Illinois pension fund enjoys big investment gains in FY 2017

CHICAGO, Oct 26 (Reuters) - Illinois’ biggest state public pension fund generated its largest investment return in three years in fiscal 2017, an improved performance that was undermined by continued underfunding by the state, the Teachers’ Retirement System (TRS) reported on Thursday.

The fund, which covers public school teachers in all Illinois districts with the exception of the Chicago Public Schools, said a 12.6 percent return on investments gained $5.5 billion for the system in the fiscal year that ended June 30.

The investment performance, which followed a minimal 0.01 percent return in fiscal 2016, improved the system’s funded ratio to 40.2 percent from 39.8 percent in fiscal 2016. However, its unfunded liability climbed to $73.4 billion at the end of fiscal 2017 from $71.4 billion in the prior year because the state’s pension contribution continued to fall below actuarially required levels, TRS said.

“The TRS unfunded liability was created by seven decades of inadequate funding by state government and our future sustainability relies on consistent state funding to pay down this debt,” said TRS Executive Director Dick Ingram in a statement.

TRS, which reduced its assumed investment rate of return to 7 percent in 2016 from 7.5 percent, accounts for most of the $130 billion unfunded liability in Illinois’ five pension systems.

That liability will grow under a law enacted by Illinois earlier this year that will decrease the state’s pension payments. The law, which spreads over five years changes since 2012 in the systems’ assumed rates of investment returns, reduced the state’s fiscal 2018 contribution to TRS by 11.6 percent to $4.034 billion.

Illinois has been prevented from enacting money-saving pension changes by a provision in the state’s constitution prohibiting the impairment of retirement benefits for public sector workers.

With the state supreme court tossing out laws to shrink pension liabilities, Governor Bruce Rauner is exploring federal legislation that would allow states to restructure their pensions, his spokeswoman said this week.

“We’re not sure at this point what (the legislation) would look like,” said spokeswoman Patty Schuh. (Reporting by Karen Pierog; Editing by Matthew Lewis)