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Good News; Bad News Good News - You WILL continue to get your pension check or deposit every month. Bad News - The past four years, the state has NOT fully funded the pension systems. The state departed from the 1995 funding law, costing TRS over $1.1 billion in state funding. Good News - The FY 2008 budget calls for full funding of the pension systems. Bad News - The General Assembly (as of this writing) has not acted on the Governor’s amendatory veto of the budget, which eliminates “earmarks” (“pork,” “member initiatives,” etc) of Democratic House members and Republican Senators. The governor’s earmark elimination is purely arbitrary, calculated to avoid an override; for example, the earmarks of Democratic House members were line-item vetoed while similar earmarks of Republican House members to benefit the same local organization were spared. Good News - TRS funds have averaged a return of 9.4% for the last 10 years. Bad News - Members of the public are still calling for limitations on pension amounts and/or switches to defined contribution plans (in contrast to our defined benefits plan). Good News - TRS is almost always the top performing IL pension fund. Bad News - Hostility between the governor and many members of his own party has reached epic proportions. Good News - Public pensions are protected by both the state and federal constitutions. Bad News - The US Constitution protects benefits ONLY for existing TRS members and beneficiaries. Good News TRS began FY 2007 with $36.6 billion and 62% funded; the year ended with over $41 billion and up to 69% funded. Bad News - Nonetheless, TRS had to sell $1.2 billion in assets to meet obligations during the year. Sold assets produce no income! Good News - Our pension funds continue to grow due to the return on our investments. Bad News - Our pension funds continue to grow ONLY due to the return on our investments. “The only thing that keeps the fund growing rather than declining is the quality of our investments. The difference between contributions from the pay of active teachers and receipts from school districts and the expenses for benefits, refunds, and the expense of administrating the system is not only negative, but will in time grow more negative. . . . After [the funding ramp ends in 2011,] cash flow becomes steadily more negative again as state contributions and other receipts increase more slowly than annuity payroll.” --Bob Lyons, TRS Trustee There, now, don’t you feel better? BILLS OF INTEREST TO LCRTA MEMBERS - updated 12 July 2007 Note: Bills in Rules or Executive Committee aren’t going anywhere until Veto Session with the exception of bills dealing with budgetary matters. Shell/vehicle bills are always wild cards. Bills calling for tax increases: HB 750 - (state income tax) - held at Second Reading (deadlines extended) SB 750 - (state income tax) - in Executive Committee since Feb 21 Amendment to SB 1 - gross receipts tax - July 9 to Rules Committee Bills improving pensions of long-time retirees: HB 602 HB 603 HB 604 ALL re-referred to Rules Committee Mar 23 Bill to allow TRS to send information to TRS members on behalf of IRTA, expense to be paid by IRTA HB 1627 - Passed the House on May 3; to Sen 1st Reading & to Rules May 18. Possible action in Veto Session. Bills allowing the financial experts in the General Assembly to tell TRS how to invest its money: HB 562 - Mar 23 re-referred to Rules Committee SB 517 - Mar 15 re-referred to Rules Committee Bills to switch future teachers from Defined Benefits to Defined Contributions retirement plans: SB 621 - Feb 8 to Rules Committee SB 1240 - Feb 9 to Rules Committee Bill to reduce the size of the TRS Board (one less annuitant, one less active teacher) HB 3400 - Mar 23 re-referred to Rules Committee; sponsor has said she would withdraw the bill. VEHICLES SB 1 - SHELL BILL - Creates Ed’n Funding Reform Act (short title only) - 3rd Reading on Mar 2 SB 2 - School Construction Bonds TECH - 3rd Reading on Mar 2 SB 818 - Public Employee Benefits TECH - 3rd Reading on Mar 22 January 26, 2007 I. TRS Overview Active members—159,272 Benefit recipients—85,103 Average Annual Annuity--$35,475 Annuity Payroll--$2.9+ billion (c. $250 million/month) Unfunded liability increased $19 bil. from 1985-2006; 88% of increase due lack of contributions by the State (NOT end-of-career salary hikes which accounts for 10%). Unfunded liability increase of $422 in FY 2006. The State cut its contribution again. TRS will have to continue selling assets to meet the annuity payroll. Projected State Contribution FY 2008--$1,039.2 billion Investment returns % and rankings ( ) 9-30-2006; top quartile all periods among ALL LARGE PENSION FUNDS (Wilshire TUCS):
FUTURE CHALLENGES FY 2008 State Contribution Consolidation of pension systems Defined Contribution Plans as a remedy Additional benefit changes for new hires Investment challenges II. State Revenue Projections by COGFA (Commission on Gov. Forecasting and Accountability) FY 2007 Gen. Fund Increased by (est,) $60 million; FY 2007 Total Gen. Funds (est.) $28,656 (millions) III. TRS Funding
If TRS were 100% funded, the assets would be $59 B. Source of additional funds for Lump Sum Funding: Pension Obligation Bonds or sale of state assets. TRS insists that Lump Sum Funding be in addition to regular contributions by the State. IV. SB27 and SB49 Panel Discussion: T. Gray, T. Viar, J. Bergschneider The panel discussed Employer Bulletins 07-04 and 07-05 re employer contributions, sick days, the 6% salary increase, and a wide variety of teaching situations. V. Investment Performance—Stan Rupnik, CIO Stan presented the investment performance charted above. He explained the problems with the Sudan legislation. (No word yet on how the Judge ruled in the lawsuit on the legality of the law or the injunction.—Ruling should be coming down this week.) TRS has met the initial steps of the Timeline for Divestment: that by 1-27-07 60% of TRS funds are not invested in any entity that has a relationship with the Sudan; 100% must meet the guidelines by 6-27-07 So far, compliance has cost TRS at least $1.7 million, with c. $2.4 billion divested and reinvested at greater management and trade costs (+ the initial cost to sell those positions). A fourth Opportunity Forum will be held in Aug. before TRS Board meeting in Chicago which brings together minority and women brokers and dealers, is hosted by Northern Trust, features one speaker followed by a panel discussion and concludes with a social time afterwards. Last year 200 people attended. TRS teacher trustees always attend this event. Minority and female-owned firms manage $4.2 bil. of the Fund. Illinois-based minority and female-owned investment management firms manage over $2.2 bil. or 6% of total TRS assets. VI. Discussion of Defined Benefit vs. Defined Contribution Plans—Kathleen Farney Presentation of Pros and Cons. The conclusion is that going to DC plans would not save the State any money—in fact, would be more expensive. Further, a DC plan for new hires would remove their contributions from our DB plan, putting it further in jeopardy rather than “fixing” it. Administrative costs of public sector DC plans are almost 5 times greater than those of statewide DB plans: 1.4% versus .3%. Returns for DC holder would be less: higher fees and no access to higher-return asset classes. DC employees may outlive their retirement assets. The DB/DC topic would be excellent for a program since it will be important for members to be well-informed about the difference between them. State Goals
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