The decline was attributed to poor investment performance and asset sales, but according to the TRS announcement, that percentage is offset by the statutorily-required change to five-year asset smoothing. The unfunded liability of TRS grew to $35 billion, up from $30 billion during 2008.
The Board of Trustees of the Teachers’ Retirement System of the State of Illinois (TRS), which approved the results of the 2009 Actuarial Valuation prepared by the System’s actuary, Buck Consultants, also certified $2.36 billion as the amount of state funding TRS needs for fiscal year (FY) 2011, an increase of $269 million of the state contribution in FY 2010, according to TRS. Additionally, the Board certified $82 million in FY 2011 for the Teacher Health Insurance Program, which funds health insurance for retired teachers.
New W/MBE Goals
Separately, the Board adopted new goals for the utilization of firms owned by women/minority business enterprises (W/MBE) for FY10. W/MBE broker/dealer goals remain at 15% and 8.5%, respectively, for domestic and international stock trades, while the goal for fixed income is now 15%, up 2.5% from the prior year.
Additionally, TRS noted that the goal for assets under management for W/MBE investment managers has been set at 12.5% of the total investment portfolio, which includes separate goals by asset class and fee targets for minority-owned, female-owned, and disabled-owned firms. As of June 30, 2009, 19 W/MBE firms managed a total of $3.2 billion, or 11.2% of the total fund, according to the announcement.
The TRS Board approved a $25 million investment in a domestic equity enhanced index portfolio with OakBrook Investments as part of the TRS Emerging Managers Program. TRS committed $500 million to the program in 2005 as a way to identify and foster long-term relationships with developing investment firms. At the end of FY09, the Emerging Managers Program had investments with eight emerging managers, including female and minority-owned firms, which oversee $265 million in assets for TRS. That includes five public markets investment managers and three private equity managers.
Searches were approved for large cap core managers for both domestic and international equities. These searches will include managers who employ enhanced, long-only and 130/30 strategies, and the international search will also include passive index managers, according to the announcement.
The Board also voted to authorize a Request for Proposal (RFP) to conduct a competitive search for an absolute return consultant that will help the pension fund "identify high quality managers and provide additional oversight of the asset class". As of June 30, 2009, TRS, which had $720 million invested in absolute return (2.5% of the total portfolio), also approved the transfer of up to $50 million from the domestic equity portfolio to K2 Advisors, one of system's incumbent absolute return managers. The move will bring both asset classes closer to their target allocations, according to the update.
The Teachers' Retirement System provides retirement, disability, and survivor benefits to teachers, administrators employed at primary and secondary public schools located outside the city of Chicago. It serves 365,188 members and had assets of $28.5 billion as of June 30, 2009.
In other business, the TRS Board also updated its Investment Management Agreement so that it achieves "full compliance with the contract requirements imposed by Public Act 96-0006," a wide-ranging state ethics law that was approved this spring. "It strengthens the existing ban at TRS on finders' fees and clarifies the managers' fiduciary duties imposed both by contract and by law," according to the announcement.
Additionally, the Code of Ethics and Conduct that governs the TRS Board of Trustees was rewritten to reflect the new law's requirements that trustees undergo eight hours of ethics training each year, file annual statements of economic interest with the state, and reiterate that they are subject to the gift ban contained in the Illinois State Officials and Employees Ethics Act. "The Board's Code of Ethics now more clearly documents the ban on trustees or their relatives from personally benefitting from any TRS investment," according to the announcement.