Updated: January 1, 2018
Issue: The Teachers’ Retirement System Board of Trustees in December 2017 set a state government funding contribution to TRS for fiscal year 2019 at $4.47 billion. The state’s pension contribution for fiscal year 2018 is $4.09 billion.
Fiscal year 2019 begins on July 1, 2018.
Discussion: The state contribution for FY19 falls $2.93 billion short of the amount of money that would be required to fully fund pension benefits in FY19 under standard actuarial calculations.
Nonetheless, TRS absolutely will be able to meet its benefit obligations to retired teachers in the near future, but the System cannot guarantee retirement security for future generations of teachers unless the state’s future annual contributions meet an actuarial standard for full funding.
TRS earned a positive 12.6 percent, net of fees, on its investments during FY17.
Over the last several years state government has taken its responsibilities to TRS very seriously and has paid its legal obligation in full. Still, the legal state contribution for the last several years has been insufficient to improve the System’s long-term finances. State government’s annual contribution is set artificially by law. It is not an actuarial calculation.
As it does every year, for FY19 the TRS Board asked its actuaries to calculate two state contributions — the payment calculated under state law and the payment calculated under actuarial practices. Under standard actuarial practices, the state’s annual contribution for FY18 should be $7.4 billion.
The calculations set in state law artificially lower the state’s annual funding level. For instance, state law:
- Requires pension costs to be calculated on a 50-year timetable instead of the standard 30 years.
- Establishes a 90 percent funding target instead of the standard 100 percent goal.
- Requires the debt payments on state pension bonds to be deducted from the total contribution.
Illinois teachers have always paid their required share and are counting on their pensions to sustain them in retirement. The state has never paid its full share.
The annual contribution is the amount of money required by state law to fund TRS pensions during the coming year, as well as a payment on the System’s unfunded liability, which currently stands at $73.4 billion.
The state’s annual contribution to TRS is scheduled to be paid in 12 installments during the fiscal year. Each year in the autumn, the TRS Board of Trustees is required by law to calculate and certify the state’s contribution for the next fiscal year. These calculations are then reviewed by the Illinois State Actuary, Cheiron, of McLean, Virginia.