In the attached letter to the Wall Street Journal, the head of the Illinois Teachers Retirement System, the state’s largest pension fund, responds an editorial in that paper. The Wall Street Journal had criticized the pension’s assumption that it can make 8% on its invested assets. That assumption is key to determining the size of the pension’s unfunded liability.
The Wall Street Journal is one of many voices to say that 8% is far too optimistic. More importantly, new accounting standards and the rating agencies that cover state obligations will soon force pensions like this to assume a lower number. Under the lower number the Illinois teachers’ pension will have only 18% of the money it needs to cover future obligations, not the 39% that it officially reports today. As WirePoints wrote in its recent story about this pension, the recent bipartisan task force report on state pension obligations headed by Paul Volker, among others, said just that.
If this pension could reasonably assure that it would make an 8% return, every prudent American would gladly turn over his IRA to them to manage.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.