Illinois Teacher Pension Fund

[eytonxav]

This article indicates that Illinois Teacher TRS is taking on more risk in its underfunded pension fund. Hope we do not have many ERFers covered under this:

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[ERD50]

Thanks, will pass it on to some people I know in those systems.

Depressing, maybe they should just buy lottery tickets and hope for a miracle? It's also frustrating to me that the Unions are not stepping up to protect the investments. They seem to be good at lobbying for benefits, but they drop the ball when it comes to assuring those benefits can be paid?

Don't have time to read the whole article now, maybe they address that, but based on a quick skim -

Summary: TRS is in deep doo-doo, and they will likely make it worse with this approach. Contrast the IMRF (non-teacher municipal employees), which has much better funding levels (but has been hit by some of those high-profile spiking issues), and more reasonable investments (coincidence, I think not!).

DW will get a small pension from IMRF, good to see the confirmation here that it is in reasonable shape (I already knew that from their reports, but good to see elsewhere). DD started teaching this year in IL, I will be filling her in on the facts in bite size chunks.

-ERD50

 

[donheff]

I have a brother and sister-in-law and a close friend under that system. Don't even want to raise the issue.

 

[clifp]

Wow that is just depressing. My sympathy for all those who live in IL and especially the teachers, they deserve better than this. Despite my dislike of teachers unions, the bigger villain appears to be the legislators.

An 83/17 AA with lots of alternative investments like hedge fund and

The plan also is dabbling in volatile derivatives, including wagers on Brazilian interest rates, and credit default swaps on sovereign debt from Italy and Spain

My god this makes my 80/20 AA with investment in small tech startups and writing options look positively tame and down right conservative in comparison. The big differences is I am not paying 2% and 20% for my risky investments.
I unlike the teacher in IL have a social security and paid for house.

This pension plan is the perfect definition of dumb money. I am sure Goldman and company will fleece them quickly.

 

[Chuckanut]

I have never understood these supposedly powerful teacher unions. They allow legislatures to intentionally divert funds from and underfund pension plans. Most teachers have 403B plans that are hi-cost, loaded plans full of mediocre funds and the union does little. It is pathetic.

 

[Chuckanut]

I believe Mr. Ferri had some comments on how states run their pension funds:

An Easy Way to Reduce State Debt

 

[Bestwifeever]

A telling comment from the article in the OP (my bolding):

The pension plan was 70% funded in 1987. It has fallen increasingly short mainly because the state has shirked its $15 billion in recommended contributions since 1970, denying the fund the assets needed to earn sufficient investment income. Bruising investment losses in the recent financial collapse also depressed assets.

My whole state is such a mess.

 

[ratto]

Desperate time calls for desperate measures. The ultimate outcome is to let tax payers to foot the bill. Can not be simpler than that.

 

[eytonxav]

I believe Mr. Ferri had some comments on how states run their pension funds:

An Easy Way to Reduce State Debt

Rick is definitely one of the good guys to listen to in the world of investments, IMHO.

 

[ERD50]

Desperate time calls for desperate measures. The ultimate outcome is to let tax payers to foot the bill. Can not be simpler than that.

heh-heh-heh, sure.

Another 'simple' solution is let the Unions foot the bill. The fact is, the Union leaders were well aware that the plan was not being funded at the same time that they were negotiating better benefits that would drain the fund further. And some of those Union leaders are personally draining the fund far in excess of their contributions (see the story of the Union leaders who took a teaching job for one day, and now get a TRS lifetime pension based on their high Union leader salary, but only a small contribution to TRS). They show no fiduciary responsibility to the fund, and that was a part of their job.

If it was 100% funded in real time, the legislature would have had to raise taxes and/or cut programs years ago. This would have brought the issue to the front burner for taxpayers, and there would have been more debate about whether taxpayers want to fund that level of pension benefit. This was quite clearly an effort to sweep it under the rug. Neither the Union negotiators nor the politicians wanted the issue to come to light - the Union guys wanted to brag about the benefits they were delivering, the pols wanted the votes of those Union members.

So one viewpoint is that the "chickens have come home to roost" for the Union, not for the taxpayers. The Union was closer and far more actively involved in this deception than the average Joe/Joan taxpayer. Why ask Joe/Joan to make it up now?

-ERD50

 

[ERD50]

I believe Mr. Ferri had some comments on how states run their pension funds:

An Easy Way to Reduce State Debt

Very good, thanks for posting.

What Mr Ferri isn't taking into considerations is - if you are in charge of that fund in IL, who's going to wine/dine you to buy a low cost index fund? Who's going to promise you a sweet salary and an impressive job title with no responsibilities in their investment firm after your govt job has run its course?

