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*** UPDATED x1 *** TRS opposes Pritzker’s pension holiday, buyout expansion

Thursday, Mar 21, 2019

* Unanimous statement by the Teachers’ Retirement System Board of Trustees

The Teachers’ Retirement System is currently 40 percent funded. The system is at a growing risk of insolvency in the event of an economic downturn. This danger is the direct result of eight decades of state contributions that always have fallen far short of actuarially based funding. TRS long-term investment returns consistently exceed the System’s expectations; but investment income alone will not be enough to prevent insolvency.

The TRS Board’s fiduciary duty to its 417,000 members is its paramount concern. The payment of future TRS benefits are jeopardized without a credible plan to address the System’s long-term sustainability. The TRS Board and staff unanimously adopts the following positions and will actively pursue their realization as a state government budget is developed for fiscal year 2020:

    * TRS opposes any Fiscal 2020 budget for the state of Illinois that will appropriate to the System less than $4,813,577,696, the contribution calculated under state pension funding law and certified by the System on January 14, 2019.

    * TRS opposes any extension of the target date currently in statute for the System to reach 90 percent funding. The target should remain no later than fiscal year 2045.

    * TRS repeats its long-standing warning that the state’s current pension funding law perpetually locks in underfunding for the system. A “full funding” state contribution for TRS in FY 2020 is $7,878,670,709, as certified in January of this year.

    * TRS opposes any expansion of the current member “buyout” program if an expanded program does not fund the buyouts with monies other than from System assets. At a funding level of 40 percent, TRS is not accumulating any assets to pay the future benefits of active members and could not afford to buy them out.

    * We respectfully request that, as in recent years, TRS and our system actuaries participate in the fiscal analysis and evaluation of any proposals that would impact the system and its members.

We stand ready to work with anyone on solutions to these important issues.

I’ve asked the governor’s office for a response.

*** UPDATE *** And here’s the governor’s office response, such as it is…

Illinois is facing enormous fiscal challenges, with multi-billion dollar deficits projected for years to come. Governor Pritzker has proposed a bridge budget and a plan that will put Illinois on a path to firmer fiscal footing through the fair income tax.

- Posted by Rich Miller        

50 Comments
  1. - Sue - Thursday, Mar 21, 19 @ 11:25 am:

    Big deal- complaining is useless- file a lawsuit or TRS risks being sued for breach of its own fiduciary duty. It’s happened before


  2. - Blue Dog Dem - Thursday, Mar 21, 19 @ 11:25 am:

    Gov. Kick the Can wont let down TRS.


  3. - truthteller - Thursday, Mar 21, 19 @ 11:27 am:

    my response to the TRS would be why haven’t local school districts supply funds for their teachers and admin pension’s? Why won’t downstate politicians on both sides take a fair approach to this issue while chicago schools pensions are a responsibility of the chicago area property tax base?


  4. - the old man - Thursday, Mar 21, 19 @ 11:29 am:

    At last some group points out that JB’s plan is all smoke and mirrors


  5. - Timmy's Left Leg - Thursday, Mar 21, 19 @ 11:31 am:

    “This danger is the direct result of eight decades of state contributions that always have fallen far short of actuarially based funding. TRS long-term investment returns consistently exceed the System’s expectations; but investment income alone will not be enough to prevent insolvency.”

    That is about as intellectually dishonest as one can get. It speaks to almost every major part of the pension liability calculation, except for the fact that liability’s innate growth due to the excessively generous COLA awarded to members. Whatever PR lackey constructed that statement, with its novel sleight of hand, should be given a solid pat on the back by TRS members.


  6. - Annonin' - Thursday, Mar 21, 19 @ 11:40 am:

    TRS opposes any effort to clean up their mess that involves effort by the TRS brain trust and the underperforming consultant who buy lunch and dinner. Thank you for your service (and eating your share of the shrimp)


  7. - Jocko - Thursday, Mar 21, 19 @ 11:40 am:

    ==due to the excessively generous COLA awarded to members==

    Assumes facts, not in evidence.


