* We’ve already discussed the TRS statement in question, but this is a new story from the Illinois News Network…
In a statement, the entire board of the Teachers Retirement System of Illinois, which manages the retirement funds for all public teachers except those in Chicago, condemned Pritzker’s proposal to short the accounts by hundreds of millions of dollars in the coming fiscal year.
“The system is at a growing risk of insolvency in the event of an economic downturn,” it read. “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.”
State Rep. Steve Reick, R-Woodstock, told lawmakers on the House Floor that they’re ignoring the problem and need to begin examining where state money is sent in lieu of properly funding pensions.
“This is the first time any of our pension systems have ever used that word,” he said, referring to the use of the term “insolvency” by TRS. “Where are the audits of outside vendors to show that the money that we’re giving them is actually being spent wisely? Before we raise one dime in taxes, we owe the people of Illinois the privilege of knowing how we spend their money.”
Some lawmakers applauded. No official action was taken.
* A search of the TRS website shows the pension fund has actually been using a version of the word “insolvent” for over 6 years…
December 19, 2012
Dear TRS Members:
This report summarizes the financial condition, investments, actuarial conclusions and statistical information about members, school districts, revenues and benefits for TRS during the past fiscal year. […]
Our members and Illinois taxpayers deserve a solution that puts TRS on permanently sound financial footing. There are no magic answers awaiting discovery, only tough choices. In response to this situation, the TRS Board of Trustees in 2012 approved a resolution that acknowledged the threat of insolvency due to these fiscal challenges.
* There are other mentions, but here’s 2017…
“The changes enacted this year in the pension funding formula move TRS further away from financial stability and continue to kick the can down the road. Period,” said Dick Ingram, executive director of TRS. “Cutting the state’s contribution only increases our concern that TRS will eventually become insolvent.”
The TRS unfunded liability in FY 2012 was 40.6 percent. It was 40.2 percent in Fiscal Year 2017.
And now you may see why some folks say using the word “crisis” when talking about the pension issue can be counter-productive and force the General Assembly to take hasty action that doesn’t really do much. Also, crying “Wolf!” might do more harm than good. It certainly hasn’t done much good so far.
* To be clear here, this is a very real and truly vexing problem. And skipping almost $900 million in pension payments for seven years, as the governor proposes doing, is only gonna make it worse.
What we need to do is pay into the freaking system and stop the gimmicks and the scare tactics. Neither are getting us anywhere. You wanna help? Find $2 billion a year. Auditing state contractors ain’t gonna do that.
- NeverPoliticallyCorrect - Monday, Mar 25, 19 @ 2:18 pm:
As a state funded grantee I can tell you, you can audit us as much as you want and you’re not going to find some hidden stash of money or fraud. Most state contractors are underpaid as it is. The Dems have control and perhaps soon they will wish they didn’t.
- Stuntman Bob's Brother - Monday, Mar 25, 19 @ 2:31 pm:
How can the system become “insolvent” when payments are constitutionally backed? It can’t become insolvent until there is no one and nothing left to tax. And we’re still a long ways away from that, it’s just a matter of deciding who’s going to take one for the team. JB’s opening proposal is the top 3% of income earners. Still waiting on the GA’s response. But whatever happens, somebody’s gonna hate April 15th more than they used to.
- Blue Dog Dem - Monday, Mar 25, 19 @ 2:36 pm:
Keeping LGDF payments in full would spread the pain statewide. Just like it’s supposed to be.
- Steve - Monday, Mar 25, 19 @ 2:44 pm:
You can’t have a pension system if the appropriate money isn’t put into the pension fund. How much longer can the SEC allow this? No S&P 500 company would be allowed to send out checks if this was going on year after year. Teachers deserve way better than this.
- Rich Miller - Monday, Mar 25, 19 @ 2:46 pm:
===No S&P 500 company===
Gee, I wonder what the difference is between a corporation and a sovereign state?
Hmm…
Nope. Can’t think of one.
- SSL - Monday, Mar 25, 19 @ 2:49 pm:
One of the first things JB does is kick the can down the road for seven years and we shouldn’t say we have a crisis. Okay, let’s call it something else then. Perhaps that would be a good topic for question of the day?
As for solutions, raise the flat tax to 8%, and once the progressive tax is approved, get the top rate to 12%. Time to rip the bandaid off.
But JB won’t have the courage to do it. He’s a can kicker.
