Despite Strong Returns, Illinois Pension System Going Broke

The Teachers' Retirement System of the State of Illinois, a pension fund with more than $45 billion in assets, posted an 18% return on investments for the fiscal year in 2014. The assumed annual rate of return is 8%.

The fund's executive director, Dick Ingram, said that despite this good news, the system will continue to take the position that "TRS cannot invest its way out of the current underfunded liability created by decades of state funding shortfalls."

Unless the system sees some reforms fast, TRS's pension plan could run out by 2029. Currently the number of retired educators collecting more than $100,000 annually has increased by 24% in one year to almost 6,000 people.

According to a report from Open the Books, an online record keeper of local spending that keeps track of educator salaries and pensions, more than 100,000 retired educators had been paid back what they had put in in just 20 months after retiring. If this continues, it will end up costing taxpayers $2 million or more per retiree.

The report also discovered that most retirees end up making more than double what their salary was while working due to a guaranteed cost of living adjustment of 3% annually for 25 years during retirement.

"For most school districts, pension payments are one of the top five annual expenses," said Adam Andrzejewski, founder of Open the Books. "Are we going to educate children or provide lavish lifetime benefits for administrators and teachers? There's not enough taxpayer money to do both."

TLS has decided to pull back its investment allocations. The group had allocated $40 million with AQR Capital Management but has chosen not to renew its two-year contract, instead investing $1 billion with real estate and hedge fund managers.

Illinois has the lowest credit rating in the country. Moody's recently lowered Chicago's rating from A3 to Baa1, the lowest credit rating of any major US city except for Detroit.

As the largest retirement fund in the state, TRS accounts for one-half of the state's pension fund. However, it was allowed to go underfunded for years so that the state could afford other things such as more teachers, higher salaries and improved facilities. Because of this, the pension is about $54 billion underfunded.

"You'd have to close down the entire state government for more than a year to just pay TRS out," Ted Dabrowski, vice president of policy at the Illinois Policy Institute said. "This situation is obviously extremely unhealthy."

Area unions however, are defending the system, saying that the retired educators have no other means of support.

"It should be remembered that Illinois TRS members are not in Social Security," said Charlie McBarron, a spokesman for the Illinois Education Association, a union representing more than 130,000 Illinois education professionals. "Their pensions are, for most, their life savings."

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