The state should disclose all financial and other data necessary for policymakers, school districts and the general public to have a clear and accurate depiction of the current standing and future health of the system. State teacher retirement systems als
Teachers, policymakers and taxpayers deserve accurate and reliable information about the costs and benefits of the public pension systems they support.
Just as teachers can easily obtain their salary schedules, they should have access to information about pensions so that they can make informed decisions about their career and retirement futures. While Illinois provides teachers with an annual benefits statement, the report includes very limited information about the value of pension benefits. Illinois does not provide teachers with information on how their benefits accrue for each year of service, the amount contributed each year by teachers and employers on behalf of teachers, or the projected value of a teacher's contributions based on different assumptions about the rate of return expected (e.g. 4%, 6%, and 8%). Illinois also does not provide teachers with transparent information about the opportunity cost of leaving contributions in the system by reporting how much might be earned if teachers were to put contributions into a personal retirement savings account.
Teachers in Illinois enroll in a final-salary DB plan, which means that employee and employer contributions should be sufficient to pre-fund the employee's pension. As Illinois has a multi-tier pension system, contributions that exceed the normal cost may be used to fund other teachers' benefits (so-called legacy costs). Illinois, however, does not provide individual teachers with clear information about how their contributions are being used, including the extent to which current employer contributions are being used to subsidize the retirement benefits of teachers under other tiers as well as how benefits are distributed across teachers of different cohorts and teachers with different career lengths.
Public disclosures on teacher pensions in Illinois are more transparent than most states. It is noteworthy that the system's actuarial valuation report discloses the portion of Tier 2 teacher contributions used to help pay for obligations to Tier 1 teachers. No other state reports this information. While Illinois reports projections for future contributions required to amortize the system's total unfunded liabilities until it is 90 percent funded, it should report projections about requirements to fully fund the system. It should also report these projections under a range of assumptions about the rate of return on investments, not just under the system's own assumption. Doing so would allow stakeholders in Illinois to appropriately assign risk to the system's obligations and provide clarity about potential unfunded liabilities facing taxpayers.
The Government Accountability Standards Board (GASB) requires public retirement systems to disclose who makes employer contributions, and the proportion of total contributions for which each contributor is responsible. All states' pension systems collect this information, and Illinois makes these data readily available.
Illinois, like most states, reports the portion of total pension contributions that is normal cost and the proportion that is amortization cost. The state also reports information about whether it has taken on debt in order to pay for current or future retiree benefits (e.g. through pension obligation bonds or other instruments for raising capital), which is an important indicator of the state's overall health and stability.
Illinois Teachers' Retirement System, Actuarial Valuation Report as of June 30, 2015. Teachers’ Retirement System of the State of Illinois, Report on Allocation of Pension Amounts For the Year Ended June 30, 2015.
Provide teachers with the information necessary to understand their retirement benefits.
Illinois should provide much more detailed information to teachers about how their benefits accrue at different points during their careers, as well as information about the opportunity costs related to any contributions made into the system. Because the system has multiple tiers, the plan should also disclose to teachers how their contributions are being used (i.e. whether they all are directed at prefunding their own retirement, or whether a portion of their contributions are used to help pay for retirement benefits of other members). Moreover, Illinois could provide detailed information about how employer contributions are used - e.g. to what extent the employer contributions for an individual teacher are used to subsidize teachers in different tiers and teachers with different tenure. The state is commended, however, for disclosing the portion of Tier 2 teacher contributions used to help pay for obligations to Tier 1 teachers.
Report to policymakers and the public data that give a complete representation of the system's financial health.
Illinois should also report projections for future contributions necessary to fully pay off its unfunded liabilities (it currently reports projections to fund the system at 90 percent), and projections should be reported under a range of assumptions about its discount rate.
Illinois was helpful in providing information necessary for this analysis.