One Year ago, Adam Andrzejewski, then CEO of For the Good of Illinois, alongside State Representative Dwight Kay (R-Glen Carbon) called for a forensic audit of our pension systems. Detailing a audit of the Teachers Retirement System (TRS) pension plan, the message highlighted a bill (HR31) that laid out a three-stage process to be conducted by COGFA (Commission on Government Forecasting and Accountability).
Please read Andrzejewski’s email here.
The legislation was prompted by a SEC investigation into TRS management; testimony during the Blagojevich, Resko, and Cellini trials regarding “influence” on investiments and board appointments; independent Wallstreet investment analysis; and reports that Illinois pensions are among the worst funded in the nation.
That blog post, and corresponding email blast, prompted Dave Urbanek, TRS Spokesman to send an angry email telling us that TRS was not “a real mess,” as our blog post asserted. In fact, Urbanek asked Andrzejewski to “delete and retract” the message from the internet. We saw this as a heavy handed tactic to shut down discussion of Illinois pension problems. It turns out we were right.
According to a confidential memo leaked to the State Journal Register, the TRS might be “insolvent as soon as 2029.” The article in the SJ-R tells us that this led “executive director Dick Ingram to raise the politically explosive possibility of reducing pension benefits for already retired teachers.”
The top brass at TRS now calls this a “New Reality.” We think last year’s descriptor, “real mess,” was accurate.
Here is a point-by-point response to Mr. Urbanek’s year-old email.
Our responses are indented.
From: Urbanek, David
Date: Fri, Feb 4, 2011 at 4:26 PM
Subject: Please retract the message “Auditing the Pensions”
Dear Mr. Andrzejewski:
I understand the need for your fundraising appeals to generate a certain amount of controversy and anger among potential donors. It helps convince people who don’t know any better that they should give you money.
This is an example of the snide nature of Illinois-style government PR flacks. Illinois pensions are underfunded to the tune of billions, and our organization is supposedly guilty of “generating…controversy and anger?! No, Mr. Urbanek, it is Illinois’ brand of mismanagement that is generating the anger.
But your conclusions about Teachers’ Retirement System are wrong and your analysis is based on outdated information. TRS is not “a real mess.” Please issue a retraction to your financial backers and remove this message from the Internet.
Now that the TRS is openly talking about reducing benefits, will you retract this snide email?
It is wrong to rely on information from fiscal year 2009 for a message in February of 2011. More complete and updated information from fiscal year 2010 is available on the TRS website at trs.illinois.gov.
We’ve looked at the TRS website, and the most updated CAFR available today ends at June 2010. While this may not be the latest update, can we assume that the “New Reality” pasted all over the TRS site reflects “updated” information? Perhaps we weren’t using out-of-date information when we posted our call for an audit last year. It looks more like we were prescient.
If you had taken the time to review the latest financial information available, you would have found that in 2010 TRS investments earned $3.68 billion, which is a negative-to-positive swing of more than $12 billion from the previous year’s investment losses. And by the way, you never remind your readers that in 2009 practically everybody in the investment world lost money because of the global financial crisis. There was no mismanagement at TRS, and the positive investment return of 12.8 percent (net of fees) in fiscal year 2010 proves that.
You intentionally obfuscate the point here. It isn’t about investment returns alone (although that’s important), but the process by which investment advisers and contractors are chosen along with a transparent look at how their fees are generated. Also, the taxpayers deserve to know how and why TRS makes their decisions, and whether there is a conflict of interest.
Also, you never explain that the 172 people employed at TRS serve 372,251 members. That’s one employee for every 2,164 members – a very good ratio by any measurement. You never explain that the $200 million in management fees and trading commissions charged on a $28 billion portfolio in 2009 is only 0.7 percent of the total assets on hand, or that the $18 million in administrative costs comes directly from the contributions of TRS members and not from taxpayers.
See the explanation above. Also, TRS members (teachers, etc.) are paid by taxpayers, who are the ultimate source of that $18 million. As so many politicians and public employees like to remind us, we are the ultimate guarantor of your pensions, and it appears that Mr. Ingram is worried about taxpayers’ ability and willingness to pay. So are we.
TRS is audited annually by a certified public accounting firm and you will find our Comprehensive Annual Financial Report for 2010 on the TRS website. A “discovery and forensic audit” would uncover exactly what the annual audit finds. Duplicating this effort would be a waste of taxpayer dollars.
The audit proposed by Rep. Dwight Kay last year would go deeper than the CAFR (Comprehensive Annual Financial Report). As we pointed out a year ago, the first phase would be a discovery audit that provides a first-glance of the pensions systems. If there is indication of problems such as conflict-of-interest, fraud or mismanagement, follow-on phases of the audit will investigate.
The fact is that Illinois’ pension funds are large pools of cash, and therefore an attractive nuisance for Illinois’ brand of politician and their connected friends. That’s why it isn’t enough to aggregate 10 years of results and payments to investment consultants, and arrive a some meaningless ratio of returns to expenses (see TRS PDF)
Frankly, rolling, independent audits of every state agency and state pension fund should become a common practice, particularly in Illinois. It sends a message that we will never return to the all-too-common set of practices that got Illinois into this mess.
Finally, it is deceitful to suggest, as you do, that the System’s unfunded liability is in reality “a shortfall,” with the implication that TRS does not have enough money to pay pensions. You’re mixing up the long-term liability with the annual obligation of pension payments. That’s like confusing the total owed on a home mortgage with what’s owed monthly on that mortgage. The two are different. In the case of TRS, the total unfunded liability never comes due because active teachers are not eligible to claim their portion of that liability until they retire. TRS has carried an unfunded liability since the 1950s and has never missed paying out pensions. The unfunded liability is a problem because it prevents us from relying more on investment income so TRS can reduce the amount of money needed from taxpayers.
Now that your Executive Director has publicly floated “insolvency” and “benefit cuts,” it is our turn to ask just who has been “deceitful.” You know as well as we do that the accelerating pace of retirements, combined with the never-sustainable spikes in pension sweeteners over the last 15-20 years, means that the 2029 insolvency date is probably too optimistic. This makes your mortgage analogy above a case of classic PR flack misdirection.
The reality is that in fiscal year 2010 TRS paid out $3.9 billion in pensions and benefits and took in $6.8 billion in revenue. The assets on hand at the end of 2010 totaled $31.3 billion. As of today, TRS assets total $34.6 billion. The System is moving in the opposite direction of what you suggest in your fundraising appeal.
If our readers want to get an idea of the real numbers involved, they can read this excellent piece by Northwestern professor Joshua Rauh. The fact is that the numbers you post above are now made meaningless by your “New Reality” at the TRS.
Public Information Officer
Teachers’ Retirement System of the State of Illinois
We think Dave Urbanek was wrong a year ago, and the TRS brass seems to agree. We also think this vindicates our call for an audit of the TRS. The teachers, as well as the taxpayers, deserve it.
For more information on this post, read the following articles.
TRS director: Retirees might have to take pension cut
Our Opinion: TRS chief dares to speak truth
Teacher groups challenge TRS director on benefits
After many denials, TRS changes stance on pension viability
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