CHICAGO -Three of Illinois' five pension funds have revised their investment rate of returns, a move that could drive up the state's future projected contributions and cut the savings of the pension overhaul adopted by lawmakers.

The Teachers Retirement System's board of trustees scaled back the estimated return rate to 7.5% from 8% after reviewing its asset-liability model and market assumptions. The board set the 8% rate in 2012 after lowering it from 9%. Trustees said the change was due to increasing volatility in the international economy. State actuaries last year recommended that the rates be reduced.

TRS is the largest of the state's five funds.

"The assumed rate of return greatly influences the financial future of TRS. Reducing the rate from 8 percent to 7.5 percent is a prudent move that balanced expected future reality with the needs of TRS members," the fund's executive director Dick Ingram said in a statement.

The state's fiscal 2015 payment has already been set at $3.4 billion with the following year's payment expected to be set in later in the year. At the lower rate, the fiscal 2015 payment would have been $500 million higher.

The fiscal 2015 contribution doesn't reflect the pension overhaul. The reforms were set to take effect this month but have been stayed pending the resolution of a legal challenge and so the budget and contribution levels did not factor in the impact of the pension changes.

In addition to TRS, the State Universities Retirement System known as SURS and the State Employees' Retirement System known as SERS recently reduced their assumed rates to 7.25 % from 7.75%.

"The lower return assumptions are expected to significantly increase required state pension contributions beginning in fiscal year 2016 and reduce state savings from pension legislation enacted in December 2013, the Civic Federation of Chicago's Institute for Illinois' Fiscal Sustainability wrote in a new report.

It's still too early, however, to assess the impact. "It should be noted that the impact of the lower assumed rates could be offset by other factors, including strong investment performance in fiscal 2014," the federation wrote.

The pension reforms affected four of the state's five funds - which carry a collective $100.5 billion in unfunded obligations - including the teachers' fund. The three funds which changed their investment return rates represent the bulk of the state's retirement obligations.

The last state projections on the overhaul anticipated the reforms would trim $21 billion off the state's unfunded liabilities tab and lower state contributions through 2045 by $137 billion. If the pension reforms are upheld, it was projected that state contributions to the pension fund would be reduced in the next fiscal year by about $1.2 billion. The legislation limits cost-of-living increases, caps pensionable salaries, and raises the retirement age for some while cutting employee contributions by 1%, shifting contribution calculations to a more actuarially sound method, and gives the pension funds enforcement rights over state payments.

TRS said in its statement that of 126 major state and municipal funds had set rates of 7.5% and 8% and the median average rate of return over the last 25 years was 9%, citing a national retirement organization's study.

The state's rating has sunk over the last several two years to the A-minus level, the weakest among states due to its pension and budgetary strains. Two rating agencies assign a negative outlook and Standard & Poor's a "developing" outlook. Adoption of the pension was praised by analysts as progress towards stabilizing the state's credit.

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