SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
CapitolFax.com
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        


31 Comments
  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.”

    Wrong


  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:

    http://cgfa.ilga.gov/Upload/FinCondILStateRetirementSysFY13Mar2014.pdf 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 to.be 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


TrackBack URI

Sorry, comments for this post are now closed.


* A grand good morning to you all!
* Late, late poll... Who won the debate?
* Yesterday's blog posts

Support CapitolFax.com
Visit our advertisers...

...............

...............

...............

...............

...............


Search This Blog...

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

Search the 98th General Assembly By Keyword

          
        * iOS 8.1: 'Text Message Forwarding' Activation Requires iMessage Email Address
        * Spotify Family gives discount for multiple accounts
        * iOS 8.1, Apple Pay, Google’s Gmail 5.0, Microsoft smartwatch & more – Pocketnow Daily
        * Royals and Giants Stadiums to Accept Apple Pay for Concessions During World Series
        * Nexus Player back on pre-order, Nexus 6 starts October 29
        * Apple might cut Beats Music subscription fees in half
        * Lumiartistic! How Toni Kasurinen takes his art to the next level

        * The LG AKA concept phone has “moods”
        * Samsung Galaxy Mega 2 Heading to AT&T on October 24th
        * iFixit Slays an iMac Intel 27″ Retina 5K Display
        * World’s Thinnest Case Preserves The iPhone 6’s Unnecessary Thinness
        * It’s Not Quite Marty McFly, but the Hoverboard Is Here (Video)
        * Because, Bacon: Bacon Scented T-Shirt
        * As Online Viewing Soars, Internet TV Will Soon Be the Only TV

        * Following same path as '59 White Sox, KC eyes title
        * larry's Offseason Plan
        * Abreu wins Sporting News' AL Rookie of the Year honors
        * Jose Abreau wins the Sporting News AL Rookie of the Year
        * Jose Abreu wins the Sporting News AL Rookie of the Year
        * Lost in Isolation: A White Sox fan abroad.
        * Pnoles' 2014 White Sox offseason plan


        Main Menu
        Home
        Illinois
        YouTube
        Pundit rankings
        Obama
        Subscriber Content
        Durbin
        Burris
        Blagojevich Trial
        Advertising
        Updated Posts
        Polls

        Archives
        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

        Syndication

        RSS Feed 2.0
        Comments RSS 2.0
        WordPress

        Loading


        * Democrats love seeing minimum wage on the ballot..
        * The Killeen Daily Herald..
        * Ill. Governor, Challenger Spar over Economy..
        * Democrats in tight races are delighted to see t.....
        * Washington City Council considers Fire Departme.....
        * Quinn, Rauner unleash negativity in final debate..


        * Democrats love seeing minimum wage on the ballot
        * Illinois governor candidates spar on finance, jobs
        * Quinn, Rauner debate income tax increase
        * Governor hopefuls disagree on charter schools
        * Illinois governor candidates spar in last debate
        * Police: Indiana suspect hints at more killings
        * EPA awards $8.6 million to reduce Lake Erie algae
        * Suspected Indiana serial killer charged in 1 death
        * Judge to rule against Ameren in power line case
        * Voters head to polls on first day of early voting

        * Quinn, Rauner spar over jobs, taxes
        * Election 2014: Learn about all the candidates
        * What to watch for in third governor debate tonight
        * U of I sees turning point as election nears
        * Chicago Sun-Times endorses Rauner for governor
        * Sun-Times, Belleville, Champaign, Peoria newspapers endorse Rauner for governor
        * Bill Clinton to address workers at pro-Quinn rally
        * Body camera use concerns Illinois police officers
        * Illinois unemployment rate falls again, to 6.6 percent
        * Panel to look at body cameras in eavesdropping law discussion

        * It's official: AbbVie and Shire end merger talks
        * Northwestern, U of C among four hospitals that would treat Ebola patients
        * Bloomberg weighs in for Dold
        * U.S. airlines raise base fares on domestic flights
        * Court rejects appeal from Duane Reade Ex-CEO, CFO


        * Cardinal George’s advice to Archbishop Cupich: ‘Spend a lot of time listening’
        * Chicago Public Schools to sell headquarters for $28 million
        * Fix pot law conflicts so industry can grow
        * Convicted sex offender in custody after 7 bodies found in NW Indiana
        * Fioretti tries to put heat on Emanuel over short yellow lights
        * Neely’s pre-election resignation deja vu of how she got her start
        * Emanuel’s cable tax hike to cost average consumer $28.80 a year
        * Scholar’s take on bishops’ synod: ‘Amazing days if you’re a Catholic’
        * Obama votes early, campaigns for Quinn
        * Dr. Lawrence Solomon: Renowned dermatologist, book collector loved a mystery


