Updated: March 1, 2019
Issue: Critics of defined benefit pension plans like TRS say the guaranteed benefits of retired teachers and other public employees are too high and are out of sync with retirement benefits found in the private sector. The rising costs of maintaining these pensions should be scaled back in order to avoid tax increases and to allow more state tax revenues to be spent on other government priorities.
Critics also charge that retirement benefits are the major cause of the System’s unfunded liability, which was $75.3 billion at the end of fiscal year 2018.
Discussion: The average annual pension for a retired Illinois teacher in fiscal year 2018 was $55,796. When you consider that Illinois educators do not pay into or collect Social Security for their teaching years, the TRS benefit cannot qualify as “too generous.” Not only are TRS benefits many times the sole source of revenue for retired teachers, but TRS benefits stimulate local economies across Illinois. The pensions and benefits paid annually to retired teachers living in Illinois create $6.4 billion in economic activity, including more than 44,088 full–time jobs that mean more than $1.85 billion in wages for non-teachers.
TRS benefits are not responsible for the majority of the unfunded liability at TRS. TRS actuarial reports show that 66 percent of the unfunded liability over the last 15 years was caused by contributions from state government that failed to meet the “full funding” levels set by actuaries. For instance, between FY 2008 and FY 2018, the state’s total contributions were $10.2 billion short of the actuarial requirement.
In addition, the chronic lack of proper funding from state government means TRS does not have that money to invest, and those “unrealized” investment returns over time account for 27 percent of the TRS unfunded liability, along with the cost of issuing pension bonds and other miscellaneous factors. Of the $578 million increase in the state’s annual contribution to TRS for fiscal year 2018, only 4.7 percent is attributable to benefit increases. According to the group “Illinois is Broke,” over the last 15 years 50 percent of the TRS unfunded liability is the result of underfunding by state government, 25 percent from pension bond costs and miscellaneous items, 21 percent from unrealized investment profits and only 4 percent from benefit increases.