WHAT’S HAPPENING: The Teachers’ Retirement System is the pension fund for retired K-12 teachers from suburban and downstate public schools in Illinois. It is the state’s largest public pension fund. The board that oversees the fund is meeting at 11:30 a.m. today in Springfield. On the meeting agenda is lowering the expected rate of return on investments, which currently is set at 7.5 percent. 

WHY IT MATTERS: Illinois taxpayers could be on the hook for millions of dollars in higher pension payments this fiscal year if the Teachers’ Retirement System lowers its expected rate of return on investments. This would put additional strain on an already-tight state budget.  

BACKGROUND: Retired Illinois public school teachers are promised guaranteed pensions from the time they retire until they die. Pensions are funded by three sources: teacher contributions, taxpayer contributions and investment income. State law sets the amount of money put into the funds by or on behalf of teachers. However, the amount that taxpayers put in is not firm. When TRS does not earn as much as it expected to from investments, taxpayers must make up the shortfall. 

Currently, TRS’ expected yearly rate of return for future investments is set at 7.5 percent. However, it only received a 4.5 percent rate of return on investment income in 2015, and returns from the markets are expected to remain low in future years.  

THE AVERAGE CAREER TEACHER in Illinois retires at age 59, and will collect more than $2.2 million in pension benefits over his or her lifetime, according to TRS. However, the amount teachers put into the pension system is much less; state data shows the average career teacher puts in just $153,900 toward his or her own retirement savings. Since investment returns rarely match expectations, this means taxpayers are forced to pay the lion’s share of teachers’ pensions costs. 

IF TRS LOWERS ITS EXPECTED INVESTMENT RATE by half a percentage point, to 7 percent, then the state’s unfunded liabilities will increase by about $6 billion and taxpayer contributions to the pension fund could rise by more than $200 million in the next year. 

ILLINOIS POLICY INSTITUTE’S TAKE: From Vice President of Policy Ted Dabrowski: “Illinois’ pension funds are fundamentally broken. That’s why nearly 85 percent of private-sector companies have moved to defined-contribution plans, and states all across the country are implementing 401(k)-style reform. Illinois needs to follow their lead. Start by moving new government workers to 401(k)-style plans and offering current government workers the option to have their own self-managed accounts. Illinois also should adopt a constitutional amendment allowing Illinois to reform pension benefits going forward. All three of these options are constitutional, and would put an expiration date on Illinois’ pension crisis.”

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