From 2013 to 2014, the number of teachers receiving six-figure pensions in Illinois increased by 24 percent. Today, 6,000 retired Illinois teachers are collecting at least 100,000 in annual pension money.
Yet, as Kelly Riddell reports for the Washington Times, if the Illinois Teachers Retirement Service (TRS) were forced to pay out the pensions it owes today, it would only be able to pay retirees 40 cents for every dollar. Indeed, the state's pension fund is in trouble:
- According to a report from the spending watchdog group Open the Books, over 100,000 Illinois teachers had already broken even on their pension payments after just 20 months of retirement.
- Illinois taxpayers can pay up to $2 million per teacher per retirement.
- The TRS pension fund is underfunded by $54 billion, according to the Illinois Policy Institute.
- By 2029, the fund could be entirely broke.
TRS is the largest pension fund in the state. According to Riddell, Illinois legislators have continued to underfund TRS in order to free up funds for spending elsewhere. Yet, over half of Illinois teachers are retiring before the age of 60, and many teachers are making twice the amount they earned while they were actually employed. For example:
- Sandra Renner served as the superintendent in the Butler School District in Illinois. During her last four years at her job, her salary rose by 31 percent to $288,240. As a result, her starting pension was $210,480. She will receive pensions higher than her salaries for all but five years of her time in the workforce.
- Administrator Mohsin Dada saw his salary rise from $156,160 to $358,750 during his last year in his job. As a result, his pension was $254,700.
In the TRS plan, teachers are guaranteed a 3 percent annual cost-of-living adjustment, not connected to inflation or adjustable based on budget crises. Moreover, the adjustments are not capped as they are in Social Security. As a result, the state's public employees will see an average $1,906 cost-of-living adjustment in 2014, nine times the amount a Social Security beneficiary will receive to account for cost-of-living increases. According to Laurence Msall, president of the Civic Federation, the cost-of-living provision is one of the central reasons the state's pension costs are so expensive.
Another problem in Illinois is "pension spiking," in which educators' salaries rise immediately prior to their retirement.
- For example, Open the Books discovered teachers in the Hinsdale school district were receiving a 24 percent salary increase during the last four years of their careers, boosting the value of their pensions.
- Unions often make salary spikes a part of salary negotiations. School districts are only on the hook for these payments for just a few years, while taxpayers bear the real financial burden: the resulting higher pension bill.
The Illinois legislature passed pension reform last year, which included salary caps and a cost-of-living adjustment based on inflation, but labor unions challenged the reform in the courts. Riddell reports a judge issued a temporary injunction against the law in May. According to Ted Dabrowski of the Illinois Policy Institute, if the court rules pension reform unconstitutional, taxpayers are going to face large tax increases.
Source: Kelly Riddell, "Generous teacher pensions continue as Illinois' financial crisis worsens," Washington Times, September 1, 2014.
For more on Tax and Spending Issues: