Jonathan Ingram
Director of Health Policy and Pension Reform

Have you ever wondered what investments politicians have made using teachers’ retirement savings? If you haven’t, you should be interested.

That’s because the politicians want the state government, and by extension, your tax dollars, to financially guarantee the state pension funds in case they run out of money for government worker retirements. So just what kind of investments are they asking you to guarantee?

The Teachers’ Retirement System, or TRS, recently released its comprehensive annual financial report for 2012. As the report illustrates, taxpayers aren’t being asked to back safe investments such as government bonds. Instead, they’re being asked to bail out riskier investment strategies if and when they fail to bring in the promised investment returns. 

Take a look at TRS’s investment portfolio: roughly 43 percent of teachers’ retirement savings are invested in equities, which by their nature are very risky. Another 12 percent is invested in real estate – the last few years have shown us all exactly how risky that type of investment can be. 

But it doesn’t stop there. TRS is dumping money into fancier investments with less transparency, including complex derivatives, private equity and foreign currency bets.

If that weren’t bad enough, TRS is taking on higher risk even in its bond portfolio. TRS has more than $1 billion invested in bonds that Moody’s Investors Service or S&P Ratings Services rate as below investment grade. That’s the rating given to bond issuers who don’t have the capacity to meet their financial commitments. They’re commonly called junk bonds. More than 14 percent of the TRS bond portfolio is tied up in junk bonds.

These kinds of investments can earn big returns, but only because they carry much greater risk. And higher risks can mean bigger losses for government workers’ retirement savings.

You have to wonder how current and retired teachers feel about being forced to have their pension contributions invested like this. It’s one thing for workers to invest their money according to their own tolerance for risk. It’s quite another to force upon them the high-risk choices made in Springfield.

This is exactly why workers should be given the freedom to control their own retirement savings. Workers deserve to make investment choices that reflect their own needs and risk tolerance rather than having to watch politicians dump their contributions into speculative investments.

The only moral solution is to get politicians out of the retirement business altogether. It’s time to expand a program that already exists for workers at Illinois’ community colleges and public universities. Today, more than 10,000 government workers in Illinois participate in 401(k)-style plans that put them – not politicians – in charge of their retirement.

Union leaders and politicians want you to guarantee the high-risk investment decisions made by the politician-controlled pension systems. If and when these risky investments fail, they’re coming for your wallet so they can dump even more money into the failed pension systems.

Workers and taxpayers alike deserve to be liberated from the failed status quo.

But providing a taxpayer guarantee for the high-risk investment decisions made by politician-controlled pension systems only guarantees one thing: disaster.