Snowflake Schools: Pension Tension

For the last several years of my teaching career (which ended in June, 2012), the pension problem was front and center, occupying way too much attention from both politicians and educators.  And it has continued into my retirement, with legislation recently passed which reduces the unfunded liability (currently from $55-90+ billion, depending on who’s reporting it), cuts benefits, lengthens the years required to teach, lowers teachers’ contributions, and guarantees (sort of) that the state will make its full payments to the pension trust each year.  And this legislation has made virtually everyone angry.  So we head to court for a couple of years to try to sort out who’s right and who’s wrong.  Sadly, there’s plenty of blame to go around.

From a teacher’s perspective, it certainly seems unfair to change the rules in the middle of the game.  When I retired, the law stated that I would receive an automatic 3% increase in the cost of living adjustment (COLA) every year on my pension.  I was allowed to retire at full benefits after accumulating credit for thirty-five years (two of which were accumulated sick days—340 total).  Under the new law, my COLA will be based on my credited years times $1,000, a significant cut.  And my colleagues currently teaching cannot apply any sick days toward their credited years.  Younger teachers will be required to teach up to five more years in order to maximize their pensions, and will have the salary upon which their pensions are based capped, regardless of how much they actually earn.  It would certainly seem that pensions have been “diminished and impaired” which is prohibited by the Illinois state constitution.  And lawyers will be soon arguing that in front of the Illinois Supreme Court.

A key teacher complaint is that the reason for the underfunded obligation of the pension fund, which is what got us in this situation in the first place, is the state legislature’s failure to make payments it was supposed to make for many years, not to mention paying less than it was supposed to in other years.  Teachers are rightly upset that while they were making all their required contributions, the state wasn’t holding up its end; and now the ones to pay the price for this fiscal irresponsibility are the teachers.  There are even some who argue that the underfunding issues aren’t really as bad as many would make them appear.  However, most of us believe that the pension liability has led to a shift in funding levels which could ultimately mean spending more on pensions than education itself, hardly a palatable allocation of tax dollars.  Regardless, teachers have been working themselves into a lather over the unfairness of politicians stealing money from the pension fund in previous years and now forcing the teachers to make up the difference through decreased benefits. 

But teachers (primarily through their unions) have been at least somewhat complicit in creating the funding issues. That about which we teachers aren’t as forthcoming is how good our pension deal has been over the years.  With the early-retirement option of 1979, teachers could retire before the age of 60, with full benefits.  A full Teacher Retirement System (TRS) pension is 75% of the average of our highest salaries for four consecutive years.  In other words, we add up our salaries (including any extra-curricular/sports/summer school stipends we receive) for the top-earning four years in a row (usually our last four years), figure the average yearly pay for those four years, and multiply that average times 0.75 to arrive at our yearly pensions.  When I started teaching in 1979, it took thirty-eight years to reach the maximum, but that was lowered with the Early Retirement Legislation of 1980.  Additionally, the number of unused sick days a teacher could convert to credit for time taught increased from the initial 85 in 1972 to today’s 340, which translates as two years of teaching credit.  In 1998, a flat 2.2% was granted for each year of teaching toward retirement, instead of a more graduated, back-loaded system.  So in 2012 when I left, a teacher could retire with full benefits at the age of 55, with thirty-three years of teaching and two years of accumulated-unused-sick-days.  That’s a pretty good package, especially when compared to Social Security. 

But there were even better deals to be had earlier:  In 1993 and 1994, the “5 + 5 Early Retirement Incentive” program allowed teachers to buy up to five years of service toward their retirements, which enabled some teachers fortunate enough to be in this situation to retire with full benefits when they were only fifty years old.  This was sold as a cost savings for school districts as they would be able to replace their higher-salaried employees with younger, cheaper teachers.  Thus, most school districts encouraged their older teachers to take this deal by agreeing to pay the teachers’ contribution to the “buying” of five years’ experience.  What wasn’t publically discussed was how that savings would actually be made up by the state (taxpayers) since these early retiring teachers would be getting full benefits five years earlier (and thus five years longer) than the previous law had allowed. 

