Illinois TRS Funding Method Challenge Rebuffed

November 7, 2008 (PLANSPONSOR.com) - An Illinois state judge has thrown out a lawsuit that challenges how the state funds the pensions of downstate and Chicago public school teachers.

Cook County Circuit Judge Mary Anne Mason granted a motion filed by the Teachers’ Retirement System (TRS) to dismiss the suit filed by the Chicago Board of Education in March (See  IL TRS Asks Court to Throw Out Chicago Schools Funding Lawsuit ). The lawsuit charged the state’s method of funding the Chicago Teachers’ Pension Fund (CTPF) was unconstitutional.

Rational Basis

Mason agreed with the state pension fund that the state has a rational basis for maintaining different funding mechanisms for the TRS and for the Chicago Teachers’ Pension Fund (CTPF). TRS argued the state has a rational basis to fund the two pension systems differently because TRS is a state entity while CTPF is not.  TRS also argued that the Chicago Board of Education has taxing powers that are unavailable to it.

“The General Assembly did not mandate that the State contribute to CTPF,” Mason  wrote . “Thus, while TRS is guaranteed state funding each year, there is no comparable provision applicable to CTPF.”  A 1995 state statute set a funding goal to provide CTPF an annual amount between 20% and 30% of the annual state appropriation certified for the TRS.

Additionally, the law gives the Chicago Board of Education the authority to levy local taxes in order to fund the pension plan for its teachers.

Insufficient Funding

“The Teachers’ Retirement System clearly understands the financial difficulties created by insufficient funding,” said Jan Cleveland, an elected TRS Trustee and 5th grade special education teacher in the Carmi-White County #5 District. “The funded ratio at TRS stood at 56 percent in fiscal year 2008, due in part to decades of insufficient state funding, asset sales required to pay benefits, and recent financial losses,” Cleveland said.

According to the TRS, the state began paying actuarially determined amounts into its five state pension systems, including TRS, in fiscal year 1996, part of a 50-year statutory plan designed to bring the retirement systems to a 90% funded level by 2045.

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