Post by gatormom on Aug 25, 2008 7:15:32 GMT -5
Room for Illinois in teachers' pensions?
State playing 'catch-up' on underfunded plan
Naperville Sun
www.suburbanchicagonews.com/napervillesun/news/1124330,6_1_NA25_PENSION_S1.article
August 25, 2008
By Tim Waldorf twaldorf@scn1.com
Much is made of the pensions Illinois teachers and administrators receive when they retire. Some who are fully vested in the Illinois Teacher Retirement System receive up to 75 percent of their career-ending salaries.
Some say that's too much and that the state, which is facing a $23.7 billion unfunded teacher pension liability, should get out of the retirement planning business because it is too costly to taxpayers.
But how much are Illinois taxpayers, the school districts that serve them, and the teachers those districts employ actually paying for these golden years?
Pension contributions
A comparison of the employee, district and state contributions toward pension plans in school districts 203 and 204.
District 203 District 204
Employee $10.3 million $11 million
District $634,696 $680,377
State $14.2 million $15.2 million*
Sources: Naperville School District 203 and Indian Prairie School District 204 * Estimate base proportionately on figure reported by District 203
In every school district across the state, all certified staff members - usually teachers and administrators, which total more than 160,000 statewide, according to the Illinois Teachers Retirement System - must participate in the retirement plan. That means these educators send 9.4 percent of their salaries to the pension system throughout their working careers.
Last year alone, teachers and administrators in Naperville School District 203 and Indian Prairie School District 204 paid $21.3 million toward the plan, according to each district's records.
School districts such as 203 and 204 pay toward the pension plans of their educators, too, contributing 0.58 percent of their teachers' and administrators' salaries to the system. Those tax dollars are derived from local property tax levies, and according to the records of Districts 203 and 204, they amounted to $1.3 million last year.
Blame the state
But those tax dollars pale in comparison to the amount contributed by the state, which generates its revenue through sales and income taxes.
Last year, the state appropriated $1.04 billion toward teachers' pensions, and that amount increased to $1.4 billion this year.
According to Eva Goltermann, TRS public information officer, the payments are so large because the state had "an abhorrent record" of paying toward the plan through the mid-1990s.
"The main reason for the state's large unfunded pension liability is the state's decision to underfund the state's pension system over a period of decades," she said.
But Illinois addressed this underfunding in 1995 when legislators passed a 50-year plan designed to bring its pension systems to a 90 percent funded ratio by 2045, Goltermann said. This act provides for continuing appropriations to the pension systems, meaning the state must pay the amount it needs to cover the costs of its pension systems' benefits each year.
In other words, Goltermann said, it is to pay "whatever TRS has certified as necessary," and it is to do so "without debate or discussion."
Delayed funding
To accomplish this, the first 15 years of that plan provided for sharp increases in state contributions - so sharp, in fact, the state couldn't cover the costs. In 2003, it issued $10 billion in pension obligation bonds, $2.7 million of which was used to cover its 2003 and 2004 obligations to its pension systems, and the rest was put toward reducing the systems' combined deficits.
Still, in 2005, lawmakers reduced appropriations to the state's pension systems by $2.3 billion, $1 billion of which would have gone to the Illinois Teachers Retirement System. The state is making up the difference with larger payments, and will continue to do so through 2011.
"It just exacerbated the amount of money the state will have to pay to play catch-up on the 50-year plan," Goltermann said.
But Mundelein resident Bill Zettler, a columnist and pension expert for the Illinois' conservative political watchdog Web site, Championnews.net, says the problem isn't underfunding but overly generous benefits provided by the Illinois Teachers Retirement System. For example, Zettler's analysis of state pension data indicates more than 950 teachers receive pensions greater than $100,000 a year for the rest of their lives, and he asserted, that number is set to increase by 20 percent each passing year.
"We taxpayers would save a lot of money if we just gave each of these people a check for $1 million and told them to go away," he said.
Career-end bumps
A retired teacher's pension benefits are a percentage of his or her average career-ending salary, which is the average of the highest four consecutive years of compensation within the teacher's final 10 years of service. In 2005, the state sought to rein in the additional pension costs associated with end-of-career salary increases such as the oft-maligned 20 percent raises some districts were handing out to early retiring educators in the early part of this decade. The state now requires school districts to make additional contributions to the Illinois Teachers' Retirement System for any end-of-career compensation hikes of more than 6 percent.
In reaction, some school districts, including District 203, have approved teachers contracts that provide 6 percent raises for each year of notice teachers give them of their intent to retire.
Now, the percentage of that average career-ending salary received by a retiring educator is calculated based on a formula that includes years of service and age at retirement.
