By: Mark Glennon*


Another horrid installment on Illinois’ pension fiasco was released today. But this time, the actuary ridiculed the state’s pension accounting, used a far more transparent style of report, and coined a wonderful new term, “Illinois Math.” And, because most of the report can be generalized to other Illinois pensions, it provides some great insights about an entire pension system gone berserk.


Specifically, the state’s largest pension, Illinois Teachers’ Retirement System (“TRS”) released its actuarial valuation for the 2014 fiscal year, which ended June 30. The full report for is linked here and a summary presentation is here.


The highlights:


• TRS’ unfunded liability grew by $5.9 billion, an increase of over 10% since the previous year, despite favorable markets that allowed TRS to earn over 17% on its assets.


• Younger and newer teachers in the system are a much worse deal than older ones. Teachers joining the system after January 1, 2011 are called Tier II. They are forced to pay more than enough to cover their own scheduled benefits — $6.9 billion more over the course of next 50 years as scheduled. That’s what they will pay to subsidize the unfunded liability for Tier I employees with far more generous benefits.


• The unfunded liability is scheduled (yes, scheduled) to jump again. Along with the actuary report is the preliminary certification of how much the state will contribute to the pension for fiscal year 2016, which is $3.7 billion. While that’s an increase of $300 million over last year’s bill to taxpayers, a state contribution of $5.3 billion would be needed just to keep the unfunded liability from growing still further.


• The pension’s funded ratio (the assets it has as a percentage of what it needs to meet obligations) is 44.2%, a slight improvement over last year’s 42.5%. In an accompanying press release, TRS makes that improvement the headline — an absurd attempt to spin the bad news favorably. That’s like saying you continued to incur more liabilities than assets you accrued at about the same, unbalanced pace that you always have.


• “Illinois Math” is such a splendid addition to our pension vocabulary, and the actuary ridicules it throughout its report (though there’s no mention of that in TRS’ spin-job press release). The actuary even defines it in its glossary:

The term given to the various schemes in the Illinois Pension Code designed to systematically underfund public employee retirement systems in the state of Illinois.

Open derision of pension accounting in plain language like that is unprecedented and overdue. We are finally seeing it thanks to complaints about pensions and their actuaries. Kudos to people like Tia Goss Sawhney, an actuary who has been critical of her profession, who wrote guest pieces linked here and here and has been filing complaints, including one against TRS’ actuary about a past report. She has been lobbying for frank, clear disclosures and it looks like she is getting results.


• A major reason for the jump in unfunded liabilities is that TRS was forced to change its assumptions. We, like plenty of others. have long been saying TRS assumptions were overly optimistic. Two years ago, TRS published a letter in the Wall Street Journal saying its assumptions were fine. They weren’t. They still aren’t Reality gradually overtakes phony assumptions and taxpayers foot the bill for the resulting adjustments — it’s not just underfunding that causes pension deficits.


• Governor Quinn has continued to brag that he has made all “appropriate” pension payments, and payments that are “actuarially sound.”  That’s a brazen lie that still nobody has called him out on. He didn’t pay the right amount last year and the actuary could not be more clear about this year. From the actuary’s valuation report:

By funding based on Illinois Math instead of Actuarial Math, the State has put the retirement security for the 390,000 current and former educators in the State of Illinois at risk.

Illinois Math. It’s sort of like classical theater: part tragedy, part farce, entirely fiction.


 *Mark Glennon is founder of WirePoints





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6 years ago

It is my experience even math teachers (this is not an insult) usually do not grasp actuarial concepts. Every retired person should be given projections of how much they are entitled to (by contract agreement) from the pension fund. This figure should be divided by the projected amount of money the fund is capable of producing in any one teacher’s expected lifetime. (The ratio will be different depending on age.) This way the teacher will know the reality of the situation. All involved should know if the promised amount of pension is insured. If it is, how much will the… Read more »

6 years ago
Reply to  Anonymous

IRA accounts would require the SS payments be made!

Aint’ gonna happen!

6 years ago

There are three references to Illinois Math by Buck in the following letter from TRS to Illinois legislators regarding SB1 pension reform that eventually passed in the 98th General Assembly. SB1 is currently being challenged in the courts by those receiving and inline to receive an Illinois public sector pension. The letter is archived on the BuryPensions blog. Teachers Retirement System of the State of Illinois August 26, 2013 Senator Kwame Raoul Senator Daniel Biss Senator Bill Brady Senator Linda Holmes Senator Matt Murphy Representative Elaine Nekritz Representative Darlene Senger Representative Jil Tracy Representative Art Turner Representative Mark Zalewski To… Read more »

6 years ago

The previous 10 sentences mentioning Illinois Math were from this 114 page report. Buck Consultants division of Xerox Teachers’ Retirement System of the State of Illinois Actuarial Valuation Report June 30, 2014 Actuarial Valuation of Pension Benefits October 30, 2014 Larry Langer, Principal and Consulting Actuary Paul Wilkinson, Director and Consulting Actuary. The next 8 sentences mention Illinois Math appeared in the 51 page PowerPoint presentation: Buck Consultants division of Xerox. Teachers’ Retirement System of the State of Illinois Principal Results of Actuarial Valuation as of June 30, 2014 Board of Trustees Meeting Larry Langer and Paul Wilkinson October 31,… Read more »

6 years ago

The special interest groups (unions, etc.) are just as complicit in this fiasco as the Illinois General Assembly and Governors. They knew pensions were underfunded but kept lobbying for salary hikes, pension benefit hikes, and retiree healthcare benefit hikes. Buy now pay later was the mantra. Illinois Math allowed them to pay later. Illinois Math was created by the Illinois General Assembly and Governors in the form of House Bills, Senate Bills, and Public Acts which appear in the Illinois Pension Code, with full knowledge by the unions and other special interest groups. Here are the 10 sentences in the… Read more »