  8. - Ben Folds 5 - Thursday, Mar 21, 19 @ 11:41 am:

    Is the play to see what happens in Puerto Rico with this debt? If they get the special bankruptcy Illinois will try? There is almost no way without major cuts and major taxes this will ever be paid. J.B. has offered tax increases but no cuts. Like everyone before of both parties. As a former TRS member, I rolled the contributions over. There will be a time that a choice between basic services are provided and pensions paid. Scream constitution protection. I wonder what the Supreme Court will say if that’s the choice. A small few or entire state? It’s borderline foolish to think it will be there in 20 years.


  9. - Back to the Future - Thursday, Mar 21, 19 @ 11:42 am:

    Glad TRS is standing up for it’s members.
    The State wound not be in so much trouble if
    the funds had more trustees like them in the past.
    Time to end the “kick the can down the road” approach
    the new administration is arguing for.


  10. - Lester Holt’s Mustache - Thursday, Mar 21, 19 @ 11:47 am:

    They’ve got a point. If Pat Quinn could make the pension payments, why can’t JB? Especially now that the economy is doing better than it was during Quinn’s tenure. If this admin ends with PQ > JB on fiscal matters, Dems might as well give up with this whole “running the state” thing.


  11. - Evanstonian - Thursday, Mar 21, 19 @ 11:48 am:

    Good. Someone has to stand up for working people and the billionaire plutocrat we elected ain’t gonna do it.


  12. - City Zen - Thursday, Mar 21, 19 @ 11:49 am:

    TRS’ target funding requirements include faulty assumptions of Tier 2 savings. It would be nice to know how a “fixed” Tier 2 would impact the pension liabilities and payment schedule.


  13. - Ben Folds 5 - Thursday, Mar 21, 19 @ 11:52 am:

    Lester… the lesson I think that is over looked is Rauner was elected. All the polls and anything you say doesn’t change the fact a majority of people wanted a different path. Because he failed, doesn’t mean a moderate can’t win again in a few years. J.B. is in a corner. How do you pay our debts and reduce the middle class burden. Shockingly, it can’t happen. First admission, leaving out 97% won’t see a tax increase.


  14. - Perrid - Thursday, Mar 21, 19 @ 11:57 am:

    Everyone who is cheering on TRS understands that they are asking for an additional $3 billion this year, right? That’s not going to happen. I get that paying down the debt saves money in the long run, but we don’t have the money to do so in the short term.


  15. - Sue - Thursday, Mar 21, 19 @ 12:12 pm:

    Perrid- actually what needs to happen is JB needs to pay for pensions first and then if he has any money left he can WASTE it on his favored campaign promises. The one and only reason he is passing on the payment is to free up funds for his NEW spending.


  16. - RNUG - Thursday, Mar 21, 19 @ 12:14 pm:

    == file a lawsuit or TRS risks being sued for breach of its own fiduciary duty ==

    Deja Vu. I would expect it would be immediately dismissed, citing the 1975 TRS decision.


  17. - RNUG - Thursday, Mar 21, 19 @ 12:17 pm:

    == This danger is the direct result of eight decades of state contributions that always have fallen far short of actuarially based funding. ==

    For a few years in the 1990’s TRS and the other funds were around 90% from a combination of State contributions and earnings.


  18. - JS Mill - Thursday, Mar 21, 19 @ 12:18 pm:

    @Timmy’s Left Leg- speaking of intellectually dishonest, your statement about COLA is false. First, TRS annuitants do not get “COLA”, they get an AAI- automatic increase that is only loosely tied to CPI. And,Eric Madairs authoritative research on the subject debunk d the baseless claims that the AAI was a primary cause of the underfunding. It is in fact debt.