There are forces at play, powerful forces. Or as Bestwifeever just said "My whole state is such a mess."


-ERD50

 

[rescueme]

heh-heh-heh, sure.

Another 'simple' solution is let the Unions foot the bill.

I agree; let it be run by the union (just like the Teamsters Union), where the union gets the contribution to the pension fund from the company, but they are responsible for investments and payment to union members (retirees) going forward.

While most will remember the Teamsters in a negative way (think Hoffa and Las Vegas, for example), at least they are a stakeholder in their member's benefits, and future.

 

[Midpack]

Desperate time calls for desperate measures. The ultimate outcome is to let tax payers to foot the bill. Can not be simpler than that.

I assume I am overlooking sarcasm here...

 

[Koolau]

Why ask Joe/Joan to make it up now?

-ERD50

Because they CAN (through taxation). Also, what politician is going to ask the unions to fix their own mess? Easier to buy votes with everyone's tax dollars than to piss off the unions and guarantee loss of their support.

 

[Midpack]

Because they CAN (through taxation). Also, what politician is going to ask the unions to fix their own mess? Easier to buy votes with everyone's tax dollars than to piss off the unions and guarantee loss of their support.

That tide may have turned. I'm not sure taxpayers will stand still for (increased) taxes to pay for public employee benefits that the (private sector) taxpayers don't have themselves. Most private sector employees lost pensions and retiree health care, some 20-30 years ago. Should they pay more to preserve benefits for public employees? And you've probably noticed there are more and more politicians who seem to view any tax increase as anathema...even some who are actively pushing to find ways to reduce taxes. Their constituents aren't interested in more taxes, that's how they were elected.

 

[ratto]

I assume I am overlooking sarcasm here...

No sarcasm here. It's just my gut feeling about what's likely going to happen in the end. Public sector pension fund problem is not only unique to IL, but to other states and the federal as well.

That tide may have turned. I'm not sure taxpayers will stand still for (increased) taxes to pay for public employee benefits that the (private sector) taxpayers don't have themselves. Most private sector employees lost pensions and retiree health care, some 20-30 years ago. Should they pay more to preserve benefits for public employees? And you've probably noticed there are more and more politicians who seem to view any tax increase as anathema...even some who are actively pushing to find ways to reduce taxes. Their constituents aren't interested in more taxes, that's how they were elected.

The tide may have turned, the hollow campaign rhetoric may have changed, the public officials may have come and gone, but the un/underfunded public pension hole remains and it will only keep growing larger until a certain threshold is reached. Unlike the federal, states can not inflate their debt away because they don't own a currency printing press. Everyone wants to go to heaven, but no one wants to die. I guess the key questions are how much longer the constituents are willing to accept the status quo, i.e. kicking can down the road; and how much sacrifice everyone (ERed or not) can tolerate. In the end, most likely burdens will be distributed among tax payers in both public and private sectors, one way or another.

 

[Retire Soon]

A quote from the article:

"The pension plan was 70% funded in 1987. It has fallen increasingly short mainly because the state has shirked its $15 billion in recommended contributions since 1970, denying the fund the assets needed to earn sufficient investment income. Bruising investment losses in the recent financial collapse also depressed assets."

According to the article, the Illinois Teacher TRS was 70% funded in 1986. By today's standards (according to the article's table) this would still make Illinois the 3rd lowest funded pension fund in 2011. Because, "The state has shirked its fiduciary responsibility of contributing $15 Billion a year", it should come as no surprise that they are currently only 59.1% funded.

Illinois has not fully funded the teachers' pension plan for more than 25 years. Apparently, Rod Blagojevich and other governors thought it was more important to fund other programs that they perceived to be more important.

 

[Chuckanut]

So one viewpoint is that the "chickens have come home to roost" for the Union, not for the taxpayers. The Union was closer and far more actively involved in this deception than the average Joe/Joan taxpayer. Why ask Joe/Joan to make it up now?
-ERD50

The most actively involved in the deception were the elected representatives who did not properly fund they pension system. They were elected by Joe/Jane. Just as Joe/Jane folks are currently electing and re-electing the bunch in Congress.

 

[Chuckanut]

I am wondering, about what percent of their pay did the Illinoise teachers have to contribute to their pension over the last 30 years?

 

[ERD50]

The most actively involved in the deception were the elected representatives who did not properly fund they pension system. They were elected by Joe/Jane. Just as Joe/Jane folks are currently electing and re-electing the bunch in Congress.

I think the Union leaders were at least as actively involved. And a union member has more control over who gets elected as a Union rep than a taxpayer has over who gets elected to govt. It's simple math.

Plus, the Union forms a voting block. No, it's not equal footing for the average taxpayer.

