The Teachers’ Retirement System on Wednesday released the following statement:
Today the Chicago Tribune ran a front-page story “Teachers’ $40 B pension hole.” The article is wildly misleading and serves no other purpose than to scare teachers into thinking that their retirement checks are in jeopardy.
Rest assured that TRS will have enough money to pay pensions this year and for many decades to come. TRS has carried an unfunded liability since 1953 and has always paid retired teachers on time. We have never missed a pension check.
The “hole” is the $39 billion unfunded portion of the System’s total liability of $77 billion. But what the Tribune did was confuse the “mortgage” with the “mortgage payment.” The mortgage is $77 billion, but it never has to be paid off at one point in time.
TRS, however, has always been able to meet the annual cost of pension and benefits – the mortgage payment. In fiscal year 2010 the cost of pensions and benefits was $3.9 billion and total revenue was $6.8 billion. TRS collected more than enough money to cover those expenditures and that’s what happens in most years.
The total liability never comes due because active teachers cannot collect their pensions.
The story says that Illinois teacher pensions “get higher benefits, on average, than government retirees in most pension plans.” The national average benefit is $30,642. The average TRS benefit is $40,798. While factually correct, it’s true in part because retired teachers don’t receive Social Security. Illinois teachers contribute more to their retirements than most teachers in other states. Plus, no one can consider $40,798 as an “extravagant” pension.
The TRS unfunded liability was created by state officials who since the 1950s have decided not to give TRS all of the money required to cover current and future pension obligations. As a result, TRS has never been given the opportunity to function as it was designed to function.
A system that has been properly funded can expect to have investment earnings pay for 60 percent to 65 percent of benefits. It is estimated that the state has held back as much as $14 billion in funding from TRS over the years. Because TRS has not had this money to invest, the difference has to be made up with higher contributions from taxpayers.
Although TRS has exceeded its investment target over the last 25 years, investment income only pays for 49 percent of TRS benefits.
Teachers’ Retirement System of the State of Illinois