Retired teachers currently receive a 3 percent compounded pension increase every year, an automatic raise regardless of inflation. In just a decade, they can collect a pension higher than their salary ever was while they were working.
That generous COLA is worth a whole lot of money. Of the $81 billion in liabilities that TRS officially reports, about a quarter of it is the result of the COLA. (New accounting rules put TRS' total liabilities at $159 billion, making the value of the COLA even greater.) That makes it one of the largest drivers of pension liabilities and a cause for concern. State lawmakers recognized this fact when they enacted changes to pension COLAs for future employees, or "Tier 2" employees, reducing the COLA to one-half of the inflation rate or 3 percent, whichever is lower.
The simple fact is that TRS is broke. The system doesn't even have enough money on hand to pay out benefits to the people who are already retired. Pension experts and TRS's own actuaries agree: the fund could soon be insolvent. Given the severity of the crisis, it's time to freeze COLAs until the systems are fully funded. After that, we can restructure it to adjust for inflation and actual investment returns.
Merely tinkering at the margins, as this year's various pension "reform" proposals would do, can't solve this crisis. But as long as the option of a federal bailout is on the table, Gov. Quinn and lawmakers will continue to avoid making the tough choices necessary to get the state's fiscal house in order.