State: All eyes on teacher pension fund projection

Illinois resident could be in for a shock if a pension board surprises them with an increased bill for fiscal year 2018.

The Teachers’ Retirement System is Illinois’ largest state pension fund. Its board is scheduled on Thursday to discuss changing how much it expects to make on annual investments.

Currently, the fund expects a 7.5 percent return from its $45 billion in assets. Lowering that percentage could create a hole in next year’s budget that officials said would cripple the state’s finances.

The State Pension Funds Continuing Appropriation Act requires Illinois lawmakers to pay into the state’s pension funds before they appropriate funds to other vital services, such as roads and education.

State Rep. Mark Batinick, R-Oswego, said the change in return expectations is needed, but that the timing reeks of political gamesmanship, suggesting a plot to force Gov. Bruce Rauner into a tax increase due to a budget-busting pension contribution in FY 2018.

“They probably need to lower the (expected investment rate of return), and they probably should have a while ago,” Batinick said. “I think the timing of it may be a little suspect. I’m always cognizant of that in politics. Things are done at certain times for certain reasons.”

Illinois’ $111 billion in unfunded pension liabilities has been the reason many credit agencies cite when the state’s credit rating is lowered. Batinick said it affects local governments as well.

“Cities such as Plainfield are spending money on interest at the local level because of what’s happening at the state level,” Batinick said.

Stanford University public policy Professor Joe Nation said pension funds across the country need to be more realistic about investment returns in today’s economy or they will continue a vicious cycle of underfunding the accounts.

“When measuring against an arbitrary number that most government pension funds set, just about everyone did poorly,” Nation said. “They earned zero percent to one percent last year, even though they budgeted for an expected 7.5 to 8 percent.”

Illinoisans were on the hook for another $200 million in contributions when the board lowered its ROI percentage from 8 to 7.5 percent in 2014. Rauner has said he supports a gradual change in any rate of return to give Illinois more certainty in its budget.

–Illinois News Network

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