IL Taxpayers Forced to Cover Teacher Pension Contributions

Published November 3, 2011

Teachers in nearly half of Illinois’ public school districts contribute nothing from their weekly paychecks to their pensions, according to a new study by the Illinois Policy Institute (IPI).

Illinois law requires teachers to contribute 9.4 percent to their pensions and employers to contribute 9 percent. Currently, though, half of Illinois’ school districts, and therefore taxpayers, pay both the employee and employer contributions.

During the 2009-2010 school year, 555 of the state’s 867 districts paid some or all of teachers’ required pension contributions. This has contributed to a fund deficit of $85 billion. To compensate, the state has been paying 20 percent of the pension fund.

“Improvement will only come with reform,” said Ted Dabrowski, IPI’s vice president of policy. “We are digging a deeper and deeper hole every day we don’t reform.”

Inflating Salaries
Dabrowski, coauthor with Michael Wille of the report titled “Teachers’ Pensions: Who’s Really Paying?,” said though many teachers technically pay a portion of the pension fund, their salaries have been inflated to cover the amount taken out for retirement benefits. This “pension pick-up” means school districts essentially pay the teachers’ portions in addition to the employer portion.

“In almost half of all school districts in Illinois, taxpayers are on the hook for 100 percent of teachers’ pensions,” Dabrowski said. “This totally contradicts union claims that teachers pay their ‘fair share’ for their own retirement.”

This pick-up cost taxpayers more than $430 million in 2009-2010. In 2010, Illinois paid more than $2.2 billion to the Teachers’ Retirement System to cover the “employer share” of the benefits, Dabrowski said.

Unions Block Reform
Illinois attempted pension reform last spring, but public employee unions lobbied to block the legislation.

Dabrowski said reforms eventually will take one of three forms: continuing the same retirement benefits and charging employees more, keeping payment the same but lowering benefits, or converting from a pension system to individual 401(k) accounts.

Recent history suggests reform will be hotly contended.

This past January the Ohio Teachers Retirement System recommended increasing teacher pension contributions from 10 to 14 percent and cutting cost-of-living increases by one-third, to help close an $8 billion budget shortfall. In 2010, Wisconsin proposed similar reforms. In both cases, the National Education Association and American Federation of Teachers protested aggressively.

Pension Reforms More Prominent
Despite the pushback, in 2010 a record amount of state legislation was offered to address retirement plan funding problems, says Ron Snell, a senior fellow at the National Conference of State Legislatures. In 2010, 21 states enacted changes to their public pension plans, Snell said.

Many Wisconsin teachers retired at the beginning of 2011 to avoid paying more for their pension benefits. Within the first six months of 2011, 4,935 Wisconsin school district employees had retired, almost doubling the retirements of 2009 and 2010. Many districts rehired these teachers, allowing them to receive two pensions later when they retire for good.

Even with some increase in retirements, Snell predicts reform will continue and expand. Thirty-one states are considering pension reforms in current legislative sessions, he said.

“Illinoisans are struggling with unemployment and higher tax bills,” Dabrowski said. “To ask that teachers pay their share and reduce the burden on taxpayers is only reasonable.” 

Internet Info:
“Teachers’ Pensions: Who’s Really Paying?” Illinois Policy Institute.

State Pension Reforms by the Numbers

  • 18 states: increased employee contributions or age and service requirements for pension benefits, or both
  • 12 states: increased contributions members must pay into retirement plans
  • 11 states: increased age and service requirements for employee pensions
  • 8 states: reduced post-retirement benefits• 8 states: extended period for calculating an employee’s average salary, which usually causes a lower base for benefits
  • 9 states: reduced benefits to early retirees
  • 9 states: restricted double benefits to retirees who return to a job covered by the same retirement plan from which they already receive benefits

Currently Proposed:

  • 18 states: increase employee pension contributions
  • 10 states: increase age and service requirements for retiree benefits
  • 7 states: increase limits on early retirement benefits
  • 5 states: reduce or repeal post-retirement benefit increases
  • 6 states: institute defined-contribution plans

Source: National Conference of State Legislatures. Image by Clay Junell.