Illinois State Universities Retirement System, Champaign, is at risk of running out of assets to pay pension benefits during the next 10 years.
“SURS faces the real risk that the assets could be depleted in less than 10 years,” Daniel L. Allen, chief investment officer, wrote in an Aug. 28 memorandum outlining the pension fund’s 2016 investment plan, according to recently released investment committee meeting minutes.
“Investment policy alone cannot close the SURS plan deficit. The deficit is too large,” Mr. Allen wrote.
“The continuing challenge to SURS remains the funding status of the plan,” Mr. Allen wrote. “Despite strong long-term returns, SURS remains substantially underfunded. SURS is approximately 44.6% funded as of June 30, 2015. The unfunded liability is estimated to be approximately $21.5 billion.” Over 25 years, SURS’ investment return is an annualized 8.3%
That unfunded liability might have grown. It was based on assets of $17.3 billion as of June 30; as of Oct. 31, SURS had $16.8 billion.
“It is important to note, however, that since (fiscal year) 2011, SURS has received the full annual statutory contribution from the state of Illinois,” Mr. Allen wrote. “The system’s cash needs are projected to increase during the coming fiscal year. SURS expects to pay approximately $2.31 billion in benefit payments in fiscal year 2016 per the fiscal year 2014 actuarial valuation report prepared by SURS’ actuary, Gabriel Roeder Smith & Co. Investment performance alone cannot bridge the funding gap.”
SURS’ certified contribution for fiscal year 2016 is $1.6 billion, Mr. Allen wrote in the memo.
In the 10 years ended Aug. 30, SURS’ investment return was an annualized 6.4%, outperforming an annualized 5.8% public funds benchmark return the system uses, but underperforming SURS’ 7.25% assumed rate of return.
“The investment and contribution experience in the next five years will be crucial in determining whether the plan will remain sustainable or shift to depletion,” Mr. Allen wrote. “On a positive note, over the past three years, financial markets have been relatively favorable, and funding from the state of Illinois has been more consistent.”
W. Bryan Lewis, SURS executive director, did not respond to requests for comment.