The Wall Street Journal is reporting that long-term investment returns for public pension plans are poised to drop to the lowest rate of return since measuring began 16 years ago —something that could cause additional heartburn in Illinois, which has the largest unfunded state worker pension program in the nation.
The Journal reported the 20-year annualized return on investment of public pensions are expected to be 7.47 percent — a far cry from the 12.3 percent annualized return in 2001, when Wilshire Trust Universe Comparison Service began tracking pension returns.
Illinois has an $111 billion unfunded pension liability as of June 2015, based on the latest state reports available. But the lower investment returns have been factored in slightly.
The largest pension fund, the Teachers Retirement System, acted two years ago to reduce its expected investment rate of return from 8 percent to 7.5 percent. The State Employees Retirement System and the State University Retirement System acted to reduce the rate of investment returns for its funds from 7.75 percent to 7.25 percent.
* Illinois diverts federal funds from teachers to pensions: Unlike their counterparts in other states, Illinois school districts pay a steep premium to the Teachers’ Retirement System, or TRS, if they use Title I federal money to hire teachers. Districts are assessed 36.06 percent of salaries paid with federal Title I funds, and that is set to increase to 38.54 percent for the 2016-2017 school year. By comparison, the rate for a district not using Title I money is and will remain 0.58 percent. So a district using Title I money to hire a teacher at $50,000 a year would fork over $19,270 to TRS, but the tab for a district paying a teacher the same salary out of state and local funds would be $290. To paraphrase U.S. Rep. Robert Dold, taxpayers from across the nation are pouring vast sums into Illinois’ teacher pension-debt quagmire. And the biggest losers? The very ones the Title I money is intended to aid – low-income students.