Public Accountability Report

The Teachers’ Retirement System of the State of Illinois (TRS) is a public employee retirement system (PERS) that administers a cost-sharing, multiple-employer defined benefit (DB) pension plan. That pension plan is a fiduciary component unit of TRS. Membership is mandatory for all full-time, part-time, and substitute public school personnel employed outside of Chicago in positions requiring licensure by the Illinois State Board of Education. Persons employed at certain state agencies and certain nongovernment entities also are members. Established by the State of Illinois, TRS is governed by the Illinois Pension Code (40 ILCS 5/16). TRS is a component unit of the State of Illinois and is included in the state’s financial statements as a pension trust fund. The mission of TRS is to continually deliver the retirement security promised to our members by maintaining the highest and most efficient level of service. 

TRS had five main operational goals during fiscal year 2021: investment in serving the TRS membership, ensuring future sustainability, providing thoughtful fiduciary and policy leadership, strengthening TRS organizational capacity, and investing in the development of our staff. There were 26 corresponding objectives. 

A synopsis of positive outcomes in meeting the System’s goals and objectives during fiscal year 2021 included: continued development of a new pension administration system for future successful service to TRS members; promoting accelerated pension benefit payment programs; and maintaining essential services for members, school districts, and other important stakeholders during the COVID-19 pandemic. 

TRS provides retirement, death, and disability benefits. A Tier 1 member qualifies for an age retirement annuity after meeting one of the following requirements: age 62 with five years of service credit; age 60 with 10 years of credit; or age 55 with 20 years of credit. By law, a retirement benefit is calculated based on the member’s creditable service, the member’s average salary of the four highest consecutive salary rates within the last 10 years of creditable service, and the percentage of average salary to which the member is entitled. 

For Tier 2 members, the differences in the basic TRS benefit structure include a minimum age retirement requirement of age 67 with 10 years of service, a cap on salaries used in the initial pension calculation tied to the Social Security wage base, and limits on the annual automatic increase that equals the lesser of 3% or half of any annual increase in the Consumer Price Index, not compounded. 

In 2018, TRS initiated an accelerated pension benefit (APB) program for members. The law requires TRS to offer all retiring Tier 1 members an APB payment in return for an irrevocable reduction in the automatic annual increase (AAI) that is applied to their initial TRS pensions. As of June 30, 2021, newly retired members have elected to receive $217 million in AAI benefits. 

Initiated in 2019, a second APB program requires TRS to offer all eligible inactive members a chance for a one-time, irrevocable APB payment in return for giving up any future claim to a TRS benefit. To be eligible, an inactive member must have “accrued sufficient service credit to be eligible to receive a retirement annuity” at some point in the future when other eligibility criteria are met. An inactive Tier 1 member must have at least five years of TRS service. An inactive Tier 2 member must have at least 10 years of TRS service. As of June 30, 2021, inactive members have elected to receive $212 million in APB benefits. 

The APB payments are funded by the proceeds of state government bond sales and not from TRS assets. The law gives state officials the authorization to sell $1 billion in general obligation bonds to fund the program. Thus far, the state has sold $750 million in bonds for the program. Both programs are scheduled to automatically expire at the end of the 2023 - 2024 school year.

The three sources of funding for TRS benefits and operations are member contributions, investment income, and employer contributions through state appropriations and payments from employers. 

Each employer remits 9.0% member contributions to TRS. Employers are responsible for the employer contribution for teachers paid from federal funds. This contribution rate decreased from 10.66% in fiscal year 2020 to 10.41% in fiscal year 2021. Employers are also responsible for a 0.58% employer contribution for member benefit increases. Employers also pay a contribution for sick leave days granted to members that are in excess of the member’s normal annual allotment and used for service credit upon retirement. 

The State of Illinois provides a substantial annual contribution to TRS through a state appropriation from the Common School Fund. An additional source of the state contribution is the Education Assistance Fund. In fiscal year 2021, the TRS appropriation under the statutory formula is $5.1 billion, and that is the amount that was appropriated. 

The TRS funded ratio at the end of fiscal year 2021 was 42.5% using the actuarial value of assets, which smooths investment gains and losses over five years. This is a slight increase from 40.5% in fiscal year 2020. Using the market value of assets, the June 30, 2021 funded ratio was 46.2%.  

The state has underfunded TRS every year for more than 80 years. This underfunding is the primary reason that the System’s unfunded liability exceeded $79.9 billion at the end of fiscal year 2021. In the June 30, 2021 actuarial valuation, the assumed rate of return continued to be 7.0%. The assumption has been lowered three times in the last decade – from 8.5% to 8.0% in 2012; to 7.5% in 2014; and to 7.0% in 2016. 

TRS investment income and returns significantly increased during the fiscal year as the economy recovered from the global pandemic. The TRS investment portfolio returned 25.5%, net of fees, for the fiscal year ended June 30, 2021 compared to 0.6% in fiscal year 2020. Total investment assets increased approximately $12.4 billion during the year.  At the end of fiscal year 2021, TRS held $63.9 billion in investment assets, a 24.1% rebound in asset value compared to the low point during the early months of the pandemic – $48.5 billion at the end of the March quarter of fiscal year 2020. Prior to the spread of the pandemic, TRS began calendar year 2020 with $54.6 billion in assets. 

TRS continues to build a new pension administration system (Gemini) internally using TRS staff augmented with contractual assistance. Work began toward the end of fiscal year 2018. A fundamental change in the employer reporting function of the new Gemini system was identified as a pilot project that has helped lay the planning and implementation groundwork for constructing the remaining portions of Gemini. Work has continued into fiscal year 2021. The change to monthly reporting will be the first aspect of Gemini scheduled to be implemented effective September 2021.  The initiation of monthly reporting will also serve as a proof of concept to determine how best to proceed with the other aspects of the Gemini project.

TRS also has made significant progress in the development of its Supplemental Savings Plan (SSP), a new 457(b) deferred compensation plan for eligible active members of the System. TRS expects to implement the SSP in fiscal year 2022. The SSP will not replace the DB plan for participating members but is a tax-favored retirement savings vehicle that is intended to supplement the retirement benefits provided by the DB plan.