CHICAGO — With efforts to fix Illinois' woefully underfunded pension system still in limbo, the largest of the state's five funds reported its unfunded obligations rose in fiscal 2013 to $55.7 billion from $52.1 billion a year earlier despite double-digit investment returns.

The Teachers Retirement System's fiscal 2012 unfunded liability represented more than half of the state's $95 of unfunded obligation for fiscal 2012. The numbers reflect actuarial smoothing. The other four funds cover state employees, lawmakers, judges, and public university employees.

The TRS fund is now 40.6% funded on an actuarially smoothed basis as required under state law. The funded ratio is 42.5% based on market value. The state's collective funded ratio for its five funds in fiscal 2012 was 40.4%, down from 43.4% in 2011. A total figure for all the funds in fiscal 2013 was not yet available.

An annual study of state funds by Morningstar Inc. released last month ranked Illinois as the weakest among its counterparts with Wisconsin at the top based on fiscal 2012 results. Overall, states averaged a 72.6% funded ratio in fiscal 2012, Morningstar said.

TRS managers said the fund weakened even as it saw a strong 12.8% rate of return, after fees, on a $40 billion portfolio during the fiscal year. The higher unfunded liability reflects another year of contributions from state government that fell short of full, actuarially based funding level, the TRS said in a statement. The fund covers 390,000 members.

"Despite these strong returns, TRS cannot invest its way out of the funding hole we are in," Executive Director Dick Ingram said in the statement. "This increase in the system's unfunded liability, even with good investment results, is another wake-up call to state officials and our members that TRS long-term finances continue to head in the wrong direction." TRS' 30-year rate-of-return at the end of fiscal 2013 was 9% on average. The plan assumes a rate of return of 8%.

The TRS board gave preliminary approval recently to setting the state's contribution in fiscal 2015 at $3.41 billion. That's down slightly from the contribution in the current fiscal year of $3.44 billion. The state's fiscal 2014 payments for all five funds totals $6 billion, up from $5.1 billion in fiscal 2013. It is paid from the state's $35.6 billion fiscal 2014 general fund. The 2015 contribution amount will be reviewed by the state actuary and then returned to the TRS board for final approval.

The proposed fiscal 2015 payment of $3.41 billion falls short of the $4.1 billion contribution needed to achieve an actuarially required contribution, or ARC, TRS said. The state's contributions are set by a statutory formula that typically falls short of what's needed to keep the funds healthy. The fiscal 2014 payment of $3.44 billion fell short of an ARC-based payment of $4 billion.

"Without changes to the pension code to ensure sustained and adequate funding, TRS faces the very real possibility that in a few decades the system will not have enough money to pay benefits to retirees," Ingram warned.

With Illinois Gov. Pat Quinn, Chicago, other local governments, and bond investors all clamoring for action on the state's unfunded pension obligations, the General Assembly has so far failed to act during its brief veto session. Lawmakers met for several days last week and will reconvene next week.

A legislative conference committee has been hashing out a new overhaul plan aimed at breaking the political logjam, but Democratic and Republican members have struggled to reach agreement. Inaction to date on an overhaul during the regular session this spring drove two downgrades of the state government. The state carries the poorest rating among states at the low-single-A level. The three major rating agencies all assign a negative outlook.

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