SPRINGFIELD, IL – The Teachers’ Retirement System Board of Trustees has given preliminary approval to a $5.14 billion state contribution to the System for fiscal year 2021, a 6.9 percent increase over the current fiscal year’s government contribution of $4.81 billion.
The Board also announced that the TRS investment portfolio generated a positive 5.15 percent return, net of fees, during fiscal year 2019.
In approving the FY 2021 preliminary contribution, the trustees noted that the $5.14 billion is derived from a funding formula in state law that deliberately underfunds the System. The FY 2021 statutory contribution falls $3.2 billion short of the amount of money that actuaries calculate would “fully fund” the cost of TRS pensions in the coming year, or $8.34 billion.
“Any way you look at it, $5 billion is a lot of money. But because the state has underfunded TRS every year for 81 years, a contribution that further shortchanges the System will make our overall financial position worse in the future,” said TRS Executive Director Dick Ingram. “We have enough money on hand to pay all pensions into the future. But for every $1 TRS does not receive now means the state will have to pay nearly $3 in the future to eventually pay all our upcoming obligations. The unpaid debt gets bigger.”
Approximately 75 percent of the FY 2021 contribution is dedicated to paying off a portion of the TRS unfunded liability, which grew during FY 2019 by 3.7 percent to $78.1 billion. Only a quarter of the state contribution is dedicated to the actual cost of teacher pensions.
With the growth of the unfunded liability in FY 2019, the funded status of TRS remained relatively stable at 40.6 percent, compared to 40.7 percent in FY 2018. Total long-term liabilities for TRS grew 3.5 percent during FY 2019, to $131.5 billion. The previous year’s total liability was $127 billion.
The TRS Board is required each year to certify the state’s annual contribution to the System for the next fiscal year. That preliminary contribution is then reviewed by the State Actuary before it is included in the state budget for the upcoming year.
TRS ended fiscal year 2019 on June 30 with $52.65 billion in assets, an increase of 2.2 percent for the year. Gross of fees, the TRS return for FY 2019 was 5.8 percent. Long-term TRS investment returns continue to exceed the System’s long-term assumed return rate of 7 percent. For FY 2019, the 30-year return was 8.04 percent. Since the current investment portfolio was implemented in 1982, the TRS return is 9.37 percent.
“The long-term investment returns are the most important numbers for our members,” Ingram said. “These timeframes reflect the long-term relationship that TRS has with its members, both as active educators and as retirees. The long-term returns also indicate a successful investment program that values steady growth and strong risk management over several generations.”
TRS investments have recorded positive returns in each of the last 10 years following the worldwide financial crisis of 2008-2009. All returns in this chart are net of fees:
During the Board of Trustees’ regularly scheduled October meeting, the TRS investment staff reported the following actions:
Within the System’s $7.24 billion Private Equity Portfolio:
- The commitment of $24 million to Sunstone Partners, of San Mateo, California. Sunstone currently administers $19.2 million in TRS assets.
- The commitment of $45 million to Zelnick Media Capital, of New York, New York. This is a new relationship for TRS.
Within the $7.4 billion Real Estate Portfolio:
- The commitment of $60 million to Exeter Property Group, of Conshohocken, Pennsylvania. Exeter currently administers $28.9 million in TRS assets.
Within the $13.97 billion Global Income Portfolio:
- The commitment of $500 million to Intermediate Capital Group, of London, United Kingdom. This is a new relationship for TRS.
- The commitment of $500 million to Hayfin Capital Management, of London, United Kingdom. This is a new relationship for TRS.
- The commitment of $125 million to Beach Point Capital Management, of Los Angeles, California. Beach Point currently administers $90 million in TRS assets.
- The commitment of $125 million to Cerberus Capital Management, of New York, New York. This is a new relationship for TRS.
Within the $5.5 billion Diversifying Strategies Portfolio:
- The commitment of $100 million to Kirkoswald Capital Partners, of New York, New York. Kirkoswald currently administers $200 million in TRS assets.
- The commitment of $50 million to Brevan Howard Asset Management of the Bailiwick of Jersey. Brevan Howard currently administers $172.5 million in TRS assets.
- The redemption of $200 million from Bridgewater Associates, of Westport, Connecticut. Bridgewater continues to administer $259 million in TRS assets.
- The redemption of $75 million from KeyQuant, of Paris, France.
About Teachers’ Retirement System
The Teachers’ Retirement System of the State of Illinois is the 37th largest pension system in the United States, and provides retirement, disability and survivor benefits to teachers, administrators and other public school personnel employed outside of Chicago. The System serves 434,313 members and had assets of $52.65 billion as of June 30, 2019.