Monday, May 16, 2011

Unfunded Liabilities & the TRS Pension

No matter what the Civic Committee of the Commercial Club of Chicago (Illinois Is Broke), the Civic Federation, National Taxpayers United of Illinois, and the legislators who are empowered by these groups say, as long as there are continued long-term, short-term, and diversified investments from TRS; a growing teacher workforce; vital membership contributions;  a guaranteed defined-benefit plan for all of its members; and the statutory State contributions to the pension plan, the pension fund’s assets do not have to match its liabilities. These obligations are long-term and will never necessitate a high liquidity of assets at any one time.
The TRS pension does not use a discount rate that is risk-free (such as Treasury bonds).  Its expected returns for its pension fund assets have averaged 9.83% since 1982 by investing in U.S. and international equities, bonds, fixed income, and real estate and by using a strategy that rebalances the investment portfolios according to the pension’s funding ratios and volatility of the market.  To use a discount rate that is far below the expected return on fund assets for actuarial valuations gives a distorted view of TRS’ finances.

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