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TRS Long-term Finances Improve for the Second Straight Year; State Contribution in FY24 to Increase by 2.5%

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SPRINGFIELD, IL – For the second straight year, the long-term funded ratio of Teachers’ Retirement System has improved, reaching 43.8% at the end of fiscal year 2022. That is a positive increase of 1.3% over the previous year’s funded status.

The TRS Board of Trustees gave preliminary approval to a $6.04 billion state government contribution for the System in FY 2024. That is a 2.5% increase over the state’s $5.89 billion contribution for the current fiscal year.

The increase in the funded ratio came last year despite very volatile investment markets and uncertainty in the world economy. Most large institutional investors like TRS lost money during FY 2022. TRS recorded an investment return rate of -1.17%. Nonetheless, the TRS rate compared favorably to the median return of -7.6% by large pension systems according to RVK, Inc., of Portland, Oregon, the TRS general investment consultant.

“The System’s improved funded ratio is a bright spot in a challenging investment year,” said Stan Rupnik, executive director and chief investment officer of TRS. “The TRS funded ratio improved this year primarily because of consistently positive investment returns over the last five years combined with steady state funding that for two years exceeded the statutory minimum.

“The System’s five-year annualized TRS investment return exceeds 7%, and those gains outweigh the small negative return in FY 2022,” he added. “Increased funding from state contributions and strong investment returns slows the growth of the unfunded liability and over the last two years has slightly improved the funded ratio.”

The total unfunded liability of TRS at the end of FY 2022 was $80.6 billion; a 0.85% increase over the $79.9 billion unfunded liability recorded in FY 2021, according to the System’s annual actuarial valuation, compiled by Segal Consultants, of Chicago.

In the last decade, the TRS funded ratio averaged 40.7 percent. Projections by Segal show slow but steady improvements in the funded ratio between FY 2022 and FY 2045, when state law requires TRS to have a funded ratio of 90 percent. The funded ratio at the end of FY 2021 was 42.5%. During the last two years, the TRS funded ratio has improved by 3.3%.

The funded ratio reflects the difference in the amount of money TRS has in assets against the amount of money the System needs to immediately pay all members the full amounts of benefits they are owed for the rest of time. Altogether, the System’s total long-term liability at the end of FY 2022 was $143.5 billion, a 3.3 percent increase over the previous year.

While the funded ratio is important as an official measure of the System’s long-term fiscal health, it is not a reflection of the System’s current financial ability to pay benefits. In any given year, TRS only is obligated under state law to pay out the amount of money owed annually to eligible retired members and other beneficiaries. During FY 2022, paid benefits totaled $7.6 billion. TRS was more than able to pay all benefits for the year on time and in full. In fact, for 83 years TRS has paid all benefits in full and on time.

In other action during its regularly scheduled October meeting, the trustees reviewed the following investment actions:

Within the System’s $10.2 billion Private Equity Portfolio:

  • The commitment of $65 million to Bessemer Venture Partners, of San Francisco, California in two funds. The first is $50 million to Bessemer Venture Partners XII Institutional. The second is $15 million to Bessemer Forge Institutional I. Bessemer currently administers $52.2 million in TRS assets.
  • The commitment of $200 million to Apollo Global Management, of New York, New York. Apollo currently manages $800 million in TRS assets.
  • The commitment of $40 million to Longitude Capital Management, of Menlo Park, California. Longitude currently manages $155 million in TRS assets.
  • The commitment of $75 million to SK Capital Partners, of New York, New York. SK Capital currently manages $244 million in TRS assets.
  • The commitment of $50 million to Insight Partners, of New York, New York. Insight currently manages $166 million in TRS assets.
  • The commitment of $50 million to True Ventures, of Menlo Park, California. True Ventures currently manages $47 million in TRS assets.
  • The commitment of $150 million to Vista Equity Partners, of San Francisco, California. Vista currently manages $638 million in TRS assets.
  • The commitment of up to $50 million to Scale Venture Partners, of Foster City, California. Scale currently manages $99 million in TRS assets.

Within the System’s $12.4 billion Real Assets Portfolio:

  • The commitment of up to $300 million to Starwood Capital Group, of Greenwich, Connecticut. Starwood currently administers $803 million in TRS assets.
  • The commitment of up to $200 million to Kohlberg Kravis and Roberts & Company, of New York, New York. KKR currently administers $200 million in TRS assets.
  • The commitment of $300 million to Brookfield Asset Management, of New York, New York. Brookfield currently manages $215 million in TRS assets.

Within the $15.4 billion Income Portfolio:

  • The commitment of $125 million to Brookfield Asset Management, of New York, New York. Brookfield currently manages $215 million in TRS assets.
  • The commitment of $400 million to Finisterre Capital, of London, United Kingdom. This is a new investment relationship for TRS.
  • The commitment of $150 million to PGIM, Inc. of Newark, New Jersey. PGIM currently administers $2.6 billion in TRS assets.
  • The termination of an emerging market debt strategy of TCW Asset Management Company, of Los Angeles, California. TCW had administered $645 million in TRS assets.

Within the $21 billion Public Equity Portfolio:

  • The commitment of $475 million to Schroders, of London, United Kingdom. This is a new investment relationship for TRS.
  • The termination a $162 million international equity small capitalization strategy of Strategic Global Advisors, of Newport Beach, California. Strategic Global Advisors continues to administer $462.5 million in TRS assets.

Within the $4.3 billion Diversifying Strategies Portfolio:

  • The full redemption of $264 million from PDT Partners, of New York, New York.

About Teachers’ Retirement System

The Teachers’ Retirement System of the State of Illinois is the 42nd 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 439,000 members and had assets of $63.3 billion as of August 31, 2022.

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