    @Truthteller- just like @TLL you need to do some research to live up to your moniker. CPS WANTED to take over their own funding. That was the deal Daley struck for control of the school system. Schools pay in exactly what they are required to. Between CPS, the state, and suburban and downstate schools only the latter has made 100% of the mandat s payments. And now CPS gets some state money for their pensions. But thanks.


  19. - RNUG - Thursday, Mar 21, 19 @ 12:18 pm:

    == actually what needs to happen is JB needs to pay for pensions first and then if he has any money left he can WASTE it on his favored campaign promises. The one and only reason he is passing on the payment is to free up funds for his NEW spending. ==

    I actually agree with -Sue- on that.


  20. - Ben Folds 5 - Thursday, Mar 21, 19 @ 12:23 pm:

    JS you’re 100% correct on Chicago. But, sorta genius in the long run, they too won’t be able to pay it. The fact that local schools pay salaries that will end up being paid statewide is the worst of the worst of the issues we deal with. The 200k retirement in the collar county is paid downstate. The longer each party kicks the can makes me believe this is by design. The simple math doesn’t add to paying this debt off without huge taxes and cuts. Which nobody is willing to deliver.


  21. - Perrid - Thursday, Mar 21, 19 @ 12:24 pm:

    Sue, this link from the SJ-R has his new spending at around $740 million. Most of that, $375 million, goes to schools, $100 million to early childhood, $30 to child care, %50 to MAP, etc. So if we axe all of that, we get an extra $740 million, which is less than a third of the increase TRS is asking for, let alone the other pension systems. The number just aren’t there.

    https://www.sj-r.com/news/20190220/pritzkers-budget-new-taxes-and-revenue-and-where-spending-would-rise


  22. - Sue - Thursday, Mar 21, 19 @ 12:27 pm:

    RNUG-the better precedent is the case from the mid 90’s. The law is now better for the pension systems given the Edgar ramp legislation. The contribution is no longer discretionary. As for the funding in the late 90’s- TRS between 95 and 2000 and 2001-2006 was actually hitting returns placing TRS at the top of the pension heap. Look at the returns since 2009 and you will see the problem. A decade of a bull market and TRS is avaraging less then 8 percent after Fund expenses. If Pritzker wants to really help out the State he would empanel a group to investigate why the investment portfolio has generated abysmal returns for 10 years(and forget about exceeding TRS targets- they are not a very difficult hurdle).


  23. - stormsw7706 - Thursday, Mar 21, 19 @ 12:37 pm:

    Kudos to TRS. Conservative outlets try to portray teachers as being greedy and self serving. I wish to point out that the monies diverted out of the pension systems over the years have subsidized every taxpayer in this state for decades. Think of it as robbing your neighbors bank account, getting caught, promising to pay it back (without interest), and then complaining when your neighbor brings it to your attention. Yeah, the problem is your neighbor is living too high on the hog.


  24. - Old Illini - Thursday, Mar 21, 19 @ 12:41 pm:

    ==For a few years in the 1990’s TRS and the other funds were around 90%…==

    Oy vey!


  25. - Not a Billionaire - Thursday, Mar 21, 19 @ 12:45 pm:

    It really is not clear if the effects of their 2 are in TRS assumptions. I would like a clear answer on that.


  26. - TROOPER - Thursday, Mar 21, 19 @ 12:52 pm:

    RNUG…
    Have you had a chance to study the impact of the buyouts vs.the AAI? Will the system be better or worse with the buyouts?


  27. - Just saying - Thursday, Mar 21, 19 @ 12:53 pm:

    TRS is 70% of the pension problem, so why do people habitually blame state workers? Most state workers have a much lower pension formula than teachers. Just wanted to point that out.


  28. - Timmy's Left Leg - Thursday, Mar 21, 19 @ 12:55 pm:

    @ JS Mill

    You don’t know what you are even talking about in the most basic understanding of Finance 101. First, you can’t have a pension debt liability without taking into account the increased payment rates as part of the calculation. It’s intrinsic to the debt (liability) figure itself. Second, the terminology you choose to use of ‘AAI’ instead of the term ‘COLA’ is a distinction without difference. A 3% increase is a 3% increase on Tier 1 plan participants. You are welcome to call it whatever you want and then attempt to spin it as only being ‘loosely tied to CPI’. How utterly laughable.

