Out­come Re­mains Un­clear For Illi­nois Pen­sion Bud­get Gam­bit

The Bond Buyer - - Front Page - By yvette ShieldS

CHICAGO – Illi­nois’ bud­get as­sump­tions of $400 mil­lion in fis­cal 2019 sav­ings from pen­sion buy­outs re­main un­cer­tain as the state’s largest fund is pre­par­ing to launch the bond-fi­nanced pro­grams in the sec­ond half of fis­cal 2019.

The Teach­ers’ Re­tire­ment Sys­tem board at its monthly meet­ing last week dis­cussed a draft of ad­min­is­tra­tive rules that would gov­ern im­ple­men­ta­tion of two new “ac­cel­er­ated pen­sion ben­e­fit pay­ment” pro­grams.

“While TRS is pre­par­ing to im­ple­ment these ac­cel­er­ated pay­ment op­tions in 2019, as yet no fund­ing is in place for the lump-sum pay­ments. Money for the pro­grams de­pends on the sale of $1 bil­lion in state bonds by the Gov­er­nor’s Of­fice of Man­age­ment and Bud­get,” TRS said in a state­ment.

The board also ap­proved a pre­lim­i­nary $4.81 bil­lion fis­cal 2020 state con­tri­bu­tion — a 10.6% in­crease that re­mains bil­lions shy of ac­tu­ar­ial fund­ing.

Trustees were told the TRS’ un­funded fis­cal li­a­bil­ity grew by 3.04% to $75.8 bil­lion in fis­cal 2018 from $73.4 bil­lion while its funded ra­tio held

nearly steady at 40.7%.

The most re­cent fis­cal 2017 un­funded tab for all five of the state’s funds to­taled $129 bil­lion for a col­lec­tive funded ra­tio of 39.9%.

The first pro­gram would par­tially “buy out” in­ac­tive mem­bers who are el­i­gi­ble for an even­tual pen­sion, of­fer­ing them a lump sum equal to 60% of their ex­pected life­time ben­e­fits.

The sec­ond pro­gram presents an op­tion to re­tir­ing mem­bers of the sys­tem’s Tier 1, em­ploy­ees in place be­fore re­duced ben­e­fits were ap­proved in 2010 for new hires.

They can trade in their 3% au­to­matic an­nual pen­sion in­crease for a 1.5% costof-liv­ing ad­just­ment and a lump-sum check equal to 70% of the dif­fer­ence be­tween what they would re­ceive in re­tire­ment.

“Our timetable is to make the buy­out pro­grams avail­able within the first six months of 2019,” be­fore the end of fis­cal 2019 June 30, said TRS spokesman Dave Ur­banek.

The re­tir­ing Tier 1 pro­gram will come first fol­lowed by the in­ac­tive mem­ber pro­gram.

Both pro­grams run through June 2021 and were among pen­sion changes ap­proved by law­mak­ers and signed into law by Gov. Bruce Rauner in May as part of the $38.5 bil­lion fis­cal 2019 bud­get.

The Rauner ad­min­is­tra­tion in­cluded a dis­clo­sure of the planned pen­sion bor­row­ing in its last gen­eral obli­ga­tion of­fer­ing state­ment say­ing it would oc­cur in the lat­ter half of the fis­cal year af­ter the pro­grams were im­ple­mented.

“Tim­ing has not been de­ter­mined yet, but the is­suance will not be this year,” the ad­min­is­tra­tion said Mon­day when asked for an up­date.

The last bond of­fer­ing state­ment also warned that the “state can pro­vide no as­sur­ance” that the ex­pected sav­ings can be re­al­ized from the buy­outs.

The bud­get re­lies on $382 mil­lion un­der the Tier 1 buy­out and $41 mil­lion for the buy­out of in­ac­tive em­ploy­ees.

TRS said it does not yet have any sav­ings es­ti­mates.

“Un­til we get some ac­tual data from mem­bers af­ter the pro­grams be­gin, we can­not ac­cu­rately es­ti­mate what fu­ture par­tic­i­pa­tion will be,” Ur­banek said.

For val­u­a­tion pur­poses, TRS ac­tu­ar­ies re­lied on es­ti­mates used by the leg­isla­tive spon­sors, who pro­jected 22% of in­ac­tive mem­bers and 25% of re­tir­ing Tier 1 mem­bers would take the of­fers. “How­ever, no one has been able to in­de­pen­dently ver­ify the ac­cu­racy of those es­ti­mates,” Ur­banek said.

The State Em­ploy­ees’ Re­tire­ment Sys­tem told the Civic Fed­er­a­tion of Chicago that it planned to im­ple­ment the buy­outs late this year for one and spring for the other.

The TRS con­tri­bu­tion re­quest is based on a for­mula tied to the state’s 1995 pen­sion fund­ing ramp leg­is­la­tion.

It will fall more than $3 bil­lion short what would be the $7.9 bil­lion ac­tu­ar­i­ally based con­tri­bu­tion and will mark the 80th year that con­tri­bu­tions have fallen short of such a mark.

“The fu­ture vi­a­bil­ity of TRS is di­rectly de­pen­dent on con­tin­ued state sup­port that ad­e­quately meets the cost of ben­e­fits and pays off the un­funded li­a­bil­ity,” TRS ex­ec­u­tive di­rec­tor Dick In­gram said in a state­ment.

TRS recorded an 8.45% re­turn on in­vest­ments in the last fis­cal year. Its 40-year re­turn rate was 9.2%, bet­ter than its 7% as­sumed rate.

The con­tri­bu­tion is pre­lim­i­nary and will be re­viewed by the state ac­tu­ary be­fore be­ing fi­nal­ized for in­clu­sion in the next state bud­get typ­i­cally un­veiled in Fe­bru­ary.

Tues­day’s elec­tion will de­cide who will be the gov­er­nor propos­ing the fis­cal 2020 bud­get.

Rauner, a Repub­li­can, is seek­ing a sec­ond term against ven­ture cap­i­tal­ist J.B. Pritzker.

Rauner sup­ports pen­sion mea­sures that in­clude ask­ing em­ploy­ees to take a COLA cut in ex­change for fu­ture raises count­ing to­ward their pen­sion­able salary and shift­ing some costs over to lo­cal dis­tricts and uni­ver­si­ties.

Pritzker has pro­posed pour­ing more money up­front into the sys­tem and lev­el­ing out the 50-year pay­ment sched­ule set in 1995 but he has not pro­vided specifics on how to fund the changes.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.