Search the 98th General Assembly By Bill Number
(example: HB0001)

Search the 98th General Assembly By Keyword

* How To Choose the Best Smartphone for The Holidays
* BlackBerry Androids “wouldn’t be a once-off”
* Lumia 950 XL pre-orders in the US now shipping
* Alphabet is cracking down on the spending of subsidiaries
* Apple Watch burn leaves grill marks on man’s wrist
* Shazam update brings faster recognition, more info, easier sharing
* Add some style to your wearables with the Helena Necklace and Helena Bracelet for Misfit Flash

* White Sox acquire Kahnle in deal with Rockies
* White Sox acquire RHP Tommy Kahnle from Rockies for RHP Yency Almonte
* White Sox acquire Kahnle in deal with Rockies
* KBO's Jae-gyun Hwang can be posted after all
* White Sox Charities all about opportunities
* White Sox add Aaron Rowand to minor-league development staff
* White Sox tab Rowand as Minors instructor


Main Menu
Pundit rankings
Subscriber Content
Blagojevich Trial
Updated Posts

November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004

Blog*Spot Archives
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005


RSS Feed 2.0
Comments RSS 2.0


* Rauner Says Homeland Security to Address Syrian.....
* Durbin Wants Rauner to Meet Some Refugees - Alt.....
* Progress on Governor's Mansion Rehab - Alton Da.....
* CAPITAL FACTS: Madigan: Color him relentless - .....

* N. Illinois University removes Bibles from campus hotel
* Bridge connecting St. Louis, East St. Louis set to reopen
* Lawsuit challenges Illinois ban on marijuana campaign money
* Convictions upheld for man guilty of killing 5 in family
* Congressional hopeful rejected by GOP in '14 running again
* Judge rejects reinstating murder charges against mother
* EXCHANGE: Freeport historian pens second novel
* Excerpts from recent editorials by newspapers in Illinois
* Collinsville officials approve residential chicken ordinance
* Police offer tips to avoid pickpockets, other thieves

* Springfield police chief sees problems with body cam law
* Lawsuit challenges Illinois ban on marijuana campaign money
* Number of Illinois inmates released on parole climbing
* Bryce Benton circulating petitions to challenge Sen. Sam McCann in GOP primary
* Executive Mansion roof repairs nearing completion
* Candidates begin filing petitions for March primary election
* Benton circulating petitions to challenge McCann in GOP primary
* Rauner administration says House Democrats holding local aid hostage
* Rauner says White House promises to answer refugee queries
* More honors for Auburn woman who saved man from train

* Release of police-shooting video ignites street protests
* Now arriving at O'Hare and Midway: Uber
* Illinois, you haven't touched bottom yet
* Chicago struggles to auction off taxi medallions
* The maker of Beanie Babies is about to air its first-ever TV ad

* Mitchell: “Hideous” video tells an even more hideous story
* Marchers protest CPD handling of Laquan McDonald’s murder
* Mihalopoulos: Laquan McDonald video could define state’s attorney’s race
* Patrick Kane’s point streak nearing historic levels
* Uber cleared to serve O’Hare, Midway airports
* McCarthy: “Nonsense” to claim his firing of Dante Servin was politically timed
* Quickie quiz: Only player to score goal at United Center, Soldier Field and Wrigley Field?
* Black Caucus chairman: What took Alvarez so long to file charges?
* Veljko Paunovic announced as new Fire coach
* Blackhawks unveil Stadium Series uniforms

* Shooting video latest stain on Chicago's policing record
* 5 shot in separate shootings on the South Side
* Release of Laquan McDonald video sends protesters onto Chicago streets
* A moment by moment account of what the Laquan McDonald video shows
* Chicago releases dash-cam video of fatal shooting after charging cop with murder

* Michael Gerson: The Trump effect, still 'understated'
* Catherine Rampell: For millennials, first comes love — then what?
* Springfield police chief sees problems with body cam law
* Lawsuit challenges Illinois ban on marijuana campaign money
* Number of Illinois inmates released on parole climbing
* Lawsuit challenges Illinois ban on marijuana campaign money
* Kathleen Parker: Crazy is as crazy does
* Bryce Benton circulating petitions to challenge Sen. Sam McCann in GOP primary
* Executive Mansion roof repairs nearing completion
* Candidates begin filing petitions for March primary election

* Perfect beginning for women's hoops
* Tate: Groce up in arms about defense
* Running back commits
* Tuesday's highlights: Central's Finke falls in debut
* Richey: Illinois win was never in doubt
* UPDATED: Mahomet trustees vote to repeal video gaming ban
* Candidate filings: Dem for 13th, Rietz for fourth term
* LIVE! Tennessee State
* UI Women vs. Tennessee State
* Men's gymnasts ranked sixth

* Video shows Chicago cop shooting teen after he had fallen
* Wheeling police chief retiring; Prospect Hts. top cop to take helm
* Gurnee may lend financial hand to visitors bureau
* Mundelein trustee tells residents complaining about snow removal to 'drive less'
* Bears rookie receiver Kevin White cleared for practice

* House lawmakers overcome hurdle on key tra...
* Rodney Davis talks funding with Bloomingto...
* The agency that fought Illiana gets a new ...
* Rep. Dold takes educational cruise down Ch...
* Lawmakers decry high turnover rate of VA h...
* CBD Oil, and politics
* Simon considering state Senate bid
* Killer Congressman Tom MacArthur trying to...
* Shutdown? State may not notice
* Rep. Bob Dold

* Rauner Says Homeland Security to Address S......
* Durbin Wants Rauner to Meet Some Refugees ......
* Durbin, Murphy, Blumenthal, and 21 Other S......

* Kirk co-authors Government Transformation ......

* 4635 Broadway Begins Its Renovation
* A violent overtone to this week of thanks; will it be ugly Black Friday?
* Random thoughts.
* The cover-up of the killing of Laquan McDonald.
* Tuesday filing, unfiling update
* Mid-century modern homes in Chatham
* Watch the Organization
* Kinney, Alonzo take part in recognition ceremony in San Diego
* Uptown United's Having A Party (But You Need To RSVP)
* Register for GRI by Nov. 25!

* Emergency Management Officials, National Weather Service Encourage Winter Preparedness - November is Winter Weather Preparedness Month in Illinois
* Keep Your Family Safe This Winter - November through February are leading months for carbon monoxide related incidents
* Governor Takes Bill Action
* Illinois Department of Labor Director Hugo Chaviano Awards Governor’s Award for Contributions in Health and Safety to the Illinois Refining Division of Marathon Petroleum Company LP
* State Regulator Elected Treasurer of Interstate Medical Licensure Compact

    Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller