•
Fiscal Year 2016 Assets - $44.8 billion (down 3.6%)
•
Benefits Paid in FY 2016 - $5.9 billion (up 7.3%)
•
Investment Return in FY 2016 – 0.8%
•
Benefit Recipients – 116,582 (up 1.4%)
Time
Period June 30, 2015 June 30, 2016
Fiscal
Year Fiscal Year
1 Year + 4.6% + 0.8%
3 Years + 11.9% +
7.6%
5 Years + 12.04% + 7.4%
10 Years + 7.15% +
6.0%
30 Years + 9.1% + 8.8%
Domestic Equity: $7.9 billion, 17.7% of total, -1.26% Return
International Equity: $8.4 billion, 18.9% of total, -9.13% Return
Private Equity: $5.4 billion, 12.1% of total, +2.5% Return
Real Return: $3.5 billion, 7.8% of total, -0.7% Return
Real Estate: $6.9 billion, 15.5% of total, +14.2% Return
Absolute Return: $3.2 billion, 7.3% of total, +0.4% Return
Cash: $812.4 million, 1.8% of total.
TRS always
focuses on long-term results more than on any one year because
the System must be financially secure for all members, whether they’re
85, 65, 45 or 25.
The Board of
Trustees reduced its long-range assumed rate of investment return to 7 percent
from 7.5 percent on August 26, a move that reflects changes in the world
economy that are expected to dampen investment results. The Board vote
was 10-0, with 2 abstentions.
The reduction in
the assumed rate of return does not affect most TRS pensions.
It's the third time in
the last four years that TRS has reduced its assumed rate:
•
2012: 8.5 percent to 8 percent
•
2014: 8 percent to 7.5 percent
The assumed
investment rate is a 30-year estimate of what, on average, TRS will earn from
its investments. Currently, the
actual TRS investment rate for the last 30 years is 8.8 percent, which beats
the new assumed rate of 7 percent, as well as the old assumed rate of 7.5
percent and the rate in 2012, which was 8.5 percent.
The
reduction in the TRS assumed rate of return will increase the amount of money
state government will be required to contribute to TRS in fiscal year 2018 by
$400 million to $500 million.
The State contribution in FY 2017 is $3.986 billion
The assumed rate
is one of the factors plugged into the TRS funding formula, along with active
member contributions, school district contributions and the contribution from
state government.
The
contributions from members and school districts are fixed by law.
The rate and the
state contribution “float” and move in opposite directions.
The rate is tied
to the economy and the productivity of the investment markets, so when it
declines, the state must pay more in order to meet the pre-determined annual
cost of benefits. When the rate increases, the state has to pay less.
Many economists
explain that bonds are carrying interest rates at near-record lows and the
stock market has been and will continue to be volatile, so the return
expectations will be low.
Two measures in the House:
House Bill 5625, sponsored by State Rep. Mike Fortner, R-West Chicago, and
House Bill 4427, sponsored by State Rep. Mark Batinick, R-Plainfield:
Each bill allows TRS members to opt out
of a lifetime pension for a one-time lump sum cash payment. Both bills will likely remain in the
committee for study this year.
TRS Executive
Director Dick Ingram told legislators in March that a “buyout” is a benefit cut
that would “do little or nothing” to improve the financial health of TRS:
“…[I]t must be stated that any buyout –
whether it be full or partial, at retirement or before, rolled over into an IRA
or used to purchase an annuity – is a reduction in the guaranteed benefit that
the member may have earned up to the point of the buyout. You won’t see any significant relief
for the unfunded burden we already have created. In fact, the buyouts may
actually serve to accelerate the state’s pension obligations.”
Both “buyout”
plans are designed to reduce the state’s total pension liability and still
provide retiring members with money for their retirements.
A reduction in the total pension
liability, in theory, would reduce state government’s annual contribution and
free up money for other spending priorities.
TRS currently has less than 42 cents for
every $1 owed to all 400,000 members, so TRS would be unable to fund any buyouts
and pay the benefits of members that keep their pensions.
Gov. Bruce
Rauner says he supports a proposal by Senate President John Cullerton that they
argue would legally bypass the Illinois Constitution and reduce pension
benefits for active Tier I members.
Option 1: Trade
the current 3% compounded Tier I COLA for the Tier II COLA, which is half the
rate of inflation. In return, all future salary increases will be “pensionable.”
Option 2: Keep
the 3% COLA, but all future salary increases will be “non-pensionable.”
Supporters of
the plan say it supersedes the Pension Protection Clause because active members
will have a “choice.”
The attorneys
that successfully challenged Senate Bill 1 disagree: “…[T]he Cullerton proposal would force upon pension
system members a choice between two diminishments of their constitutionally protected
pension rights. The fact that a 'choice' is offered does not matter. Either 'choice' would be a pension diminishment…”
The above information was from a power-point presentation at IEA
Retired, Lombard, Sept. 1, 2016.
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