THE TRS PENSION: “NOTHING BUT THE FACTS”

“The teachers’ pension was originally established to keep college-educated people working in a difficult and stressful job without the higher salary, benefits, and bonuses commonly rewarded to comparably-educated workers in the private sector”                                  (Bob Lyons, TRS Board Trustee).

State and Local Government Pensions

“Retirement systems remain a small portion of state and local government budgets” (National Association of State Retirement Administrators (NASRA).

“Public pension plans are not in crisis… State and local government retirees do not draw down their pensions all at once” (NASRA).

“Public employees share in the financing of their pension, which in many cases is in lieu of Social Security” (NASRA).

“Pension dollars help the economy of every jurisdiction” (NASRA).

“Long-term investment returns of public funds continue to exceed expectations” (NASRA).

“State and local government retirement systems do not require, nor are they seeking, federal financial assistance” (NASRA).

The Illinois Pension Clause and the Courts

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” (Article XIII, Section 5 of the Illinois State Constitution).  

In other words, “The Pension Clause not only makes a public employee’s participation in a pension system an enforceable contractual relationship, but also constitutionally protects the pension benefit rights contained in the Illinois Pension Code when an employee joins a pension system, including employee contribution rates”  (from the Abstract for “IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS?” AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION by Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate).

The decision of the Illinois Supreme Court case, McNamee v. State of Illinois (1996): “The Illinois Supreme Court ‘consistently invalidated amendments to the Pension Code where the result is to diminish benefits’ to which State employees acquired a vested right when they entered the pension system” (former Appellate Court Justice, Gino DiVito, in a letter on behalf of Governor Quinn, April 13, 2010).

Illinois Pension Specifics

*There are 87,961 retired teachers in Illinois (November 2010).

*Teachers and administrators contribute 9.4% of salary every year of employment.

*Eighteen pensions (0.02%) are between $200,000 and $250,000, [all retired administrators].

*One hundred-and-fifty-three pensions (0.17%) are between $150,000 and $200,000, [primarily administrators].

*There are 1,985 pensions (2.26%) that are between $100,000 and $150,000, [mostly administrators].

*There are 33,885 pensions (38.52%) that are between $50,000 and $100,000.

*There are 51,920 pensions (59.03%) below $50,000 (IEA).

*Of those 51,920 pensions, 17,269 are less than $20,000.

*The average statewide TRS monthly annuity after 29 years teaching is $3,565.

*TRS members DO NOT receive Social Security benefits for their years as an educator. Their sole retirement is their TRS.

*The state saves billions by not having to pay into Social Security, which private employers must do; teachers also pay a monthly premium for their healthcare (TRS).

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“Teacher defined-benefit pensions are smart, effective tools to help keep teacher recruitment and retention costs as low as possible, providing modest, dependable retirement security at about half the cost to taxpayers of other pension models” (Jim Mosman of the National Council on Teacher Retirement, National Institute on Retirement Security).

Defined Benefit Plan (TRS)                                 Defined Contribution Plan (401K, etc.)                                 

Guaranteed benefits                                                 Benefits based on investment earnings
Lifetime benefits                                           Benefits end when account is exhausted
Survivor and disability benefits part of the plan         Not part of the plan
Encourages stable workforce                                   Allows for portable assets
Investment fees paid by retirement system               Investment fees paid by member

 (Illinois Federation of Teachers)

 The Source of the Problem in Illinois

ü  Illinois has not paid its annual pension bill in full for decades but has used reverse compounding: “A pension plan's obligations are determined in part by the expected investment return on its assets. In the case of Illinois, that is 8.5%. So for every dollar not added to assets in time, the state is effectively borrowing from the [TRS] pension plan at 8.5% interest” (Business Week).

ü  “For this current fiscal year, $700 million of the State’s payment to TRS represents “normal cost,” the amount determined by the actuaries necessary to fund the pensions of current teachers. [In addition,] over $1.4 billion was required to make up for what Illinois did not put into the fund in the past”

(Bob Lyons, TRS Board Trustee).

ü  TRS has depended mostly upon income from its own responsible investments and its contributions from its membership throughout these years:  “The majority of these trust fund monies – 72 percent for the period from 1982 to 2008 – are made up of employees’ contributions and investment earnings”

(US Bureau of the Census, “State and Local Government Employee Retirement Systems”). 

ü  “Indeed, at the time of the 1970 Illinois Constitutional Convention, the State pension systems were no better funded than they are today”

(from the Abstract for “IS WELCHING ON PUBLIC PENSION PROMISES…”).

ü  “The State’s failure to make its required employer contributions to the five pension systems can be traced to one, simple cause: a state fiscal system that is so poorly designed for decades failed to generate enough revenue growth to both maintain service levels from one year to the next and cover the state’s actuarially-required employer contribution to its five pension systems” (Charles N. Wheeler III, Director of the Public Affairs Reporting program at the U of I, Springfield).

Conclusion: “If the Teachers’ Retirement System and the other four pension funds had received the required funds from the State of Illinois, then the systems could have invested the funds and grown the assets, so that today’s total unfunded liability of over $85 billion would instead be a small fraction of that amount. Then pension funding would be a non-issue in Illinois” (Bob Lyons, TRS Trustee).

(More info: http://www.ieanea.org/media/Myths-and-Facts-About-Our-State-Funded-Pensions-2010.pdf)