* Teachers' Retirement System says faces a shaky future
* $36.3 bln TRS is Illinois' largest public pension fund
* TRS wants Illinois to meet its "total obligations"
CHICAGO, Oct 26 (Reuters) - The pension fund for most public school teachers in Illinois said Friday that despite a state fiscal 2014 payment that marks a 27.2 percent increase over fiscal 2013 it still faces a shaky future.
The nearly $3.44 billion payment set by the fund for the fiscal year that begins July 1 will fall short of the level needed to fully fund pensions for teachers over the next 30 years, according to the Teachers' Retirement System.
Illinois' payments, which are determined using calculations set by state law, are below levels derived from standard actuarial calculations that would require a larger fiscal 2014 payment of $4.38 billion, the pension fund said.
"TRS faces the real risk of future insolvency because of insufficient state funding over the last 30 years," TRS Executive Director said Dick Ingram in a statement.
He added that while the system will be able to meet its obligations for retired teachers in the near future, it cannot guarantee pensions will be there for future generations of teachers unless Illinois "meets its total obligations."
Abdon Pallasch, the state's assistant budget director, said on Friday that the higher payment "just underscores the need to pass Governor (Patrick) Quinn's pension reform initiative to rein in the burgeoning costs of the state's pension systems."
Faced with a huge $83 billion unfunded pension liability for its five pension funds, including TRS, Illinois is struggling to reduce pension payments that threaten to squeeze out funding for essential services.
Jerry Stermer, Illinois' budget director, said on Wednesday he expects state lawmakers to take up pension reform legislation during a lame-duck session in early January. He also said Quinn is backing legislation that would phase in over 12 years the responsibility of individual school districts to make payments into TRS that are currently made by the state.
TRS, Illinois' largest public pension fund with $36.3 billion in assets, also reported that its funded ratio sank to 42.1 percent in fiscal 2012, well below the 80 percent level considered healthy, from 46.5 percent in fiscal 2011. As a result, the system said its unfunded liability grew by $10 billion to $53.5 billion.
Last month, the pension fund for teachers in all Illinois school districts, with the exception of the Chicago Public Schools, lowered its long-term assumed investment rate of return to 8 percent from 8.5 percent. The move boosted the state's fiscal 2014 payment by about $500 million, according to a TRS spokesman.
On Thursday, it announced that its investment rate of return in fiscal 2012 dropped to just 0.76 percent from 23.6 percent in the previous fiscal year as losses in its international stock portfolio pulled down gains from other investments.