TRS pension liability equals $52 billion out of Illinois’ $96 billion

March 14, 2013


6a00d834515c5469e2017c371b25bb970b-75wiBy Nancy Thorner – 

Governor Quinn was quick to blame the state’s serious financial problem on the Illinois General Assembly during his annual budget address on Wednesday, March 6, but at least Quinn was honest enough to concede that Illinois has a serious problem. Quinn even offered a proposed budget as a step toward restoring Illinois’ finances which was neither a credible or a practical fix.

Consider education. Quinn’s proposed a 3% budget cut of $400 million for education spending. This is the third year in the row that state spending per student has been cut. This would result in per-pupil funding (general state aid) that could dip to $5,4542 next school year, affecting poorer school district which receive most of the aid. Wealthy school districts receive little or no state aid. 

Nibbling around the edges is a meaningless and useless exercise in a state that is drowning in debt.  When will Governor Quinn and state legislators deal with pension reform, which is sapping critical financial wherewith-all away from state programs that remain unfunded and/or unpaid because Illinois lacks funds?  Illinois has $96 billion in unfunded pension debt, more than $54 billion in retiree health care debt, and $9.7 billion in unpaid bills.

The present unfunded liability in the Teacher Retirement Service (TRS) stands at $52 billion, bigger than the Illinois general fund budget of $34 billion.  If paying the $52 billion liability off like a home mortgage, it would require more than $4 billion a year just to pay off the unfunded liability.  $46,452. A typical state spends 3% to 4% on pension costs.  Here in Illinois the TRS alone is 7% (+/-) of Illinois’s general fund. There were  105,000 retired teachers in 2012.  When the TRS is lumped together with Illinois’ four other pension benefit obligations (SERS, SURS, GARS, JRS), total pensions equal 14% (+/-) of Illinois’s General Funds budget.

Legislators in Springfield have approved a plan that was already endorsed by the House Personnel and Pensions Committee, but no action has yet been taken. 

Tenets of the plan known as the Nekritz-Biss plan (HB 6258) include:  1) A six-year suspension of the annual 3% cost of living increase (COLA) currently given to retirees, 2) employees would have to chip in an additional 2% of their salary toward their retirement, 3) Illinois would be legally compelled to pay its full share of its annual pension payments every year and 4) age for retirement would be raised.  It’s highly doubtful that it can pass as proposed.

John Tillman, CEO of the Illinois Policy Institute, standing in opposition to Nekritz-Biss, believes the proposal preserves too much of the current broken pension system.  Also, lawmakers must address the true size of the pension problem or “politicians are merely tinkering at the margins, leaving in place a system that has failed before and will fail again.” 

Teachers are often heard voicing fear and anger in radio and TV ads over the possibility that pensions earned through a lifetime of teaching could be reduced.  The average teacher pension in Illinois is $46,252.  This reflects the formula under which teacher pensions are determined.  The maximum pension a teacher can receive is an average of 75% of their top four years of earnings while teaching.

Granted, most teachers don’t qualify for Social Security upon retirement, but even so the generosity of their teacher pensions, with yearly automatic 3% COLA raises, seems noteworthy when compared to what recipients of  SS collect after a lifetime of work in the private sector.  Here in Illinois teachers can retire at age fifty with full pension after thirty years of teaching.  It is not unheard of for teachers to double dip after retirement, as many retire in their 50’s. 

Suburban school boards are taking advantage of the fact that local taxpayers aren’t solely responsible for pension obligations created by educators’ salaries.  Since the state pays pension benefits and not the districts, taxpayers in poorer districts, where teacher salaries are much less, end up subsidizing millionaire pensions. 

Throughout the state of Illinois less than 4% of TRS beneficiaries receive pensions of more than $100,000.  That percentage is greatly bolstered, however, by the 3,022 six-figure pensions received by retired teachers in  suburban school districts in the counties of Cook, DuPage, Kane,McHenry and Will.  In stark contrast, during 2012 less than 1% of the retired educators in Illinois’ other 96 counties received pensions of more than $100,000.  

The “Lake County Daily Herald” didn’t include pension information about my own town’s school districts, Lake Forest 115 and 67.  A request to  Bill Zettler made the information available to me.  Bill Zettler is Director of Research for the Family Taxpayers Foundation and has researched and written over 150 articles on Illinois public salaries and pensions since 2005. He is the author of “Illinois Pension Scam”.  What I found was not dissimilar to the pensions being accrued by teachers in other suburban counties in northern Illinois. 

Zettler’s spreadsheet included the Date of RetirementAge at RetirementCurrent Pension Amount, and To-Date Pension Amount for all retired teachers in both Lake Forest School Districts.  There were ninety-one retirees in #115 and one hundred twenty-four in #67.

In 2012 thirty-three of the retired teachers received $100,000 plus pensions, with the highest among them collecting $154,299.24; twenty-eight received between the $90,000 – $100,000 range; twenty-six collected between $80,000 – $90,000; for twenty-four retirees the range was $70,000 – $80,000; nineteen fell between $60,000 – $70,000; and twelve were in the range of $50,000 and $60,000, while during the same time statewide teacher pensions were averaging $46,252.

Retired Lake Forest teachers whose pensions were more in line ($40,000 – $50,000 or below) with the state’s average pension, either retired years ago when salaries were much lower or their years of teaching were limited in number.  Interesting to note is that forty-six Lake Forest retired teacher have already received in excess of one million dollars in pension payments.  One teacher who retired at age 51, whose current pension is $140,054.76, has collected to date $1,972,599.03.

The next wave of retiring Lake Forest high school teachers will likely receive pensions in the range of $100,000 per year, or will reach that figure within a few years, given that LFHS salaries averaged $106,000 during the 2012 – 2013 school year.  The samealso holds true at other northern Illinois suburban high schools where competition for teachers has precipitated the escalation of teacher salaries.

A proposal floating around for some time, but found highly objectionable by school districts state-wide, recommends that individual school districts take over more costs of funding their retiree’s pensions that the state now pays in full.  If anything, it would force school boards to recognize that teacher pension liabilities flow from teacher salaries.

A good pension reform has been proposed by Rep. Tom Morrison (R – Palatine).  It’s  supported by the Illinois Policy Institute.  Unlike the Cross-Nekritz pension bill noted earlier, which puts pension payments ahead of other state spending and also prevents further reforms down the road, Morrison’s proposal (House Bill 3303) takes retirement out of the hands of politicians and gives control back to government workers by moving the state towards a defined contribution pension plan.  The bill would lock in the defined pension benefits that public employees have earned to date.  For any future service, employees and their employers would contribute to a self-managed 401k accounts just as private sector workers do.

With the worst funded pensions in the nation it is no longer possible for legislators to avoid pension reform.  Every day lawmakers fail to enact reform pension, state liability increases by $21 million.    

Fiscal order must be restored to the state.  Unsustainable pensions and unfunded liabilities are vice-like in their hold on Illinois by preventing a flourishing economy so an environment is created where businesses can thrive and create jobs.  

Morrison’s bill paves the way.  Contact Republican Leader Tom Cross and other state legislators, including your own, asking them to support HB3303 and to oppose Cross-Nekritz (HB 6258).


Thursday, March 14, 2013 at 11:30 AM | Permalink




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