The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Illinois's pension system for teachers is 42.0 percent funded. Its current pension debt exceeds $30,000 per pupil throughout the state. Illinois also has a 30-year amortization period. Per statute, it must reach 90 percent funding by the year 2045. Thus, as long as the plan earns its assumed rate of return of 7.50 percent and makes its full actuarially determined contribution payments, it would pay off its unfunded liabilities by 2045. Neither the state's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
Illinois currently commits excessive resources toward its teachers' retirement system. The current employer contribution rate for year ended 6/30/2017 is 39.12 percent and is excessively high. While this rate allows the state to pay off liabilities by 2045, per state law, it does so at such great cost, precluding Illinois from spending those funds on other, more immediate means to retain talented teachers. Unfortunately, employer contributions are projected to be almost 40 percent of payroll every year until 2045 in order to pay off the system's pension debt. The teachers' contribution rate of 9.0 percent is reasonable, considering that teachers and local districts are not also contributing to Social Security.
Illinois Teachers' Retirement System, Actuarial Valuation Report as of June 30, 2015.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Illinois should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Illinois was helpful in providing information necessary for this analysis.