Funding for TRS benefits comes from member contributions, contributions by TRS-covered employers, the State of Illinois, and investment income.

Member Contributions

Active TRS members are required to contribute 9.4 percent of their creditable earnings each year. This contribution is allocated as follows: 7.5 percent for retirement benefits, 0.5 percent for post-retirement increases, 1 percent for survivor benefits, and 0.4 percent to fund the Early Retirement Option.

Active members also make an additional contribution to help fund the Teachers’ Health Insurance Security (THIS) Fund. The fund finances the Teachers’ Retirement Insurance Program (TRIP), which is administered by the Department of Central Management Services. For the year ending June 30, 2009, the member contribution rate is 0.84 percent.

Members may also make elective contributions for optional service credit and the Early Retirement Option. They may also make elective contributions to upgrade service earned before July 1998 to the 2.2 benefit formula as described under “Benefits,” subject to certain limitations.

Employer Contributions

TRS–­covered employers make employer contributions for teachers paid with federal funds and for the employer’s portion of the Early Retirement Option. Employers also contribute toward the cost of the 2.2 formula change and help fund the Teachers’ Health Insurance Security (THIS) Fund. In addition, the State of Illinois makes employer contributions, as described below.

State Contributions

State funding is provided through a continuing appropriation that provides for automatic transfers of state monies to TRS. The overall goal is to attain a 90 percent funded ratio (meaning that 90 percent of the liability for benefits earned will be covered by assets) by fiscal year 2045. The plan calls for contributions to increase gradually, with exceptions noted in the following paragraph.

For the nine years ending in fiscal year 2004, state contributions gradually increased according to a statutory schedule. For fiscal year 2005, state contributions decreased to $907 million because of a revised calculation method enacted when the state sold pension obligation bonds. Public Act 94-0004 specified significantly lower appropriations in fiscal years 2006 ($535 million) and 2007 ($738 million). In both years, state appropriations were about half the amounts that would have been required under the 50-year funding plan, resulting in sharply higher funding requirements in future years. In fiscal year 2008, state contributions returned to the statutory funding schedule.

In fiscal year 2009, $1,452 million is the amount required under the law. However, the actual 2009 state appropriation is $255 million lower than the funding requirement, so TRS will use a special provision under the funding law that mandates that the required contribution be paid automatically.

Investment Income

TRS uses approximately 128 outside investment managers, a general consultant, and staff to invest the trust assets in accordance with investment guidelines established by the Board of Trustees and the fiduciary standards imposed by state law. Historically, the largest single source of funding has been investment income earned on the assets held in trust by the TRS Board of Trustees. However, for fiscal year 2008, the rate of return, net of fees, of the invested assets was (5.0) percent. Despite recent losses, long-term performance exceeds actuarial assumptions.

The following table summarizes TRS’s asset allocation, as assigned to each respective asset class, as of June 30, 2008:

TRS net assets held in trust for pension benefits were $38.431 billion as of June 30, 2008.

Funding Summary

*in millions. Totals may not add due to rounding.