
By Andrew Thomason | Illinois Statehouse News
SPRINGFIELD — A possible change to one of the state’s public pension systems could cast a shadow on any reform Illinois lawmakers enact this summer.
A recommendation for a change to the expected rate of return for TRS investments, which happens every five years, could come as early as its June 21-22 board meeting.
“The rating agencies like Moody’s and their counterparts have been more insistent in recent years that the return on investments be re-calibrated to be more accurate,” Schoenberg said. “This is not only happening in Illinois, but across the nation as well.”
TRS spokesman Dave Urbanek said no decision has been made and options for adjusting the expected rate of return have not been presented to TRS board members.
“It just means we’re going to come closer to accurately reporting what the unfunded liability is,” Brown said.
“Often what happens in public pensions is those rates are set too high. They tend to be set on someone’s expectations on what a risky portfolio allocation would return over time … but that’s highly problematic … because those expected returns are not guaranteed,” Brown explained.
The rate of return on investments for the past decade has been 6.2 percent, rather than the expected return of 8.5 percent. But Urbanek said TRS investments, during the past 30 years, have averaged a return of 9.3 percent.
“The rate of return is a 30-year number, that’s our long-range expectation of what we’re going to return” on investments, Urbanek said.
Changes to the TRS expected rate of return and unfunded liability would affect the number being associated with savings from public pension reforms, which the General Assembly is pushing. At their heart, the reforms would change cost-of-living increases some retirees receive, as well as move to fund the public pension systems fully in 30 years.
Zigmund said during a committee hearing on public pension reform last week that a lower rate of return for TRS could affect pension savings to the tune of $20 billion over 30 years.
The possibility of an increase in the unfunded liability for TRS is, in part, responsible for the lack of Republican support for a comprehensive pension reform package.
“It’s a risk that we’re just saying, ‘We don’t want any part of that even though the state created that risk,’” Radogno said.
Quinn said Wednesday another such meeting will happen later this month.
Originally reported by Illinois Statehouse News. Read the original article here.