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Is My Pension Safe?
TRS
Report – November 2008
If in the last days, you did not think about your advantage in having
a defined benefit pension, you should do so now. Many people with a 401K
that had considered that they were near retirement are now faced with
the new reality that they will have to continue working for many years
to come and can only hope that their job will last that long. Others already
retired and living on their investments have seen the gains of many years
diminish in a matter of days and in some cases totally disappear. It is
one thing to decide that you want to get a job while you are retired,
it is something else when you have to get job in order to live and you
suddenly find yourself filling out an application at Wal-Mart.
Whatever is going on in the economy and however bad the market is, you
should know that your pension will be deposited in your bank at the first
of the next month and every month there after, and if you are eligible,
your check will grow by 3% after the first of the year. Your career as
a teacher will reward you and yours for the rest of your life and theirs.
You can count on that. Those who argue for defined benefit pensions, such
as ours, to be replaced by defined contribution plan, such as a 401K or
403b, have been silenced by the realities of the market crash. We started
this fiscal year in July with over $38 billion in the pension fund and
even though diminished
by the ravages of the market there is more than enough to pay your pension
for many years to come.
Who pays for your pension? The sources of income for the last 20 years
ending June 30, 2008:
State of Illinois
19% (POBs
not included as state contribution)
School Districts
3%
Teachers
19%
Investment Income
59%
You should already know that majority of your pension comes from our investments
and that the contributions of the State, school districts and active teachers
fall short every year of the total in benefits paid to annuitants, survivors,
and the disabled.
Even before the market took a wild rollercoaster ride in September which
has continued to this day, we had already experienced a decline in the
last fiscal year, and while the steps we had taken by moving into real
return and absolute return hedge funds helped, it was not enough to keep
us from having a negative fiscal year.
FY 2008 Total Fund:
- 4.54% (gross
of fees)
% of portfolio
Domestic Equity:
-14.89%
34.0
Int'l Equity:
-7.43%
21.6
Fixed Income:
+5.30%
17.5
Private Equity:
+5.26%
5.8
Real Estate:
+5.34%
12.1
Real Return:
+20.72%
7.5
Absolute Return:
+1.66%
1.3
Long term we expect our investments to make 8.5% per year, but because
we fell by just over 4.5%, which is a swing of 13% that means that we
fell more than $5 billion short of our goal in Fiscal Year 08.
Statement of Changes in TRS Net Assets last two fiscal years
2007
2008
Additions
Contributions
Members
$ 826,249,007
$ 865,400,168
State of Illinois
737,670,628
1,041,114,825
School Districts
115,917,040
130,673,629
Total contributions
1,679,834,675
2,037,188,622
Investment Income
Net appreciation (depreciation) 5,597,334,135
(3,235,738,717)
Interest
582,700,572
488,432,322
Real Estate income
270,234,053
387,493,400
Dividends
424,249,335
451,129,219
Private Equity income
92,106,866
40,935,894
Commodities income
0
5,080,645
Other income
1,755,249
2,242,175
Net securities lending
13,825,145
34,437,708
Total Investment Income
6,831,324,436
(2,014,902,366)
Total Additions
$ 8,551,159,111
$ 22,286,256
Deductions
Retirement benefits
2,965,355,617
3,268,108,083
Survivor benefits
121,822,272
130,368,599
Disability benefits
24,574,786
25,505,050
Refunds
59,731,909
60,285,624
Administrative expenses
15,246,203
16,613,364
Total Deductions
3,186,730,787
3,500,880,720
Net Increase (decrease)
5,324,428,324
(3,478,594,464)
Net assets held in trust for benefits
Beginning of the year
36,584,889,427
41,909,317,751
End of the year
$ 41,909,317,751
$ 38,430,723,287
Balance Sheet
June 30,
2007
June 30, 2008
Billions Billions
Net Assets
$41.909
$38.428
Accrued Liability
$65.648
$69.205
Unfunded Liability
$23.739
$30.744
Funded Ratio
63.8%
55.5%
Below you see the effect of combining our need to sell assets in order
to make contributions and the decline in investments caused by the markets
made the total loss of fund to be just over 8%.
Growth of Assets Year Over Year
FY State Asset Investment Growth in
Contributions Sales Returns % Total Assets
($ billions) ($ billions) (net of fees)
2005 $0.907 $1.021 10.8% 8.1%
2006 $0.534 $1.137 11.8% 7.3%
2007 $0.738 $1.179 19.2% 14.6%
2008 $ 1.041 $1.475 (4.9%) (8.3%)
This fiscal year (FY 09) the State contribution grew to $1.450 billion
dollars and on a monthly basis we are receiving those necessary payments.
Assuming that we had made our expected return in FY 08 of 8.5%, the State’s
contribution would still have needed to grow by $390 million to $1.840
billion in FY 10, but to now to make up for the lower return that State
will need to increase the payment by an additional $282.6 million to a
total of just over $2.122 billion. While that is still a preliminary number,
more significantly it is a greater number than the legislature was expecting
and even if the largest fund we are still only one of five that they pay
into and the others have also experienced greater than anticipated loses.
It is much easier and certainly more pleasurable to be the bearer of glad
tidings, but these are the facts that we have to deal with and I think
that you need to know what is happening with the funding of your pension.
It is important that we have an unlimited time horizon and that in a market
beaten down this badly that this can become the opportunity to follow
the first half of the well-known investment advice to “Buy Low.”
And again, no matter what else, your pension check will be deposited the
first of the month.
Bob Lyons, Elected Annuitant, TRS Board
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