Illinois Teachers’ Pensions Return More than 8% in 2018

Investment returns fell by 50% from 2017 for state and university educators.

The $52 billion Teachers’ Retirement System of the State of Illinois (TRS), and the $21.8 billion Illinois State Universities Retirement System (SURS) returned more than 8% each in 2018, but that was down from more than 12% the previous year, according to reports from the state’s auditor general.

The TRS investment portfolio returned 8.5% net of fees for the fiscal year ended June 30, down from 12.6% in fiscal 2017, as total TRS investment assets increased approximately $2.9 billion during the year. Total net investment income was $4.0 billion, compared to $5.5 billion in fiscal year 2017, while contributions from members, employers, and the state of Illinois were $5.1 billion, up $53 million, or 1%, from 2017. Benefits and refunds paid to members and annuitants were $6.6 billion, an increase of $114 million, or 1.8%, from the previous year.

As of the end of June, the TRS’ funded ratio was 40.7%, compared to 40.2% on June 30, 2017, while the total pension liability was $129.9 billion, and the net pension liability was $77.9 billion.

During fiscal year 2018, contributions from the state of Illinois increased $109 million, while employer contributions from school districts decreased $65 million. The increase in state appropriations was primarily due to a reduction in the investment return assumption adopted in the 2016 actuarial valuation.

The auditor’s report said that state funding law provides for a 50-year funding plan that includes a 15-year phase-in period, and a goal of a 90% funded ratio by 2045. It also said that during 2018, Illinois Gov. Bruce Rauner and the state’s general assembly made “a number of significant changes in the Illinois Pension Code that will have a significant effect on the ongoing operations of Teachers’ Retirement System.”

This includes a new law that reduces the threshold on year-to-year salary increases for members that trigger extra employer contributions to TRS to 3% from 6%. The extra employer contributions are required only if the pay increase would factor into the calculation of a member’s initial pension.

TRS serves more than 417,000 total members, of which more than 134,000 are active members, and more than 122,000 are retirees and beneficiaries.

Meanwhile, SURS, which serves more than 211,000 members in its defined benefit plan, and over 22,000 members in its self-managed plan, earned an 8.2% return on investment, net of management fees, for fiscal year 2018, down from 12.2% in 2017.

It also reported three-, five-, 10-, 20-, and 30-year annualized returns of 6.8%, 8.1%, 6.7%, 6.4%, and 8.5% respectively. The auditor’s report noted that the 8.5% total rate of return over a 30-year period exceeded the actuarial rate of return assumption of 6.75% in effect for fiscal year 2018.

The SURS total pension liability was $46.8 billion at the end of fiscal 2018, up from just under $44 billion at the end of fiscal 2017, while the net pension liability rose to $27.5 billion at the end of 2018, from $25.5 billion a year earlier. Contributions from the state and employers to SURS were $1.68 billion in 2018, a decrease of $40.1 million, or 2.3%, from fiscal year 2017, while benefit payments were just under $2.5 billion, up $114.1 million, or 4.8%, for fiscal year 2018.

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