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.

* File this under "Stuff I didn't know"
* Question of the day
* From the mouths of babes
* You don't need a weatherman to know which way the wind blows
* Unclear on the concept
* *** LIVE COVERAGE *** Gov. Rauner press conference
* Zopp whacked as she prepares to air TV ads
* *** UPDATED x1 - Not exactly limo levels *** Should voter registration be easier or tougher?
* Rate the Alvarez kick-off video
* Face facts and stop playing the victim
* Joe Tybor
* Poll: Majority of Southern Illinois voters disapprove of Rauner
* 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

* OnePlus Mini makes brief early appearance on Amazon India
* Huawei Honor 7i renamed as ShotX in Europe, up for pre-order in Germany
* Two New Apps Tackle The Problem Of Running Out Of Space On Your Phone
* Android Wear-powered ELE Watch sighted on Chinese online store
* Save 97 percent on the Big Mac Bundle + learn to build iOS9 apps for just $19
* TD Canada Trust Lends Credence to Apple Pay Launch in Canada Next Month
* Sony releases AOSP Marshmallow binaries for open devices, adds Xperia Z5

* The 10 best White Sox games of 2015
* Curtain rises on prospect-packed Fall League
* Podcast: Pitchers and Catchers review
* Chase Utley's takeout "slide" could be the tipping point
* First White Sox bench coach candidate emerges
* Hahn feels White Sox fanbase's frustration
* Sox to rely on improvement of core in 2016


Main Menu
Pundit rankings
Subscriber Content
Blagojevich Trial
Updated Posts

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


* Illinois governor will sell government building.....
* UPDATE 1-Illinois governor eyes sale of landmar.....
* Thompson Center architect says facility should .....
* Rauner wants to sell downtown Chicago state off.....
* Rauner wants to sell downtown Thompson Center -.....
* Busting the Myths About the Illinois Budget Imp.....
* Rauner wants to sell downtown Chicago state off.....
* Rauner Planning To Sell Thompson Center - Progr.....
* Rauner wants to sell Chicago's Thompson Center .....
* Rauner moves to auction the James R. Thompson C.....

* Thompson Center architect says facility should be repurposed
* Rauner wants to sell downtown Chicago state office building
* School won't comply with order regarding transgender student
* McHenry teachers union approves contract to end strike
* EXCHANGE: Churches work together to preserve historic home
* Public can see Stanley Cup in Millennium Park on Wednesday
* Coalition urges Illinois communities to plant oak trees
* Automatic Illinois voter registration expected in committee
* $5M grant to ISU will aid young people in Champaign County
* Former reporter and Illinois Supreme Court spokesman dies

* Rauner wants to sell state's Thompson Center in downtown Chicago
* Newest state senator backs Rauner's Turnaround Agenda
* Judge: Class-action status allowed in deaf inmates' lawsuit
* WSEC-TV's CapitolView: The continuing state budget impasse
* NightReach program's impact hampered by state budget impasse
* FOIA issue of emails on private devices goes back to court
* State criticized for approach to problem gambling
* For Illinois players, $1.6 billion in losses in three years
* More than 400 press passes issued for this year's Illinois State Fair
* Rauner names new chair of Illinois Historic Preservation Agency board

* AB InBev may have to give up the world's best-selling beer to seal SABMiller deal
* Why Playboy needs Facebook more than it needs porn
* Playboy needs Facebook more than it needs porn
* Feds order rare probe into soaring downstate electricity prices
* Big 3 airlines flexing their political muscle in Washington

* Blackhawks fans get emotional over picture of Patrick Sharp, Johnny Oduya with Stanley Cup rings
* Blackhawks fourth-liners embrace shutdown role
* Claypool outlines steps to prevent another Byrd-Bennett scandal
* Thompson Center to go up for sale: report
* Clinton slams Trump in front of his Vegas casino
* Byrd-Bennett back in spotlight Tuesday — for expected guilty plea
* Byrd-Bennett pleads guilty to fraud
* Cubs offer aldermen playoff tickets at face value
* Long road takes Ryan Garbutt to the ultimate hockey destination
* Brown: Time running out to fix Council inspector general mess

* Live blog: Cubs try to take series from Cardinals
* Derrick Rose 'most likely' won't play in preseason, opener in jeopardy
* Police: Attempted sexual assault reported in Lincoln Park
* Man charged in '85 murder of teenage girl pleads not guilty
* Website features 3-D views of shipwrecks along Indiana shoreline
* Rauner looks to sell Thompson Center; architect Helmut Jahn rips state's care
* Pittsburgh investigating officer's slam takedown of Cubs fan
* Supreme Court decision on Highland Park's gun law on hold
* Counterfeit Cubs tickets burn some fans
* Police: Suspects crash car after shooting 2 men in Bronzeville

* Rauner wants to sell state's Thompson Center in downtown Chicago
* Newest state senator backs Rauner's Turnaround Agenda
* Judge: Class-action status allowed in deaf inmates' lawsuit
* Kathleen Parker: Don't do it, Paul Ryan
* WSEC-TV's CapitolView: The continuing state budget impasse
* NightReach program's impact hampered by state budget impasse
* FOIA issue of emails on private devices goes back to court
* Scott Gauvin: Citizens need more say in CWLP's future
* State criticized for approach to problem gambling
* For Illinois players, $1.6 billion in losses in three years

* 10-13-15 News-Gazette Prep Sports Podcast
* Illinois Women's Barketball 2015-16
* Illinois Women's Basketball 2015-16
* Street closures listing
* Oct. 16 Illinois football chat
* Oct. 15 prep sports chat
* Oct. 14 Illinois basketball chat
* Parkland grad behind home plate for Cards-Cubs
* A wetter pattern to unfold
* New target date for Papa Del's: January

* Dist. 211 holding college nights
* DuPage's county museum in Wheaton to get new roof
* Authorities seek ID of woman hit by train in Elmhurst
* Expansion coming to Lake County juvenile center
* Liability switch could leave merchants holding the card

* 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

* Al Franken Pushing to Make College Textboo......
* State senators propose law to reduce textb......

* Suburban Republican says he'll challenge M......
* Illinois U.S. Senate Primary Adds New Name......

* Environmentalists Take Aim At Morgan Stanley Over Coal Industry Financing
* Poll: Rauner's Disapproval Rating At 50 Percent Among Southern Illinois Voters
* Schakowsky Introduces Bill To Make Renewable Energy Tax Credit Permanent
* Rauner Planning To Sell Thompson Center
* Rauner suggests selling Chicago's Thompson building
* UPDATE x1: Rauner suggests selling Chicago's Thompson building
* Kinzinger blasts House conservatives and think tanks
* Twitter or Bingo during Tuesday night's Democrat prez debate
* No Illinois GOP members part of powerful conservative House Freedom Caucus
* FBI: Former Chicago Public School CEO pleads guilty of kickback scheme

* Illinois Lottery Seeks Industry Feedback in Search for New Manager - Posts Request for Information in initial search for new private partner
* Board’s New Rules Will Reduce Risk of Tire Fires and Disease-Carrying Mosquitos
* Illinois Hosts Inaugural Interstate Medical Licensure Compact - Aims to increase health care access through multi-state physician licensure program
* IEMA Announces Elgin Community College Attains ‘Ready to Respond Campus’ Designation - Elgin one of five Illinois campuses to receive distinction
* New Mortgage Loan Interface Increases Efficiency, Compliance

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