Reporting Jim Williams
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CHICAGO (CBS) – Illinois’ public employee pension funds are in trouble. The state’s largest retirement account is financially strapped, and many say it cannot go on unless big changes are made.
As CBS 2’s Jim Williams reports, the Better Government Association took a look at how the Teachers Retirement System (TRS) is managing its massive investments, and what they found is troubling.
There’s a lot at stake here. TRS is the pension fund for all public school teachers in Illinois, outside of Chicago.
The BGA says the TRS paid enormous fees to lots of outside money managers – more than $1 billion over a period of 10 years – but in return, got poor investment performance.
It is enough to make teachers all over the state very nervous. A message on the Teachers Retirement System’s own website says TRS is “no longer confident that the Illinois General Assembly will appropriate all of the money to TRS that is required by law. The State of Illinois’ growing budget deficit and the System’s $43 billion unfunded liability is together causing this ‘new reality’ at TRS. “
“The System,” it says, “could become insolvent as soon as 2030.”
But the BGA says the Teachers Retirement System itself shares the blame, because of how it’s managing the $37 billion fund.
“They’re worried about the solvency of the fund and one of things they should be doing is looking at their own costs,” BGA investigations director Robert Reed said.
Those costs include $1.3 billion paid to outside money managers between 2001 and 2010.
While TRS had a target rate of return on investments of 8.5%, they actually only made 3.3 percent.
In addition, 200 investment managers each got more than $1 million from TRS, and 10 investment firms averaged more than $38 billion in payments.
The BGA hired Bill Zettler of the Family Taxpayers Foundation to analyze the data.
“I don’t have a problem with them using outside investment managers. That can be a very good idea. However, those outside investment managers should be paid based on performance, not just showing up every day at work,” Zettler said.
But TRS spokesman Dave Urbanek called that unfair, saying in a phone interview from Springfield that every retirement account in the country suffered during the economic downturn.
“What they managed to do is pick a period of time that included probably the worst financial disaster in the history of the world. Everybody lost money in 2008 and 2009,” Urbanek said.
Urbanek also said, if you take the years right before the economic downturn and the last couple of years, the pension fund investments are right on target.
But the BGA is also taking issue with the sheer number of money managers – 200 total.
Urbanek said the aim of having so many managers is to protect the investments by making the portfolio diverse.