Illinois’s largest public pension reduced its forecast for how much it expects to earn from its investments each year, a step that will likely force the state to boost its annual contributions to the cash-strapped retirement plan.
The Board of Trustees for the Illinois Teachers’ Retirement System, which serves almost 400,000 teachers, voted Friday to cut the assumed rate of return to 7 percent from 7.5 percent. The expected investment gains are used to decide how much taxpayer money needs to be set aside each year to cover pension checks due in the coming decades.
"We have to do what we believe is the right thing,” Richard Ingram, the pension’s executive director, said during the board meeting in Springfield.
The decision reflects the toll taken on pensions by lackluster returns in global equity markets and diminished bond yields as central banks hold down rates to spur their economies. That’s adding to the strain on underfunded retirement funds such as the one for Illinois’s teachers, which has less than half the assets needed to cover all the benefits that have been promised.
The step may put added pressure on Illinois, whose $111 billion debt to its five pension plans has left it with a lower credit rating than any other state. Republican Governor Bruce Rauner and the Democrat-led legislature, who spent much of this year at loggerheads over the budget, have been unable agree on a way to overhaul the retirement system after the Illinois Supreme Court struck down a prior attempt to roll back benefits.
Ingram noted that the legislature can change the law if they want to stop taxpayer contributions from increasing as a result of the rolled back forecast.
The teachers’ fund last lowered its rate from 8 percent to 7.5 percent in June 2014. That cost the state more than $200 million in the next fiscal year, according to a memo from Michael Mahoney, Rauner’s senior adviser for revenue and pensions.
“Unforeseen and unknown automatic cost increases will have a devastating impact on the state’s ability to provide adequate resources to social service programs and education,” Mahoney said in a memo this week to Richard Goldberg, Rauner’s chief of staff.
Other retirement systems have fallen short of targets after U.S. stocks fell last year, followed by a rout in equity markets overseas. The California Public Employees’ Retirement System, the nation’s largest, reported gains of less than 1 percent for the fiscal year ended June 30.
By: Elizabeth Campbell (Bloomberg News).
Photo: Washington Times.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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