And if retiring many years before most Social Security employees were eligible weren’t enough, school districts and unions figured out another gambit to increase pensions—the end-of-career pay boost.  Since pensions are based on the last four years’ pay (typically), teachers who notified their districts of their intention to retire in advance were given extra pay boosts for one-to-four years right before retirement.  Initially, these “bumps” (as they came to be known) were for as much as 20% over the previous year’s salary.  One dramatic example of how this increased a teacher’s earnings is a retired teacher who is currently a local school board member (and who has voted against several teacher contracts in his capacity as school board member because they were too costly).  This individual’s regular salary in 2004 was $87,930 (all salary figures were obtained from http://www.familytaxpayers.org/salary.php).  He then received 20% bumps over the next four years, peaking at $169,944 in 2008, a 93% increase in four years.  Thus, he retired with a pension over $100,000 per year.  Had he gotten a more realistic 3% annual increase on that $87,930 during that four-year span, his final salary would have been more like $99,000, and his pension would have been roughly $30,000 less per year, at around $71,000.  So over the course of his twenty-five-year retirement (let’s say), those four bumps will cost the taxpayers an additional three-quarters of a million dollars ($750,000).  And that’s just one ex-teacher!

The 20% bumps have been reined in significantly, but teacher salaries can still be increased 6% for up to four years before teachers are about to retire.  In my case, my district’s negotiated contract called for increases for teachers of 4%, 4%, 2.5%, and 2.5% my last four years, a cumulative increase of 13.6% (compounded).  Instead, I got four years of 6% increases for a compounded salary increase of 26.2%.  The state gets to pick up that added 13% on my pension for as long as I live.  By using the political system to elect candidates sympathetic to our concerns and to lobby for our special interests, teachers (with the help of our lobbying unions) have also contributed to the funding crisis.

Many of my colleagues took these deals, retired at 75% of their bump-enhanced salaries, then immediately looked for part-time jobs, (often in school districts as part-time teachers), and wound up earning more with their pensions and part-time work than they had as full-time teachers.  Some even got full-time jobs (anywhere but public schools) to earn significantly more money than they would have if they’d continued to teach.  Between the legislature, unions, and individual teachers, there are no heroes in this situation, despite all those pointing fingers of blame at anyone but themselves.

That leaves us in our current situation, where the main victims are tax-payers who understandably want more tax dollars devoted to roads, schools, and security rather than to retired teachers.  Current teachers also suffer in that the pensions they anticipated when they began teaching are changing significantly for the worse.  Remember that teachers do not contribute to Social Security, so the Teacher Retirement System is their primary option.  And that doesn’t even take into account the Tier II retirement system in place for teachers who were hired after 2011 with a totally different set of retirement rules which make the most recent legislative changes seem great by comparison.

With the economy down and jobs hard to find, many won’t see the recently passed legislation as much of a problem for public education, despite its negative impact on teachers.  Right now, there are many more applicants for teaching jobs in the suburbs than there are positions, and we don’t have many examples of quality teachers giving up teaching because of the changes to the pension system.  What we have is primarily the retired and nearly retired teachers screaming bloody murder, while fiscal conservatives blast them for their greed at the expense of other necessary services for Illinois. 

But we all stand to lose as this battle gears up to get more intense.  There will be younger teachers who abandon the field to find jobs in private industry that won’t get buffeted around by all the special interest groups currently targeting teachers.  We will also see many talented students who might have considered education migrate to other careers that seem more stable.  I am a huge backer of public education and would love to see either or both of my daughters consider teaching as a career.  Right now, however, I would be hard pressed to encourage them to think about Illinois as the state in which to pursue that goal.  And many of my former colleagues are much more adamant that their children should never consider teaching as a profession.  While the denigration of teachers is a nationwide problem (see “Teachers Should Be Worshipped” for more on this), these pension problems are just one more reason for good people to avoid Illinois public schools for their careers.  And this comes at the height of a large number of Baby Boomer teachers reaching retirement age, meaning schools will need many quality replacements.