    Maybe you are the original author of this TRS PR garbage. What a joke of a response.


  29. - Anon - Thursday, Mar 21, 19 @ 12:55 pm:

    So nice to see someone finally deal in the hard numbers about the sham that is jb’s can kicking.

    This also strikes right to the heart of how fraudulent their numbers are about the needed taxes from the progressive tax.

    As structured currently they might as well be the teaser rates on a loan before the balloon payment kicks in.

    The idea that we are going to massively increase taxes on everyone over $250K and still not be able to make the bare minimum on the pension payments should be a flashing red alarm for everyone.

    There has been an unseemly amount of head burying going on because jb makes pretty speeches and is nicer than Rauner was.

    I applaud the TRS for calling out the fraud the administration is engaging in.

    Just think of how much taxes will have been increased in the past decade once the progressive tax kicks in, and then think about the TRS statement of how all of those tax increases haven’t even put dollar one towards making the pension problems better. We still won’t be able to make the budget work without shorting the payment, despite all the new taxes.

    It should be criminal, and yet the people who should be outraged can’t be bothered.


  30. - Ole' Nelson - Thursday, Mar 21, 19 @ 1:03 pm:

    Ben Folds 5

    It will be interesting to see how wise or foolish your decision to cash out a Tier I pension turns out to be. You don’t strike me as a person with much self doubt, so likely you think you already know.


  31. - RNUG - Thursday, Mar 21, 19 @ 1:06 pm:

    == Have you had a chance to study the impact of the buyouts vs.the AAI? ==

    I haven’t. Been doing something more important … helping a friend put a new engine and transmission in his classic car.


  32. - RNUG - Thursday, Mar 21, 19 @ 1:10 pm:

    == Most state workers have a much lower pension formula than teachers. ==

    And a major part if that is SERS employees are also in SS; teachers are not.


  33. - RNUG - Thursday, Mar 21, 19 @ 1:16 pm:

    == Second, the terminology you choose to use of ‘AAI’ instead of the term ‘COLA’ is a distinction without difference. A 3% increase is a 3% increase on Tier 1 plan participants. ==

    Actually, it does matter. COLA (cost of living adjustment) by its’ name and general usage implies the amount is linked to a cost of living index (or inflation if you prefer) such as CPI-U and could vary from year to year.

    AAI (automatic annual increase) is, by definition, a fixed rate, 3% in the case of Tier 1, that has no direct relationship to a cost of living index. However, it does approximate CPI-U overall.


  34. - B Madoff - Thursday, Mar 21, 19 @ 1:19 pm:

    Sounds pretty much like my old Ponzi scheme I used to employ on my clients.


  35. - Ben Folds 5 - Thursday, Mar 21, 19 @ 1:20 pm:

    Ole Nelson…. haha. There’s no middle ground right? I took my 175k earns a healthy return. That is a guarantee of what I put in and will have it. That said, in 20 years I believe that this state will be forced to pay basic services or pension debt. Id rather have money and lose some than lose it all at an age I can’t earn more. That’s why I think TRS should be the group to push for a change to the constitution. They know their beneficiaries are never going to receive this benefit as is.


  36. - City Zen - Thursday, Mar 21, 19 @ 1:25 pm:

    TLL - I don’t think JS Mill was claiming that at all. He is saying that the benefit enhancements as they relate to AAI (or COLA) is not the main driver of the overall pension liability. And he is right.

    That’s not to say doubling the AAI rate and changing the AII calculation from simple to compounded interest came at no cost.


  37. - Demoralized - Thursday, Mar 21, 19 @ 1:29 pm:

    Ben Folds

    Changing the Constitution doesn’t change anything for anyone currently in the system. You don’t need to change the Constitution to fix the problem going forward. You can completely eliminate the current state pension plan for new employees. Problem is you’ve got a group such as yourself who are too laser focused on figuring out how to take pensions away from people now.

