Updated: December 13, 2019
Issue: As part of the fiscal year 2021 state budget, the TRS Board of Trustees certified a $5.14 billion annual contribution to TRS from state government.
The state’s pension contribution for fiscal year 2020 is $4.81 billion. Fiscal year 2020 runs from July 1, 2019 to June 30, 2020.
Discussion: The contribution to TRS for FY 2021 falls $3.2 billion short of the amount of money that would be required to fully fund pension benefits in FY 2021 under standard actuarial calculations. That actuarial contribution is $8.34 billion.
Despite this shortfall, TRS absolutely will be able to meet its benefit obligations to retired teachers in FY 2021 and the near future. However, the System cannot guarantee retirement security for future generations of teachers unless the state’s future annual contributions meet an actuarial standard for full funding.
TRS earned a positive 5.1 percent, net of fees, on its investments during FY 2019.
Over the last several years state government has taken its responsibilities to TRS very seriously and has paid its legal obligation, as determined by a formula in state law, in full. Still, for the last 81 years, the “legal” state contribution has been chronically insufficient to improve the System’s long-term finances. The “legal” contribution is not determined by an actuarial calculation. As a result, the System now carries an unfunded liability of $78.2 billion, which is one of the largest in the country.
As it does every year, for FY 20 the TRS Board asked its actuaries to calculate two state contributions — the payment calculated under state law and the payment calculated under actuarial practices. The calculations set in state law artificially lower the state’s annual funding level. For instance, state law:
- Requires pension costs to be calculated on a 50-year timetable instead of the standard 30 years.
- Establishes a 90 percent funding target instead of the standard 100 percent goal.
- Requires the debt payments on state pension bonds to be deducted from the total contribution.
Illinois teachers have always paid their required share and are counting on their pensions to sustain them in retirement. The state has never paid its full share.
The annual contribution is the amount of money required by state law to fund TRS pensions during the coming year, as well as a payment on the System’s unfunded liability, which currently stands at $79 billion.
The state’s annual contribution to TRS is scheduled to be paid in 12 installments during the fiscal year. Each year in the autumn, the TRS Board of Trustees is required by law to calculate and certify the state’s contribution for the next fiscal year. These calculations are then reviewed by the Illinois State Actuary, Cheiron, of McLean, Virginia.