Cheiron, the Illinois auditor general's appointed state actuary, recommended that the state's three major retirement systems — Illinois Teachers' Retirement System, Illinois State Universities Retirement System and the Illinois State Employees' Retirement System — lower their actuarial investment rate of return assumptions used to value their pension obligations for June 30, 2014, valuations and to determine contribution rates, according to a report released by the Illinois auditor general.
Illinois SURS, Champaign, which has $16 billion in assets, and Illinois SERS, Springfield, which had $12.9 billion in assets as of June 30, should each lower its assumption to 7.25% from the current 7.75%.
The report recommends only that Illinois TRS, Springfield, which has $40.8 billion in assets, lower its assumption without suggesting a rate. “(W)e are not comfortable with the continued use of an 8.0% interest rate assumption,” the report said.
“Should the boards (of the three systems) decide not to lower their interest rate assumptions, Cheiron requested that the boards provide Cheiron with substantial justification as to why the rates should not be lowered,” the report said.
“Cheiron suggests, due to the systematic underfunding of the systems, that the systems' boards always use the conservative end of any range of assumptions recommended by their actuaries,” the report said. “Cheiron also recommended stress testing be done to determine whether there will be sufficient assets to pay benefits if there is a significant market downturn.”
TRS is 38.6% funded; SURS, 41.5%; and SERS, 38.6%, the report said.
Cheiron noted an analysis for SERS projects a 7.09% annualized compounded return over the next 30 years and a 38.6% chance of meeting or exceeding the rate.
An analysis for SURS projects a 44.59% probability of meeting or exceeding its 7.75% assumption, the report said.
A analysis for TRS projects an 8.37% annualized return over the next 30 years, but another analysis forecasts “rates significantly below 8%,” the report said.
The report recommended no changes to the Illinois Judges' Retirement System and the Illinois General Assembly Retirement System, both of Springfield; each has a 7% assumed rate of return. JRS had $613 million in assets and GARS, $49 million, both as of June 30.
Illinois State Board of Investments, Chicago, oversees the assets of SERS, JRS and GARS, which had $14 billion combined as of Nov. 30.
