Teacher retirement fund 'reality check': Insolvency possible

Tuesday, April 10, 2012

ROCKFORD — The Teachers’ Retirement System won’t go broke this year, or next, or the year after that.

For retired teachers and the soon-to-be-retired, their benefits are safe.

But Richard Ingram, executive director of the state’s largest public pension system, can’t make that guarantee for everyone.

“I can’t say that to the 25-year-old teacher in Illinois,” he said at a recent town hall meeting in Freeport. “The numbers just don’t work.”

Ingram, who’s been at the helm of TRS for a little more than a year, recently sounded an alarm bell about the pension plan’s long-term future. In a confidential memo obtained and first reported by the Springfield Journal-Register, he discussed three scenarios for the system’s solvency, based on a study commissioned by TRS:

* That TRS receives $2.4 billion a year, as it did in this fiscal year, and that amount increases by 3 percent a year annually. Under this scenario, TRS hits insolvency in 2049.

* That TRS receives $2.4 billion a year, and that amount remains flat. The recent study, conducted by Buck Consultants, determined the system would be insolvent in 2037 under that scenario.

* That TRS receives $1.44 billion a year, a 40 percent decrease from this fiscal year, annually from now on. It determined the system would be insolvent in 2029, or just 17 years from now.

In the past week, Ingram has held several previously scheduled town hall meetings across the state, including one April 4 in Freeport. There, he told the group of more than 130 retirees and teachers that he ordered the study after Illinois’ dire budget predictions got even worse last year. In its most recent fiscal year, TRS was 46.5 percent funded, with a $44 billion unfunded liability because the state hasn’t kept up with its payments.

“It was a reality check,” he said.

But Ingram’s reality check sent shock waves through the state, with teacher unions blasting him and politicians expressing guarded support for his position.

Jim Bachman, president of the Illinois Retired Teachers Association, took Ingram to task for suggesting that retired teachers may have to accept reduced benefits to bring TRS into long-term solvency.

“Promises made should be promises kept,” he said in a statement. “When a government empowers itself to break the very contracts it forges, then the government itself cannot long survive.”

In Freeport, Ingram clarified that neither he nor the TRS board was advocating cutting benefits for already-retired members. Although Ingram hasn’t proposed a model for pension reform, he did outline some principles he believes would need to be included in any plan. Those include changing the state’s 50-year funding plan to a 30-year one; enacting a permanent pension funding guarantee into Illinois law; and fixing the inequalities of the 2010 reform bill, which created a second, less lucrative tier of benefits for new public employees but did not pass a corresponding cut in employee contributions.

Ultimately, however, TRS can only carry out the state’s pension law as written, Ingram said. A sustainable system will have to be given to it by the Illinois Legislature.

“The folks who handed us this problem are the ones who are going to have to fix it,” he said.