- The Original Name/Nickname/Anon - Monday, Mar 25, 19 @ 2:50 pm:
==How can the system become “insolvent” when payments are constitutionally backed?==
The pension system has no taxing authority. In the far off hypothetical where TRS runs out of money, they can’t pay benefits. No one really knows what happens. It could be back to court before the state is forced to cough up the money to TRS.
TRS really has no political power, so all they can really do is scare the GA into doing something. I am sure they talk regularly to legislators, but that only helps so much.
- Shemp - Monday, Mar 25, 19 @ 2:54 pm:
===Keeping LGDF payments in full would spread the pain statewide. Just like it’s supposed to be.===
So would you also propose locals be able to lift property tax caps or institute more local sales taxes or income taxes to make up for the loss? Would you give them more control in collective bargaining? Would you allow locals to set their own prevailing wages? Without some big changes, cutting LGDF just means shuttering key local services like fire stations.
- Steve - Monday, Mar 25, 19 @ 2:58 pm:
Rich:
That’s why some people think it’s alright to stiff public pension funds, someone will just mystically come up with the money while the fund is massively underfunded. The standards of private sector pensions funds should apply to the public sector but they don’t.
- OneMan - Monday, Mar 25, 19 @ 3:03 pm:
Has the ‘waste and fraud’ fairy ever come up with nearly as much money as people have claimed it would?
Ever?
- Not a Billionaire - Monday, Mar 25, 19 @ 3:04 pm:
I could accept 3 years until we get the progressive tax but 7 is too much.
- very old soil - Monday, Mar 25, 19 @ 3:04 pm:
The Original
The Illinois Supreme Court has already ruled on this issue AFTER THE IFT sued in the early 70S as I recall.
- Skeptic - Monday, Mar 25, 19 @ 3:08 pm:
Has the ‘waste and fraud’ fairy. You forgot “abuse”. But no, he/she/it/they hasn’t.
- Blue Dog Dem - Monday, Mar 25, 19 @ 3:11 pm:
Shemp. Local control. You bet. The old shutter fire station scare is akin to dropping high school sports prior to a property tax increase.
- OneMan - Monday, Mar 25, 19 @ 3:12 pm:
Skeptic, fair point. Would put abuse under fraud.
But legitimately, in anything that spends a significant amount of money (or even insignificant), there is going to be some waste and fraud someplace in the process. Because everything in life has that to some degree.
- Annonin' - Monday, Mar 25, 19 @ 3:13 pm:
Is it OK to mock Reick’s feigned concern? In his quest to out shrill McSweeney they rant about cutting property taxes and teacher pensions. Guessin’ they think total “free lunch” Not surprising.
- The Original Name/Nickname/Anon - Monday, Mar 25, 19 @ 3:14 pm:
==The Illinois Supreme Court has already ruled on this issue AFTER THE IFT sued in the early 70S as I recall.==
I understand that, but how will the situation actually play out after TRS spends its’ last dollar?
I would say they would be insolvent, at least temporarily until the State is somehow forced to give them the money to pay benefits.
- Skeptic - Monday, Mar 25, 19 @ 3:20 pm:
OneMan: I was poking fun at the mantra “waste, fraud and abuse”, but agree with you. A podcast I listen to often says “To a credit card company, 1% loss due to fraud is a good day.”
- JS Mill - Monday, Mar 25, 19 @ 3:44 pm:
=So would you also propose locals be able to lift property tax caps=
MJM said “NO” to this about 7 years ago. That was when cost shift was first discussed for school. The idea of cost shift was something that MJM liked or likes, just not enough to support the ability to levy for it. And just so you know- school already have a distinct ability to levy for IMRF and SSI. So why not pensions?
=or institute more local sales taxes=
The state allows for a 1% sales tax to help pay for facilities and nothing else.
= or income taxes to make up for the loss? Would you give them more control in collective bargaining?=
If only one side has control it isn’t bargaining.
=Would you allow locals to set their own prevailing wages?Without some big changes, cutting LGDF just means shuttering key local services like fire stations.=
Sounds very Raunery and that was crushed in the last election.
- wordslinger - Monday, Mar 25, 19 @ 3:48 pm:
–How much longer can the SEC allow this?–
What role do you imagine the SEC has to play here? I’m at a loss.
It’s the U.S. Securities and Exchange Commission. They enforce federal securities laws.
- Six Degrees of Separation - Monday, Mar 25, 19 @ 4:04 pm:
What happens after the state pension funds are depleted? There are a few hundred thousand state pensioners who, if they miss a check, will have mighty leverage in any kind of class action lawsuit with the pension clause.
