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Illinois pension math doesn’t add up, funds take in less than they pay out

By   /   January 17, 2013  /   1 Comment

By Benjamin Yount | Illinois Watchdog

SPRINGFIELD – The latest report on Illinois’ worst-in-the-nation pension systems shows not only huge losses in value, but a fundamental imbalance that is bankrupting the state.

Illinois’ five pension systems are all paying out more than they are taking in, and each saw their investments tank last year.

But the reports from the Illinois Auditor General’s office show that taxpayers across the state paid far more than the employees, and in some cases the “employers” as well.

The reports cover the fiscal year 2012 budget, which ended June 30, when the state paid $4.9 billion for all five pension systems.

Teachers, state workers, university employees, judges and lawmakers paid a combined $1.4 billion for their share of their retirement costs.

NOT FAIR: SBS’ Williams says taxpayers are paying too much for Illinois pensions.

The five systems paid out $8.2 billion in benefits, refunds and management fees.

“That is definitely unfair to taxpayers as a whole,” said Bob Williams, president of the watchdog group State Budget Solutions.

The biggest gap between money coming in and benefits being paid out is in the Teachers’ Retirement System, the largest of the state’s pension systems.

TRS took in $3.4 billion in contributions, $2.4 billion of that coming from state government, and paid out $4.5 billion in benefits. The teachers’ pension plan made a paltry $224 million from its investments, a $7 billion dollar drop from the year before.

TRS spokesman Dave Urbanek said market fluctuations are to blame, but he said TRS’s assets have rallied since June.

“It doesn’t do much good to fixate on a snapshot of investment returns for one static point in time. They fluctuate,” Urbanek said. “Our 30-year rate of return at the end of FY 2012 was 9.6 percent against a target rate of 8.5 percent.”

NOT THAT BAD: TRS’ Urbanek says teachers’ system is not as bad as the latest audit shows.

As for the gap between what the state is paying and what teachers themselves are paying, Urbanek said lawmakers made that deal years ago.

“The contribution rates for teachers and school districts are set by law – 9.4 percent for members and 0.58 percent for school districts,” Urbanek said. “The state always has paid the lion’s share.”

But that doesn’t mean it always will. And Urbanek said that could prove disastrous for the teachers’ pension system.

“If the state does not maintain or increase its funding levels, in about 20 years the annual cost of teacher pensions will exceed the total amount of assets TRS will have,” Urbanek added.”

Ben Schwarm, legislative director for the Illinois Association of School Boards, said the state needs to find a way to make those payments.

“It is important to remember that the legislature created the teachers’ retirement system, that the legislature set the benefit levels, and that the legislature will have to find a solution,” Schwarm said.

Schwarm, the school boards’ association and Illinois’ more than 800 school districts are fighting a plan from Democratic House Speaker Mike Madigan to shift the balance of retirement costs from Springfield to local schools.

“That would be a massive unfunded mandate from Springfield,” Schwarm said. “It’s $800 million that local schools don’t have.”

Williams, with State Budget Solutions, says the only way to fix Illinois’ pension mess is to get rid of defined benefit plans altogether and move to a defined contribution, 401(k)-style plan instead.

Contact Benjamin Yount at Ben@IllinoisWatchdog.org.

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  • Michael D.

    “Williams, with State Budget Solutions, says the only way to fix Illinois’ pension mess is to get rid of defined benefit plans altogether and move to a defined contribution, 401(k)-style plan instead.”
    Exactly!