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SPRINGFIELD, Ill. (AP) — Illinois' contribution to the state's largest public-pension fund is expected to increase by more than $400 million next year because the board overseeing the account on Friday lowered its expected rate of return on investments.
It's an increase that could lead to higher taxes or massive cuts to education and social services already in financially dire shape because of a historic budget standoff and multibillion-dollar state deficit.
The Teachers Retirement System trustees agreed to lower the assumed rate of return from 7.5 percent to 7 percent, despite Gov. Bruce Rauner urging them to delay the vote so the state could assess and plan for the higher costs.
"Quickly voting, making a decision that could impact taxpayers in Illinois to the tune of hundreds and hundreds of millions of dollars every year, that decision should not be taken quickly and should not be taken without a lot of transparency," Rauner said the day before the vote.
An actuary firm recommended the move because of reduced inflation expectations nationally.
Several funds already have dropped their projections, including the $185 billion New York State and Local Retirement System, which lowered its assumed rate from 7.5 percent to 7 percent in September. Other major pension systems have also said they're considering it.
The trustees' action is expected to bring Illinois' total contribution to the fund to nearly $4.3 billion, increasing the state's annual liability by $421 million.
Illinois has the worst-funded pensions of any state, with $111 billion in unfunded liabilities.
The board's decision was nearly unanimous, with 10 trustees voting yes and two trustees appointed by Rauner shortly before the meeting abstaining.
The Rauner administration had expressed concern that the vote was happening with little notice to the public, a charge the board's executive director dismissed.
"Nothing we are considering today is precipitate or rushed," Richard Ingram said. He said the board needed to act now to give actuaries enough time to prepare a final report in October with updated figures. The current estimated increases are based on last year's budget.
Ingram said lawmakers can always override the board's decision if they don't agree with how it increases the state's contributions. He added that it's something they've done before, taking a swipe at lawmakers' past decisions to skip or short the annual payment.
Ingram said the Teachers Retirement System "has never once in its history received an annual contribution from the state that as actuarially adequate."
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