- Dan Johnson - Monday, Mar 25, 19 @ 4:15 pm:
There’s almost $2B in revenue from ending the pension income exemption from the state income tax. Put it all directly into the pension funds.
- Just saying - Monday, Mar 25, 19 @ 4:21 pm:
Funny people keep saying raise taxes to fund pensions. That is a cop out. Pensions are part of an overall funding liability along obligation. So why not say they need to raise taxes to cover their general obligations? Or pay the pension requirement, then say we need to raise taxes to fund our general obligations shortfall? Human services is about half the state budget, so maybe let’s say we need to raise taxes to pay for human services obligations? If I have 20 bills to pay, I don’t say I am in trouble because I have an electric bill obligation, or a water bill. Gee if I can get rid of that water bill; things will be fine again. No, I have 20 bills which are my general obligations.
Pensions aren’t the problem. Too much spending and too much overall obligations are the problem.
- Just saying - Monday, Mar 25, 19 @ 4:26 pm:
Also, keep in mind that state workers did not have a choice about paying into the pension. It was not a choice. Therefore it should not be a choice if the state wants to fund something state workers were forced to participate in. Everyone pays social security so everyone wants their social security they have coming. We were forced to pay it. Same thing.
- City Zen - Monday, Mar 25, 19 @ 4:28 pm:
==how will the situation actually play out after TRS spends its’ last dollar?==
Then the pension system becomes pay-as-you-go and pension payments come out of the operating budget. That will be fun.
- Blue Dog Dem - Monday, Mar 25, 19 @ 4:33 pm:
CZ. odd that you should reference pay as you go. Had dinner Sunday with a 35 yr veteran bond trader. He thought that day might be in as few as six years.
- Earnest - Monday, Mar 25, 19 @ 4:35 pm:
>Where are the audits of outside vendors to show that the money that we’re giving them is actually being spent wisely?
I read this as go after the pinstripe patronage contractors, undo a lot of the inefficient outsourcing and instead hire a bunch of Tier 2 state employees so that more people are paying into the pension system. /s
- Rich Miller - Monday, Mar 25, 19 @ 5:07 pm:
===and pension payments come out of the operating budget===
Might be cheaper.
- Rich Miller - Monday, Mar 25, 19 @ 5:13 pm:
Hey, Nanavati. You’ll never get through.
- Sue - Monday, Mar 25, 19 @ 5:35 pm:
Say what you wZnt about Rauner but he funded the pensions for 4 years at the required amounts - JB is shorting thecpensions in order to increase funding of programs he favors to abide by his rediculous campaign promises. The State’s number 1 and 2 priorities need to be paying bond debt and then pensions. Whatever is left is discretionary. Your new Dem Governor is doing exactly what the great majority of Cap Fax contributors have criticized past pols- kicking the Dan on pension payments while spending the money elsewhere. The legislature should refuse and curtail JB’s pension dodge
- Rich Miller - Monday, Mar 25, 19 @ 5:41 pm:
===but he funded the pensions for 4 years at the required amounts===
He had no choice. It was on auto-pilot. It’s still on auto-pilot. Pritzker wants to, um, “adjust” the auto-pilot.
- Rich Miller - Monday, Mar 25, 19 @ 5:42 pm:
…Also, he tried to browbeat TRS into not lowering its return assumptions. Didn’t work.
- Sue - Monday, Mar 25, 19 @ 5:47 pm:
Rich- you are agreeing with me- Rauner took no action to undermine the specified ramp pension payments. Right out of the box- Pritzker is suggesting taking action which created the mess in the first place- spending on discretionary programs in lieu of making the pension contributions. Kind of sad that the TRS interval referred to 2012-2017 during which we had a bull market- the funding ratio dropped reflects that the State really needs to investigate how the fundsare being managed. The allocation to hedge funds has dramatically impacted performance
- Sue - Monday, Mar 25, 19 @ 5:58 pm:
Rauners failure with respect to pensions was failing to better professionalize the composition of the Boards. To the extent the State is on the hook for these obligations it’s about time for a Governor to force the Boards to hire a firm like Blackrock to ascertain how to maximize investment returns. It is unconscionable that such steps have not been taken. If Pritzker does anything for the collective benefit of the participants taxpayers and the State he really needs to force changes of the investment prerogatives of our lay boards of Trustees. Earning the hurdle rates and taking a victory lap is nonsensense when those returns lag the returns of similarly situated plans