-ERD50

 

[jazz4cash]

I am wondering, about what percent of their pay did the Illinoise teachers have to contribute to their pension over the last 30 years?

Pretty substantial, according to the article.........
Stacey Gottlieb, 40, a social worker at Cyd Lash Academy in Gages Lake, and her husband, Neil Mott, 37, a Rolling Meadows High School chemistry teacher and chess and tennis coach, have contributed 9% of their salaries to TRS for a combined 23 years. (Local school districts contribute an additional 2.5% of the fund's annual income.)

 

[Mulligan]

Pretty substantial, according to the article.........
Stacey Gottlieb, 40, a social worker at Cyd Lash Academy in Gages Lake, and her husband, Neil Mott, 37, a Rolling Meadows High School chemistry teacher and chess and tennis coach, have contributed 9% of their salaries to TRS for a combined 23 years. (Local school districts contribute an additional 2.5% of the fund's annual income.)

Its easy to see the funding problem and why its under 50% funded. Teachers pay 9% , school 2.5%, and the rest in up to whims of the government to contribute the needed difference. Across the river in MO., it is funded by 14.5% teacher and 14.5% district directly each month, with no money funded directly by the government and it is about 90% funded.
Illinois appears to have a 2.3 multiplier for 31 years for teachers, MO has 2.55 multiplier at 31. Illinois retirement ave. was $43 k from what I read and about $42k in MO. I am not offended and understand why people advocate the elimination of pensions, (my loving GF of 5 years who works in the "real world" doesnt think I should have one and we get along just fine ) But if you are going to have one either FUND IT CORRECTLY (as in Illinois's case 11.5% combined contribution rate aint gonna get it done) or eliminate it. Dont play games and have people pay in their whole life and get caught with nothing. Thats my opinion FWIW.

 

[clifp]

Its easy to see the funding problem and why its under 50% funded. Teachers pay 9% , school 2.5%, and the rest in up to whims of the government to contribute the needed difference. Across the river in MO., it is funded by 14.5% teacher and 14.5% district directly each month, with no money funded directly by the government and it is about 90% funded.
Illinois appears to have a 2.3 multiplier for 31 years for teachers, MO has 2.55 multiplier at 31. Illinois retirement ave. was $43 k from what I read and about $42k in MO. I am not offended and understand why people advocate the elimination of pensions, (my loving GF of 5 years who works in the "real world" doesnt think I should have one and we get along just fine ) But if you are going to have one either FUND IT CORRECTLY (as in Illinois's case 11.5% combined contribution rate aint gonna get it done) or eliminate it. Dont play games and have people pay in their whole life and get caught with nothing. Thats my opinion FWIW.

+1

My calculation show that the combined contribution for a typical state/local government pension (2-3% * number of years) requires a combined 25-35% contribution. So Missouri is right in line with that number and obviously ILL isn't. It is virtually impossible for a private sector to retire before 65 (using just retirement funds) unless they contribute 12.5% and get a 4-6% match

IMO state employee should be contributing 12.5% of their salary (1/2 the minimum contribution.) to their pensions. . In most cases they are paying less, typically 8%. When it comes time to figure who pays for the unfunded pensions taxpayers, current workers, new workers, and retirees. I think the difference between 12.5% and their actual contribution should be factored into what is fair distribution of the pain.

 

[Mulligan]

+1

My calculation show that the combined contribution for a typical state/local government pension (2-3% * number of years) requires a combined 25-35% contribution. So Missouri is right in line with that number and obviously ILL isn't. It is virtually impossible for a private sector to retire before 65 (using just retirement funds) unless they contribute 12.5% and get a 4-6% match

IMO state employee should be contributing 12.5% of their salary (1/2 the minimum contribution.) to their pensions. . In most cases they are paying less, typically 8%. When it comes time to figure who pays for the unfunded pensions taxpayers, current workers, new workers, and retirees. I think the difference between 12.5% and their actual contribution should be factored into what is fair distribution of the pain.

I must admit, I wasnt too versed in the numbers game of funding a pension until I started learning from the forum here. Even though my pension has 29% annual contibution rate of salary this still is only about 40 cents on the dollar needed in retirement for my system. The rest is coming from the assumed 8% annual returns on investments. Many lay people contributing 8% like you mentioned clifp, probably assume thats a bunch of money that is paying for the pension when in reality it isnt. With 60% of a pension check depending on 8% returns, I can definitely see ERD's point as that 60% portion in theory is a potential tax payer liability even if its funded actuarially correct. As we know the market on average returns x% but in reality, it guarantees nothing, maybe less than nothing!

 

[Chuckanut]

Illinois should have taken a hint from states that handled their pensions problems sooner and better. But, given the level of corruption at the state level..... well, they have the best government money can buy!