(Crain's) — Illinois Teachers' Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.
The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.
Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments from its $12.2 billion defined benefit fund this fiscal year to raise liquidity to pay benefits to participants.
The Illinois State Board of Investment, Chicago, could sell $840 million investments from its $9.9 billion fund to pay benefits of the Illinois State Employees' Retirement System, Illinois Judges' Retirement System and Illinois General Assembly Retirement System. ISBI oversees the investments of the three systems.
The liquidity stress from the investment sales at the five plans could force each of them to restructure their strategic asset allocations, terminate investment managers and search for new managers.
Illinois Teachers sold $290 million in investments so far this month and $200 million last month because of a lack of state contributions.
“Without the monthly state contribution, TRS estimates sales of roughly $3 billion for the entire fiscal year, or approximately $250 million every month,” Mr. Urbanek said in a statement in response to an inquiry.
So far, TRS has accomplished the investment liquidation through “appropriate rebalancing,” Mr. Urbanek said in the statement. “As the year progresses, this approach will no longer be sufficient to cover the total amount of benefit payments and more targeted asset sales will need to be considered.
“TRS staff continues to study the impacts of the current liquidity situation on the total portfolio and recommendations will be made as necessary to adjust targets. These changes could include revisions to the system's target asset allocation and termination of investment manager relationships as 10% or more of the portfolio is liquidated to pay benefits this fiscal year,” he said.
Mr. Urbanek said the investment sales could force changes in the system's current asset allocation impacting whether it could meet its current 8.5% target rate of return.
“In the current market environment, there are significant market opportunities to institutional investors with available capital. In the absence of the required contribution from the state, TRS and the other Illinois pension systems will no longer be able to participate in these opportunities,” he said.
R.V. Kuhns, the system's investment consultant, is evaluating possible allocation changes for liquidity needs as they arise, Mr. Urbanek added. He said it was “impossible” to know details of possible searches or terminations at this time.
Since the start of the fiscal year on July 1 through Aug. 20, the system has received only $8.1 million in contributions from the state. For the current fiscal year, ending June 30, 2011, the system requested $2.35 billion in contributions from the state, Mr. Urbanek said.
In the last fiscal year, the system sold $1.3 billion in assets to pay pension benefits; it received $170.4 million in employer contributions and $899 million in member contributions, while requesting $2.08 billion in employer contributions alone.
TRS' current asset allocation is U.S. equities, 30.5%; international equities, 20.3%; fixed income, 17.5%; real estate, 9.6%; real return, 9.3%; private equity, 8.3%; absolute return, 3.6%; and short-term investments, 0.9%.
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