The $40 billion pension hole? A Trib fairy tale.

The Chicago Trib ran a scary fairy tale this morning about the $40 billion shortfall in the TRS bank account. It is all part of a strategy to dismantle what was promised to teachers as deffered compensation.

I got lots of calls from teachers this morning about this Tribune hoax. Here are the facts directly from Rich Frankenfeld, Director of Outreach for the Teachers’ Retirement System of the State of Illinois.

• The Chicago Tribune today published a front-page story that uses selective facts to say that Teachers’ Retirement System is “$40 billion short of what’s needed to cover future benefits.”

• The story is misleading because it never explains that the $40 billion “shortfall” is a long-term deficit that never comes due at one point in time. The “shortfall” is the unfunded portion of the System’s total liability of $77 billion.

• TRS will have enough money to pay pensions this year and for many decades to come. TRS has carried an unfunded liability since 1953 and has always paid retired teachers on time. We have never missed a pension check. This story is old news.

• The main problem with the story is that it confuses the total TRS “mortgage” – $77 billion – with the “mortgage payment” – what the System needs in any one year to meet its pension and benefits obligation. This year that amount is $4.1 billion. Like any homeowner, we can’t pay the mortgage off at one time, but we can make the mortgage payment.

• In fiscal year 2010 the TRS “mortgage payment” was $3.9 billion and our total revenue was $6.8 billion. We had more than enough money to cover those expenditures.

• The total liability never comes due because active teachers cannot collect their pension. Only retired teachers can collect a pension. For the total liability to come due at one point in time all teachers would have to be retired and school districts would have to be out of business.

• The story says that Illinois teacher pensions “get higher benefits, on average, than government retirees in most pension plans.” The national average benefit is $30,642. The average TRS benefit is $40,798. While factually correct, that is true in part because retired teachers don’t receive Social Security. Illinois teaches contribute more to their retirements than most teachers in other states. No one can consider $40,798 as an “extravagant” pension. It’s very misleading.

• The TRS unfunded liability was created by state officials who since the 1950s decided not to give TRS all of the money required to cover current and future pension obligations. As a result, TRS has never been given the opportunity to function as it was designed to function. A system that has been properly funded can expect to have investment earnings pay for 60 percent to 65 percent of benefits. It is estimated that the state has held back as much as $14 billion in funding from TRS over the years. Because TRS has not had this money to invest, the difference has to be made up with higher contributions from taxpayers. Although TRS has exceeded its investment target over the last 25 years, investment income only pays for 49 percent of TRS benefits.

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