Fully vested
Educators who retire at age 55 with 35 years of service are fully vested in the system, and consequently, receive full credit for every year they've served within the system. That means they'll be given 2.2 percent of their average career-ending salary for each of the 35 years they've worked, or an annuity of roughly 75 percent of their average career-ending salary.
Those who retire at age 60 with 10 or more years of service, or at age 62 with at least five years of service, also receive 2.2 percent for each of those years.
The system allows teachers to retire after 20 years of service if they are at least 55 years old, but those who take this route receive discounted annuities unless they and their employers contribute more money for the system's early retirement option. To take early retirement, teachers and administrators must pay 11.5 percent of their highest salary for each year they're either younger than 60 or short of 35 years of service, whichever is less. And the districts employing them must pay 23.5 percent of that salary for each year the teacher or administrator is younger than 60.
Upon making these contributions, though, these educators also qualify to receive 2.2 percent of their average career-ending salary for each of their years of service.
$63,000 average
According to the Illinois Teachers Retirement System, as of June 30, 2007, the average age at which its members retire is 58, and they do so with an average of 29 years of service. On average, their pensions paid them $3,344 a month, or $40,128 a year, meaning on average they earned roughly $63,000 a year when they retired.
Still, Zettler suggests these payouts to retired public school teachers are far better than most anyone can expect in the private sector.
"A good comparison would be at your employer," Zettler said. "Do you have a 401(k)? If so, what is the percentage you contribute? Add that to the 6.2 percent you give to Social Security and that is your rate ... but you cannot retire on anywhere near their retirement, nor can you retire before age 62 for Social Security."
By Zettler's calculations, the state will sink a total of $208 billion into the Illinois Teachers Retirement System during the next 37 years, which would complete its 50-year plan - but that's only if the system's investments provide an average 8.5 percent per year return. And, he said, if that average dips to 6.5 percent, which is higher than the system's average rate of return on its investments during the past seven years, that total will climb to more than $300 billion.
"The difference in return is paid for by taxpayers, not teachers," he said. "They get their money no matter what."
This, Zettler said, is why solving its pension problems is "one of the most important issues facing Illinois in the coming years and decades."
And how would he solve it?
"You have to get them on Social Security and 401(k) plans, just like the rest of us are," he said. "Why should they get a special deal? They should be just like the rest of us."
But Goltermann said Illinois residents "expect the state to make good on its promises," and that means continuing to fund its pension programs.
"The state needs to continue to show the fiscal discipline it has shown the last 13 years in order to clear the deficit that was created by years of underfunding," she said.
State playing 'catch-up' on underfunded plan
Naperville Sun
www.suburbanchicagonews.com/napervillesun/news/1124330,6_1_NA25_PENSION_S1.article
August 25, 2008
By Tim Waldorf twaldorf@scn1.com
Much is made of the pensions Illinois teachers and administrators receive when they retire. Some who are fully vested in the Illinois Teacher Retirement System receive up to 75 percent of their career-ending salaries.
Some say that's too much and that the state, which is facing a $23.7 billion unfunded teacher pension liability, should get out of the retirement planning business because it is too costly to taxpayers.
But how much are Illinois taxpayers, the school districts that serve them, and the teachers those districts employ actually paying for these golden years?
Pension contributions
A comparison of the employee, district and state contributions toward pension plans in school districts 203 and 204.
District 203 District 204
Employee $10.3 million $11 million
District $634,696 $680,377
State $14.2 million $15.2 million*
Sources: Naperville School District 203 and Indian Prairie School District 204 * Estimate base proportionately on figure reported by District 203
In every school district across the state, all certified staff members - usually teachers and administrators, which total more than 160,000 statewide, according to the Illinois Teachers Retirement System - must participate in the retirement plan. That means these educators send 9.4 percent of their salaries to the pension system throughout their working careers.
Last year alone, teachers and administrators in Naperville School District 203 and Indian Prairie School District 204 paid $21.3 million toward the plan, according to each district's records.
School districts such as 203 and 204 pay toward the pension plans of their educators, too, contributing 0.58 percent of their teachers' and administrators' salaries to the system. Those tax dollars are derived from local property tax levies, and according to the records of Districts 203 and 204, they amounted to $1.3 million last year.
Blame the state
But those tax dollars pale in comparison to the amount contributed by the state, which generates its revenue through sales and income taxes.
Last year, the state appropriated $1.04 billion toward teachers' pensions, and that amount increased to $1.4 billion this year.
According to Eva Goltermann, TRS public information officer, the payments are so large because the state had "an abhorrent record" of paying toward the plan through the mid-1990s.
"The main reason for the state's large unfunded pension liability is the state's decision to underfund the state's pension system over a period of decades," she said.
