The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2010, the most recent date for which an actuarial valuation is available, Illinois's pension system for teachers is 48.4 percent funded and has a 35-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 35 years to pay off its unfunded liabilities. 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 does not currently commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 9.4 percent, and the current employer contribution rate is 12.73 percent. Both rates are reasonable, considering that teachers and local districts are not also contributing to Social Security.
The employer contribution rate is paid by the state and determined according to statutory requirements, which mandate that contribution increases are phased in until they meet actuarially determined levels with the goal that the system is 90 percent funded by 2045. However, the state altered this phase-in to allow a two-year funding reduction of 50 percent for fiscal years 2006 and 2007, but the schedule has been resumed.
Comprehensive Annual Financial Report, for the fiscal year ended June 30, 2010 http://trs.illinois.gov/subsections/pubs/cafr/cafr.htm
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. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.
The Teachers' Retirement System of the State of Illinois declined to respond to NCTQ's analyses related to teacher pensions.