Illinois SURS expects to liquidate up to $700 million yearly to cover benefits

Illinois State Universities Retirement System, Champaign, expects to liquidate $500 million to $700 million in investments every year to pay benefits, according to its newly released annual report.

“SURS liquidates the portfolio as needed to fund the monthly benefits,” Daniel L. Allen, chief investment officer, said in an e-mail. “The annual benefits paid in fiscal year 2012 (ended June 30) were $1.8 billion,” while state funding totaled about $1 billion and member contributions were $260 million.

To meet liquidity needs, “depending on market conditions, asset classes are accessed to remain within the bands of the asset allocations,” Mr. Allen said in the e-mail. “Frequently, passive funds are used.”

“The asset/liability study conducted in 2011 by the investment consultant Callan Associates reflected the need for liquidity to fund payments,” Mr. Allen added. “At this time, SURS believes achieving (its) 7.75% assumed rate of return over time is reasonable.”

“SURS will continue to structure its portfolio with the objective of maximizing returns over the long term to help offset the shortage in employer contributions,” said the comprehensive annual financial report for the year ended June 30.

As of June 30, SURS' assets decreased to $14.7 billion, down 3.2% from June 30, 2011, according to the report.

Its actuarial funding ratio decreased to 42.1% from 44.3% over the same respective dates.

SURS' investments returned 0.5%, net of fees, for the year ended June 30, underperforming the 1.7% return of its customized benchmark and the 0.7% return of the median public pension fund as measured by Callan Associates' public pension fund index. That's down from 23.8%, net of fees the year prior.

For longer periods, all ended June 30, SURS's investments returned an annualized 12.7% for three years, 6.8% for 10 years, 8% for 20 years and 8.1% for 25 years. SURS had $14.2 billion in assets as of Dec. 31.