But Illinois addressed this underfunding in 1995 when legislators passed a 50-year plan designed to bring its pension systems to a 90 percent funded ratio by 2045, Goltermann said. This act provides for continuing appropriations to the pension systems, meaning the state must pay the amount it needs to cover the costs of its pension systems' benefits each year.
In other words, Goltermann said, it is to pay "whatever TRS has certified as necessary," and it is to do so "without debate or discussion."
Delayed funding
To accomplish this, the first 15 years of that plan provided for sharp increases in state contributions - so sharp, in fact, the state couldn't cover the costs. In 2003, it issued $10 billion in pension obligation bonds, $2.7 million of which was used to cover its 2003 and 2004 obligations to its pension systems, and the rest was put toward reducing the systems' combined deficits.
Still, in 2005, lawmakers reduced appropriations to the state's pension systems by $2.3 billion, $1 billion of which would have gone to the Illinois Teachers Retirement System. The state is making up the difference with larger payments, and will continue to do so through 2011.
"It just exacerbated the amount of money the state will have to pay to play catch-up on the 50-year plan," Goltermann said.
But Mundelein resident Bill Zettler, a columnist and pension expert for the Illinois' conservative political watchdog Web site, Championnews.net, says the problem isn't underfunding but overly generous benefits provided by the Illinois Teachers Retirement System. For example, Zettler's analysis of state pension data indicates more than 950 teachers receive pensions greater than $100,000 a year for the rest of their lives, and he asserted, that number is set to increase by 20 percent each passing year.
"We taxpayers would save a lot of money if we just gave each of these people a check for $1 million and told them to go away," he said.
Career-end bumps
A retired teacher's pension benefits are a percentage of his or her average career-ending salary, which is the average of the highest four consecutive years of compensation within the teacher's final 10 years of service. In 2005, the state sought to rein in the additional pension costs associated with end-of-career salary increases such as the oft-maligned 20 percent raises some districts were handing out to early retiring educators in the early part of this decade. The state now requires school districts to make additional contributions to the Illinois Teachers' Retirement System for any end-of-career compensation hikes of more than 6 percent.
In reaction, some school districts, including District 203, have approved teachers contracts that provide 6 percent raises for each year of notice teachers give them of their intent to retire.
Now, the percentage of that average career-ending salary received by a retiring educator is calculated based on a formula that includes years of service and age at retirement.
Fully vested
Educators who retire at age 55 with 35 years of service are fully vested in the system, and consequently, receive full credit for every year they've served within the system. That means they'll be given 2.2 percent of their average career-ending salary for each of the 35 years they've worked, or an annuity of roughly 75 percent of their average career-ending salary.
Those who retire at age 60 with 10 or more years of service, or at age 62 with at least five years of service, also receive 2.2 percent for each of those years.
The system allows teachers to retire after 20 years of service if they are at least 55 years old, but those who take this route receive discounted annuities unless they and their employers contribute more money for the system's early retirement option. To take early retirement, teachers and administrators must pay 11.5 percent of their highest salary for each year they're either younger than 60 or short of 35 years of service, whichever is less. And the districts employing them must pay 23.5 percent of that salary for each year the teacher or administrator is younger than 60.
Upon making these contributions, though, these educators also qualify to receive 2.2 percent of their average career-ending salary for each of their years of service.
$63,000 average
According to the Illinois Teachers Retirement System, as of June 30, 2007, the average age at which its members retire is 58, and they do so with an average of 29 years of service. On average, their pensions paid them $3,344 a month, or $40,128 a year, meaning on average they earned roughly $63,000 a year when they retired.
Still, Zettler suggests these payouts to retired public school teachers are far better than most anyone can expect in the private sector.
"A good comparison would be at your employer," Zettler said. "Do you have a 401(k)? If so, what is the percentage you contribute? Add that to the 6.2 percent you give to Social Security and that is your rate ... but you cannot retire on anywhere near their retirement, nor can you retire before age 62 for Social Security."
By Zettler's calculations, the state will sink a total of $208 billion into the Illinois Teachers Retirement System during the next 37 years, which would complete its 50-year plan - but that's only if the system's investments provide an average 8.5 percent per year return. And, he said, if that average dips to 6.5 percent, which is higher than the system's average rate of return on its investments during the past seven years, that total will climb to more than $300 billion.
"The difference in return is paid for by taxpayers, not teachers," he said. "They get their money no matter what."
This, Zettler said, is why solving its pension problems is "one of the most important issues facing Illinois in the coming years and decades."
And how would he solve it?
"You have to get them on Social Security and 401(k) plans, just like the rest of us are," he said. "Why should they get a special deal? They should be just like the rest of us."
But Goltermann said Illinois residents "expect the state to make good on its promises," and that means continuing to fund its pension programs.
"The state needs to continue to show the fiscal discipline it has shown the last 13 years in order to clear the deficit that was created by years of underfunding," she said.