    You can change the Constitution all you want but it isn’t going to accomplish what you’re cheering for it to accomplish.


  38. - Anonymous - Thursday, Mar 21, 19 @ 1:37 pm:

    Changing the Constitution would eliminate the risk that this can happen again. That is a good reason to change it.


  39. - Anon - Thursday, Mar 21, 19 @ 1:41 pm:

    In the next 20 years we are likely to see the federal government allow states to file for bankruptcy.

    There will be no bailout, and some states will find themselves spending such a disproportionate amount of the general fund on pension obligations that they can’t meet their other governing obligations.

    People will only take ever increasing taxes in return for less services (because of the pension obligations eating up more and more of the state general fund) for so long before Washington inevitably takes action. Too many states are currently finding themselves handcuffed in a way fiscally that is not going to be sustainable without some sort of action to break the log jam.


  40. - JS Mill - Thursday, Mar 21, 19 @ 1:41 pm:

    @CZ- exactly.


  41. - Timmy's Left Leg - Thursday, Mar 21, 19 @ 1:41 pm:

    @City Zen

    I didn’t say the COLA/AAI was the main driver. I said the person who wrote the TRS PR was completely disingenuous and selectively picking out portions of the calculation, whilst ignoring the excessive rate increases, which are absolutely intrinsic to the debt figure itself.


  42. - Demoralized - Thursday, Mar 21, 19 @ 1:42 pm:

    ==n the next 20 years we are likely to see the federal government allow states to file for bankruptcy.==

    That’s laughable.


  43. - City Zen - Thursday, Mar 21, 19 @ 2:14 pm:

    ==That’s laughable.==

    If states were the only taxing body, it might be laughable. But we’ve got multiple layers of government within the state running in the red. Who’s going to bail out Harvey? Cook County is running in blood red too. Guessing they’ll come to the state first for help and the state can barely help itself.


  44. - Demoralized - Thursday, Mar 21, 19 @ 2:43 pm:

    City:

    They were talking about the state. The notion that states would ever be allowed to declare bankruptcy is laughable. It isn’t going to happen. And yet we keep having to listen to this ridiculous argument.


  45. - Andy S. - Thursday, Mar 21, 19 @ 2:50 pm:

    Kudos to TRS for challenging the Governor’s dangerous proposed pension funding reductions. I am still waiting for SURS to honor its fiduciary responsibility to me and other members and do likewise. It is shameful that an organization whose mission statement talks about securing and delivering the retirement benefits promised to its members has not yet done so.


  46. - Norseman - Thursday, Mar 21, 19 @ 3:16 pm:

    Sorry JB, this is another one I disagree with you on. Get your plan vetted and in place before changing payment schedule.


  47. - Lester Holt’s Mustache - Thursday, Mar 21, 19 @ 3:33 pm:

    ==Lester… the lesson I think that is over looked is Rauner was elected. ==

    No, I’m pretty sure we can safely say that Rauner being elected has never been “over looked” by anyone. And in the end, he made the pension problem worse - not better. You’re kind of a mess today, you feeling alright? You might want to sit out the next few plays


  48. - Honeybear - Thursday, Mar 21, 19 @ 4:43 pm:

    To the update: I’m kinda surprised by the Pritzker administrations response.
    It seems kinda a slap at the TRS concerns.


  49. - City Zen - Thursday, Mar 21, 19 @ 4:44 pm:

    Is “Firmer Fiscal Footing” performing at Lolla this year?


  50. - Anon - Friday, Mar 29, 19 @ 9:20 am:

    My issue I am a sub I will not see a penny of this nor do I care unfortunately I have to pay in until I can figure out a way to opt out which I am talking with my Rep about. All teachers should go on a 401K and the money they had paid into the system should be transferred to it.


Sorry, comments for this post are now closed.


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