SPRINGFIELD – The amount Illinois must pay to keep pace with its pension systems should grow less than 2 percent next year but still total nearly $7 billion, according to a report released Tuesday.
A state actuary’s report released by Auditor General William Holland estimates that taxpayers must pay $6.86 billion in the fiscal year that begins July 1. That’s up about $100 million from this fiscal year.
Chicago-based Cheiron was chosen to fill the role of state actuary, a position created in 2012 to review the pension systems’ finances – which are some $100 billion in debt – and suggest ways to fix the problem. It recommended that three systems – covering teachers, university employees and general state workers – lower the annual estimated investment return they expect so projections aren’t too rosy. It made the same suggestion last year but the numbers didn’t change.
That rate of return is based on a 30-year average, and re-establishing it each year would interrupt other projections – including how much the state must contribute, said Dave Urbanek, spokesman for the largest pension system, the Teachers’ Retirement System. But he noted that the TRS board, which had established a five-year review, has adopted a three-year schedule.
“Our board recognizes in an uncertain economy it needs to be revisited on a quicker schedule,” Urbanek said.
Cheiron recommended that the TRS lower its 30-year average estimated return to an unspecified number lower than 8 percent, pointing to evidence that return cannot be sustained. TRS said it estimates an 8.37 percent return during the next three decades, but the actuary said its evidence was not sufficient.
The report doesn’t take into account the landmark pension-reform legislation lawmakers and Gov. Pat Quinn approved in early December after years of wrangling over how to close a $100 billion debt in five state pension systems.
The law, which cuts benefits and raises the retirement age for younger workers but also reduces employees’ contributions and includes a state funding guarantee, would cut the systems’ debt by $21 billion and save $160 billion over 30 years. But it doesn’t take effect until June 1, and a group of retired teachers and other educators have filed a lawsuit claiming it’s unconstitutional.
In the meantime, the state must continue putting up hefty contributions – cutting into education and other services – in order to keep up.
Still, the fiscal 2015 contribution is far less than the nearly $1 billion increase taxpayers had to pay in each of the last two years as lawmakers dedicated themselves to paying what was owed to the systems.
One reason for that, according to Urbanek, is a higher-than-expected rate of return of 12.8 percent this year, compared to the 8 percent that TRS estimates. Urbanek represents a pension account to which half of the state contribution goes – $3.4 billion next year.
Urbanek said TRS has average a rate of return of 9 percent during the past 30 years. In recent years, it’s been as high as 23.6 percent in 2011 to as low as negative-22.7 percent in 2009, after the economy took a nose dive.