Updated: July 15, 2020
Issue: During a coronavirus-shortened spring legislative session, Gov. JB Pritzker and the General Assembly agreed on a $42.6 billion state budget for FY 2021 that included $5.14 billion for TRS. This is the full state government commitment for TRS as defined by law.
Overall, $8.6 billion was appropriated for TRS and Illinois’ five state retirement systems. Gov. Pritzker signed the budget into law in June. Fiscal year 2021 runs from July 1, 2020 to June 30, 2021.
Discussion: Full statutory funding in fiscal year 2021 and in the future is a vital component of a state law designed to stabilize TRS finances and requires the System to reach 90 percent of its long-term funding needs by 2045.
Due to the nationwide economic devastation and tax revenue decline caused this spring by the COVID-19 pandemic, it was not a sure bet that state government would be able to allocate the year’s full statutory contribution in the upcoming budget. However, Gov. Pritzker and legislative leaders reaffirmed their commitment to full statutory funding for TRS and the other retirement systems.
And despite the revenue loss state government experienced during the January-March quarter of calendar year 2020, TRS received its full statutory allocation in FY 2020 – $4.8 billion.
Even though state government is meeting its legal funding responsibility to TRS, the FY 2021 appropriation is nonetheless well short of the “full funding” amount set by actuaries that analyze TRS finances on an annual basis.
While TRS currently has more than enough funds on hand to pay all pensions on time and in full for the foreseeable future, the long-term fiscal well-being of the System requires a funded ratio that increases beyond 40 percent.
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 21 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.