Accelify Blog

Illinois Teacher Pension System Nearly $40 Billion in the Hole (IL)

March 30, 2011

The Teachers’ Retirement System, the largest and costliest of Illinois’ pension programs, is now almost $40 billion short of what’s needed to cover future benefits — the deepest financial hole in 20 years of state records.

And with lawmakers looking to rein in the massive costs of public retirement programs, teachers worry that the nest egg they’ve always considered a sure thing might shrink, while school district officials are concerned that local taxpayers might have to start picking up more of the tab.

At 28, social studies teacher Patrick Sheridan is only in his fourth year of teaching, but he’s already on edge about retirement, wondering if he’ll ever get the pension checks he was promised.

"It’s very scary and very frustrating being a younger teacher, and not having any certainty," said Sheridan, who teaches and coaches at Cook County’s Elmwood Park High School.

More than 350,000 suburban Chicago and downstate educators, retirees and other members eligible for benefits make up the TRS system, whose assets and liabilities dwarf the other four state pension systems. But the pension plan is only 48.4 percent funded, slipping from 52.1 percent the prior year, according to the most recent financial report.

Fixing the pension mess won’t be easy, and proposals in Springfield that could cut future benefits to save on pension costs aren’t popular with educators who’ve been paying into their pensions all these years.

They blame their retirement system’s financial hole on the state, for failing to make all payments into government pension systems.

"The state has not met its obligation, yet teachers are being blamed for bankrupting the state. The reality is, we paid our dues, we paid what we owe," said Richard Lesniak, president-elect of the Illinois Association of School Business Officials and director of business services in Lockport Township High School District 205.

To be sure, districts have contributed to the rising costs of pensions.

School boards and teacher unions have signed off on pay increases that inflate pensions — salaries are a key ingredient in the pension formula — and that boost retirement costs borne by statewide taxpayers.

As it stands now, Illinois teachers get higher benefits, on average, than government retirees in most pension plans around the country, according to an analysis by the National Association of State Retirement Administrators. Illinois’ average teacher pension for retirees covered by TRS — about $41,000 — ranks seventh highest of the 101 major pension plans tracked by the association. Illinois pensions are not taxed by t he state.

The maximum TRS pension — 75 percent of an educator’s average salary used in retirement calculations — is considered high compared with what retirees get elsewhere, said Keith Brainard, research director at the association.

At the same time, TRS educators contribute 9.4 percent of pay for their pensions, which Illinois Education Association president Ken Swanson pointed out is high compared with contributions required around the country.

"We understand that, in these times, IEA members generally have good jobs with good benefits. We believe preserving these benefits is essential to attracting and retaining a high-quality workforce in every public school," Swanson said in a statement provided to the Tribune.

Almost $4 billion was distributed to nearly 100,000 retirees and other recipients, up $274 million over the prior year because of an increase in benefits and the number of retirees.

With the ongoing showdown in Wisconsin over public pensions, benefits and bargaining rights — with educators and other government workers being asked to make concessions — teachers here are wondering if their benefits will be preserved.

Lindalee Stuckey, a 58-year-old teacher in Berkeley School District 87, is due to retire at the end of next school year.

"I think I will get a pension, but I don’t think it’s going to be fully funded, and I can see five years from now, they’ll say, ‘You have to take a 20 percent cut,”’ said Stuckey.

Last year, the state increased the retirement age to 67 from 55 and reduced pension benefits for employees new to government pension systems.

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But an intense legal debate continues over whether changes can be made to the future benefits of employees in the state’s plans before Jan. 1.

"I think it’s pretty clear constitutionally that you cannot affect benefits of active members," said Dan Montgomery, president of the Illinois Federation of Teachers. "We think it is sort of a shame that people are possibly going to put forth (changes in pension) laws that seem clearly unconstitutional."

Tyrone Fahner, a former Illinois attorney general and president of the Civic Committee of The Commercial Club of Chicago, said he’s "absolutely convinced" that some pension changes would not violate the constitution.

His group, which has been pushing pension reforms for several years, helped House Republican Leader Tom Cross write legislation that would require government employees in the state’s five pension plans to choose from three types of benefits, including a 401(k)-style plan common in the private sector. If employees opted to stay in their current plan, they’d have to pay more into it — an estimated 28 percent of salary.

Employees also could switch to the setup approved in reforms last year, which increased the retirement age and reduced benefits. Under all the options, the changes would begin July 1, 2012, and Fahner stressed that benefits earned before that date would not be taken away.

"The constitutional prohibition would be to take away something they’ve already earned," he said.

Cross’ legislation has not been acted upon.

Overall, educators contributed about 13 percent of the $6.8 billion revenue that went into the TRS system in the 2010 budge t year. The state put in 30.5 percent, and employers, such as school districts, contributed 2.5 percent. The remaining 54 percent came from investment income, according to the system’s annual financial report.

IEA President Swanson said his union "stands ready to help shape a plan that will responsibly compel the state … to live up to its pension liability. We will oppose any new unreasonable sacrifices and will oppose additional sacrifice from our members with no responsible actions on the part of the state legislature, which created the debt by using our pensions as their credit card."

Montgomery, president of IFT, did not rule out a proposal by Senate President John Cullerton, who has suggested requiring local districts to cover a bigger portion of the pension costs, giving some relief to the state.

"I think we can look at that — that might have potential to ensure the (pension) system’s stability," Montgomery said. "But you have to be careful and do it in a way so that you don’t create another massive unfunded mandate on local schools."

The pension program for Chicago Public Schools teachers gets very little from the state, compared with what TRS receives. Chicago’s system, far smaller than TRS, also is better funded: It has 67.1 percent of what’s needed to pay benefits in the future, compared with 48.4 percent for TRS.

"The Senate president’s view is, why doesn’t the rest of the state work like CPS?" said Cullerton spokesman John Patterson. "Suburban and downstate districts effectively set pensions by their salary decisions, but the state isn’t part of those decisions," Patterson said, even though the subsequent pension costs are pushed off to state taxpayers.
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School business official Lesniak said Cullerton’s idea would create an "excess burden" on taxpayers in school districts. "It would add quite a bit to your property tax bill. It is a tax increase," he said.

At Elmwood Park High School, Sheridan talks about how much he loves his job, despite the long hours he puts in teaching, overseeing clubs and coaching sports.

He also worries that he’ll never be able to retire, if changes come down from the state.

"My grandfather lived to be 92," Sheridan said, "and my goal is to live to be about 92, so I can be retired for six months before I finally die."