        * What experts say about serial killers
        * Millions pledged to carry out CPS arts program
        * Quinn, Rauner unleash negativity in final debate
        * Feds: Chicago-area man supplied heroin to Indiana dealers
        * Hinsdale District 86 votes to approve teacher contract
        * Suspect in Indiana serial killings has violent past
        * Ebola fear puts family in voluntary quarantine in Rock Island
        * Police warn of bicyclist who grabbed at teen girl
        * Judge: Trucker's statements in Tollway fatality admissible
        * Man gets 122 years in murder of Romeoville girl, 15


        * Scary Story: Hand In Glove By Shawna Mayer
        * Task Force Hopes To Help Turn Students Into Good Citizens
        * Digging up the history of a Civil War camp on Chicago's South Side
        * Indiana suspect hints at more killings
        * Illinois' Medical Marijuana Program At Odds With Federal Policy
        * UIS Poverty Series Continues With "American Winter" Screening
        * Third & Final Governor Debate Tonight
        * Are Computer Keyboards Killing Cursive?
        * Earlier Than Ever
        * Listen to State Week - October 17, 2014


        * Our Opinion: White, Madigan for another term
        * Quinn, Rauner spar over jobs, taxes
        * Our Opinion: Say yes to Magro’s project
        * John Schick: Letter confirmed aggression toward bicyclists
        * Election 2014: Learn about all the candidates
        * U of I sees turning point as election nears
        * Our Opinion: Re-elect Durbin for another term in U.S. Senate
        * Bill Press: Do you trust your government on Ebola?
        * Quote of the Day: Monday, Oct. 20, 2014
        * Our Opinion: Rodney Davis has earned another term


        * Southern Illinois towns could enter competition for millions
        * Mary Chester
        * Nettie Lemmon
        * Frances Dyhrkopp
        * Dorothy Bean
        * Eva Enchus
        * Mathel Delaval
        * William Davis
        * June Ebelhar
        * Ivan Smith


        * Narrative missteps mar beautifully sung ‘Amazing Grace'
        * Images: Oscar de la Renta's fashions
        * Hinsdale district OKs new two-year contract
        * Fashion guru Oscar de la Renta dies at 82
        * Steelers rally past stunned Texans

        * Patrick Cannon defense strategy rare but n...
        * Feds fine Jesse Jackson Jr.'s campaign com...
        * Ex-Congressman Jesse Jackson Jr. faces sen...
        * Representative Jan Schakowsky Sends Letter...
        * Rep. candidate pushes to uphold marriage b...
        * Reps. Schakowsky and Waxman Introduce Bill...
        * Statement by Representative Jan Schakowsky...
        * U.S. House Passes Resolution Condemning An...
        * FAA Rejects Call For New O'Hare Noise Stud...
        * Representatives Quigley, Duckworth, Schako...

        * The Killeen Daily Herald...
        * Democrats in tight races are delighted to ......
        * Democrats in tight races are delighted to ......
        * Democrats love seeing minimum wage on the ......
        * Democrats love seeing minimum wage on the ......

        * Dear Editor,...

        * Will anyone care Sun-Times may have dumped all over its statehouse reporter to appease a political candidate?
        * Take note of first complaint received through Ethics Citation Program
        * Morning Minute: Don’t make these credit score mistakes
        * Morning Minute: Mortgage rates fall below 4 percent, hit yearly low
        * Illinois fracking vote postponed until Nov. 6
        * Morning Minute: New Census report offers snapshot of U.S. housing landscape
        * October magazine article outlines IAR ideas to boost professionalism
        * Local vigilance helps IAR reps protect your interests
        * Today is first day for early voting in Illinois
        * Know the facts before you vote for Home Rule on Nov. 4


        * Rauner Campaign Statement on Final Debate
        * What They’re Saying About Pat Quinn
        * What They’re Saying About Bruce Rauner
        * Illinois EPA Registration of Smaller Sources Program Hits Program Landmark - 3,000 Illinois Small Businesses Benefit from Permit Streamlining
        * Rauner Sweeping Endorsements Across Illinois




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