Monday, October 29, 2012

TRS tries to nudge lawmakers into larger annual contributions

By Jamey Dunn

The board of directors for the Illinois Teachers' Retirement System plans to urge legislators and Gov. Pat Quinn to consider making larger annual payments into the system.

Last week, the board set the state’s annual contribution to retirement costs for teachers outside of the city of Chicago at $3.4 billion for next fiscal year. However, the group says that the payment is more than $900 million short of what would be needed to adequately fund the system according the standard accounting practices. “Over the last several years, state government has taken its responsibilities to TRS very seriously, has paid its legal obligation in full and should be congratulated for that,” TRS Executive Director Dick Ingram said in a written statement. “However, the legal state contribution for FY 2014, and for the last several years, has not been enough to improve the system’s long-term finances. The contribution is set artificially by state law. It’s not an actuarial calculation.”

This week, the board plans to push the issue by sending a letter to Quinn and legislators urging action to stabilize the system. From now on, when it approves the annual state contribution, the group also plans to include the amount of money that would be needed to properly fund retirement costs based on standard actuarial calculations. “The board feels very strongly that the amount of money that the state is being asked to contribute is an extension of past bad practices by the legislature,” said TRS spokesman Dave Urbanek.

 The letter is a reiteration of a resolution the board approved in the spring. In the resolution, the board did not back any specific proposal but instead laid out provisions that should be included in any pension reform approved by the legislature. The resolution called for:

  • The use of standard accounting practices to determine the state’s annual contribution.
  •  A statutory guarantee that the annual payment will be made. 
  • A provision that corrects the “existing inequities and funding flaws” in the Tier II pensions system that was created for any workers hired after January 2011. Critics of the new plan say its benefits do not meet the legal requirements for retirees, such as teachers, who will not receive Social Security Benefits. 
 “The Board of Trustees of the Teachers’ Retirement System reiterates and reaffirms its resolution of March 30, 2012 (as amended on April 30, 2012) declaring that present legislative action is paramount to ensure the continued solvency and viability of the plan, by providing for fairness and equity in benefits, adequate funding and adherence to generally accepted actuarial principles and standards. Additionally, the Board of Trustees underscores its unalterable position that any changes to the Pension Code must adhere to the Pension Protection Clause, Article 13, Section 5, of the Illinois Constitution of 1970,” said a statement released today by the board of trustees.

There are varying opinions among legislators as to which changes would be constitutional. Some say that reducing the cost-of-living increases given to retirees would pass muster. Others argue that as long as retirees get a choice or something in return for a benefits cut, there is no constitutional violation. Some say that any reduction to benefits would violate the Constitution. If a proposal passes in the General Assembly and is signed by the governor, the ultimate decision will almost certainly rest with the courts.

Teachers unions balked at the resolution when it was approved by the board in the spring and have accused the board and Ingram of inserting themselves into a political debate and not looking out for the best interests of retirees and future retirees. The Illinois Federation of Teachers called for Ingram’s resignation after he commented on pension reform to Crain’s Chicago business publication. Ingram told Crain’s that lawmakers “have to take action” on pension reform soon. While he did not advocate for a reduction to cost-of-living adjustments (COLAs) for retirees, he pointed to them as the most expensive component of the system. “Without question, the single biggest cost factor is the cost-of-living adjustment. That is why when you look at other states, you see that that’s where they focused their changes. ...When the question is, ‘What drives the cost,’ the direct answer is the cost-of-living adjustment.” Recent pensions reform proposals have included reducing COLAs or asking workers to choose between the current 3 percent annual COLA and their retiree health care coverage.

IFT fired back in a written statement: “The Teachers Retirement System must work for its members, not the politicians, corporate executives or newspapers its leaders may be bullied by. When the fox is guarding the hen house, it is the fox that must go. Mr. Ingram has lost the trust of those he is employed to protect. He should resign from his position as TRS executive director.” Ingram did not step down.

Urbanek said that by emphasizing the need for a larger contribution from the state, the board is also placing the responsibility for the underfunded system where it belongs: at the feet of lawmakers and governors. “We’ve seen polls that [say that] the majority of people blame the political classes for creating [the unfunded liability].” He said the board wants to ensure that the blame is not shifted to teachers, who have made their required payments into the pension system.

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