As expected, the Illinois Retirement System board of trustees did as the actuaries suggested and this afternoon reduced the estimated return on investments from 7.5% to 7.0%.
Nothing about this is a reflection on the actual return on investments. It has been lower than even the 7% that the TRS board will recommend to the legislature.
The reduction in the estimation will increase the unfunded liability
But if you read what I just wrote you will immediately identify the problem here. With the state of Illinois owning an unfunded public pension liability of over $111 billion, this is all just so much a tempest in a teapot.
The TRS board is not playing politics. They are recommending what is actuarially responsible.
But the same cannot be said for the Governor.
Facing political troubles in November and an inevitable deal with the Democrats, Rauner is not happy about sitting down with Madigan on a tax increase with a larger pension hole.
Those knowledgable about Springfield (No. I haven’t even read any other internet reporters or Springfield observers. This is all from conversations and email exchanges with people I know) have told me they don’t agree with the Rauner people who have suggested Madigan’s fingerprints can be found on the TRS board action today.
Quoting one Illinois pension expert, “I haven’t detected the Madigan fingerprints on it, though some folks are saying that. Rauner is not necessarily trying to kill it, but he wants to see the numbers and a bill to “smooth” the impact of the rate change over five years like we do now with variations in annual investment returns. As a practical matter, returns below the assumption add to the liability and above it reduce the liability. Changing the assumption moves the “hurdle” if you will, for how much the liability moves in future years and discounts the present value of the fund assets at a lower rate, causing a one-time increase in the unfunded liability and, in turn, the required State contributions.”
In the short run, state contributions will go up.
That’s a good thing, unless Rauner tries to “reform” or stiff us out of some contributions.
In the long run, the state pays slightly more.
Rauner’s appointees all voted for the change except the two new ones who abstained.
Rauner’s big blunder was an attempt to fill the third seat with someone ineligible because of a Chicago residence.
For active teachers in TRS and for retirees nothing much changes. Our system remains underfunded and only a revenue fix can change that.