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Strong TRS Response to COVID-19 Pandemic

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Issue: The COVID-19 virus spread rapidly throughout 2020. Responding to this challenge required an aggressive response from Teachers’ Retirement System.

Discussion: Just as TRS members rose to the enormous challenges placed before them by the COVID-19 pandemic, TRS as an agency met the goals set for it by members, taxpayers and elected officials:

  • Make sure all benefits are paid on time.
  • Work personally with members on their individual needs.
  • Continue as a trusted resource on retirement matters.
  • Quickly and accurately process all retirement claims.
  • Battle the economic downturn caused by the pandemic and protect members’ money as much as possible.

In other words, keep things as “normal” as possible for members.

When Illinois schools shut down last March, teachers and district administrators responded at warp speed and developed remote-learning protocols and systems to help children of all ages continue their educations.

Similarly, TRS met its challenges with an aggressive response to the COVID-19 virus that continued into 2021.

Member Service Unaffected

Planning began on March 3 when there were just four confirmed COVID-19 cases in Illinois. On March 11, when there were 25 cases, the System closed its offices to visitors to comply with recommendations for social distancing, implemented preplanned “work from home” procedures, canceled business travel and converted all member assistance efforts to online and telephone platforms.

The top TRS priority during this unprecedented situation was to continue paying all benefits as usual to retired members and beneficiaries. TRS was designated an essential state service by Gov. JB Pritzker because of the monthly economic impact of TRS benefits in communities across Illinois.

Between March and the end of calendar year 2020, TRS staff fulfilled the System’s priority functions. During a year when staff worked mostly from home, TRS paid approximately $7 billion in member benefits on time and in full. More than 3,300 retirement claims have been processed. The System’s Call Center has handled more than 34,000 telephone requests for assistance and approximately 15,200 emails from members and their families.

TRS was able to accomplish a swift transition to a work-from-home platform because over the last 10 years the System had prepared contingencies for any emergency that required the System’s offices to be closed. 

TRS had:

  • Invested in the technology that enabled staff to work remotely. 
  • Acquired an external email system that allows us to contact approximately 300,000 members with up-to-date information quickly.
  • Created a detailed Business Continuity Plan which imagined the closure of TRS offices and moved information technology functions to “the cloud” enhancing remote work.
  • Ran annual tests of TRS computer systems to confirm that all critical functions, especially the payment of benefits, could be accomplished in a “work from home” environment.
  • Developed an internal message tree that enables TRS management to reach all staff with vital information in case the System’s offices are disabled.

The System enhanced its on-line member services to make it easier for users on both ends of the retirement process to conduct business. For the first time TRS members can electronically upload all completed TRS forms and documents to our offices.

Investments Rebound

In the Investment Department, forethought and careful planning helped TRS successfully navigate the perils and uncertainties of the pandemic’s economic impact. It took several months, but TRS was able to rebuild the value of the System’s investment portfolio to levels that existed prior to the pandemic and the temporary collapse of the nation’s economy.

At the end of Nov. 2020, TRS held $55.9 billion in investment assets, a 15.2 percent rebound in value from the low point during the early months of the pandemic – $48.5 billion at the end of March. Prior to the spread of the pandemic, TRS began January with $54.2 billion in assets.

All public pension systems and institutional investors around the world lost money during the January-March quarter of the year because of the COVID-19 virus. But compared to public pension systems similar to TRS, the System ranked among the nation’s leaders in its ability to preserve assets. At the end of December, the TRS investment return for the year was 13.4 percent.

During the January-March quarter, the TRS investment return was -9.95 percent, net of fees. That rate of return, however, stood favorably compared to other economic measurements of the same period. The Northern Trust Corporation’s analysis of the 300 largest U.S. institutional investors indicated that the median return for public pension plans was -12.6 percent. The TRS investment consultant, RVK, Inc., indicated that the TRS portfolio ranked in the top 25 percent of public pension plans during the quarter.

In general, the negative investment returns for various stock market measurements indicated that the TRS portfolio held up comparatively well. During the January-March quarter, the Standard & Poor’s 500 reported a -22.97 percent return. The Dow Jones Industrial Average reported a -26.23 percent return and the National Association of Securities Dealers Automated Quotations (NASDAQ) reported a -17.83 percent return.

The System’s strategic focus remains a prudent, long-term allocation of assets to keep investment risk as low as possible, protect assets during the economic downturn and be nimbly poised to take advantage of economic growth possibilities.

TRS wants long-term investment returns that steadily enhance the portfolio. TRS recognizes that the majority of its members maintain relationships with the System that last for several decades. Even with the effects of the coronavirus pandemic, the TRS long-term investment returns continued to exceed the System’s long-term assumed investment return of 7 percent. The 40-year return for TRS at the end of fiscal year 2020 was 9 percent.

Although no one saw the pandemic coming, the resulting economic downturn did not catch TRS off guard. For years, economists predicted that a downturn eventually would occur. So TRS has employed a “defensive” investment strategy to guard against unforeseen drops in the investment markets.

TRS administered a highly diversified portfolio designed specifically to help lessen the effects of any economic downturn: 28.9 percent of its assets in bonds, about 14.6 percent in real estate, 12.3 percent in private equity opportunities and about 10.2 percent in “diversifying strategies.” 

TRS only had approximately 33.2 percent of its investments in the stock market, which is low for a large public pension system.

In addition, the System has routinely run “stress tests” on the portfolio to help determine how best to protect assets during adverse conditions. The results of these tests factored greatly into strategic investment decisions during fiscal year 2020.

Increase in Member Retirements

During 2020, TRS experienced an unusual jump in teacher retirements. Interestingly, this jump did not occur during the system’s normal “retirement season” between January and June. The jump began in July, before the beginning of the new school year, and continued through October. Traditionally during July to October, retirement numbers decline.

Between June and September, teacher retirements jumped by 45 percent compared to the similar timeframe in 2019. In July of 2020, retirements increased by 38 percent over the two prior years and jumped by 67 percent in August 2020 compared to 2019 and 2018.

Why?

Anecdotally, members retiring in July through October mentioned to TRS counselors that their retirements were related to the drastic changes in teaching caused be COVID-19. During July and August of 2020 school officials in Illinois were making crucial decisions about distance learning, hybrid schedules and how the 2020-2021 school year would begin for students, teachers, staff and parents.

Online Fall Member Meetings

The annual Fall Member Meetings were held online instead of in-person and proved to be very popular.

More than 2,900 members participated in at least one virtual meeting and the average attendance for each session was 53. 

The meetings are designed to explain the retirement process and to provide members with information about disability, death and insurance benefits. Tier 1 and Tier 2 members are invited to attend. Normally, TRS counselors hold meetings in person across the state between August and October.

In order to participate in this year’s virtual Fall Member Meetings, members registered in advance for a meeting online.

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