Courtesy of Mish.
In spite of a 12.8% annual return, with an 8% return assumption, the Illinois Teachers Retirement System (TRS) fell another $3.5 billion in the hole. TRS pension underfunding grew to $55.73 billion as of June 30, 2013.
Via email, the Illinois Policy Institute explains the growing liability.
First, TRS only has $0.40 in the bank for every dollar it should have today to make necessary pension payouts in the future. That means the high investment returns in 2013 were earned on less than half of the assets that TRS should have
TRS acknowledged this in a recent press release:
“Despite these strong returns, TRS cannot invest its way out of the funding hole we are in,” Ingram added. “This increase in the System’s unfunded liability, even with good investment results, is another wake-up call to state officials and our members that TRS long-term finances continue to head in the wrong direction.”
“Without changes to the pension code to ensure sustained and adequate funding, TRS faces the very real possibility that in a few decades the System will not have enough money to pay benefits to retirees. We cannot guarantee that TRS will have enough money to pay the pensions promised to every member in the System.”
Second, the inherent flaws of the state’s defined benefit pension system have driven up the shortfall significantly. According to the Commission on Government Forecasting and Accountability, the state’s pension shortfall grew by $41 billion from 1996 to 2012.
Of that amount, nearly $23 billion came from some form of missed “assumption” that continually plagues defined benefit pension plans:
- The investment returns for the state’s five pension funds were lower than their assumed 8% expectation. Cost to taxpayers: $9.5 billion.
- Unplanned benefit increases for employees. Cost to taxpayers: $1.1 billion.
- Changes in actuarial assumptions. Cost to taxpayers: $4.9 billion.
- “Other” actuarial factors. Cost to taxpayers: $7.2 billion.
TRS fails to acknowledge the failures of the defined benefits plan and instead chooses to blame taxpayers for not contributing enough to the system.
Who is to Blame for Shortfalls?
Please consider the Illinois Policy Center report State pension contributions: Taxpayers bear the brunt of increasing pension costs
A common refrain sounded by public sector unions is that government workers have consistently “paid their share” into Illinois’ pension systems and the state has not. However, the facts tell a different story.
While government worker contributions to Illinois’ five pension systems have increased by 75 percent since 1998, taxpayer contributions have increased by 427 percent over the same period. In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did….
