The media continue to publish inaccurate statements about the pension systems in Illinois. I would like to set the record straight.
What is TRS?
The Teachers’ Retirement System - established in 1939 by the state to protect retirement security of Illinois educators.
Why is there a problem with the pension funding?
Studies, task forces, etc., have all concluded the same thing: the state has not paid its required contributions. In 1996 legislators recognized this and passed a law requiring an increase in contributions each year to bring the pensions up to their required funding level of 90 percent. Then the legislators broke the law and made partial payments. Think of it like your credit card bill – if you fail to make a payment or merely pay the minimum, you are assessed fees, thereby increasing your bill. That is what the state of Illinois has done to itself.
For 2011, the state owes TRS $2.4 billion. Only $715 million would be required to pay this year’s contribution if the state had been paying its bill each year. But, another $1.7 billion is needed to make up for past unpaid costs.
Do teachers contribute to their pension?
Absolutely – teachers and administrators contribute 9.4 percent of salary every year of employment. And school districts contribute .58 percent of total payroll. State contributions and investment returns add to the fund.
Since 1940, teachers and districts have paid 100 percent of their required contributions every year.
Do teachers get Social Security on top of their pension?
No, a decision made many years ago by the state ruled that Illinois would not be a Social Security state when it came to its teachers. Teachers do not pay into Social Security. In fact federal laws, known as Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) actually reduce a Social Security benefit a teacher earned in previous work and reduce any survivor benefits earned by a spouse. (These provisions have actually caused some people in the business world to dismiss the idea of moving into education.)
Wouldn’t it be cheaper to put teachers into Social Security?
No. Under Social Security, a teacher would pay 6.2 percent of salary; the district would pay a matching 6.2 percent. Currently, a teacher pays more: 9.4 percent and the district pays less: .58 percent. The district is required to pay less so more money can be used for educational needs of students.
A 2007 study showed that moving teachers into Social Security would cost school districts an additional $3 billion in the first 10 years (from 2008-2018). If Social Security had been implemented back in 2004, the additional cost would have been more than $900 million a year.
What about moving teachers into a defined contribution plan (commonly known as a 401k)? First, there are questions about how this could be done when the state decided years ago that teachers would not be a part of Social Security since they are given a defined benefit pension.
Second, the state would actually see an increase in what is owed to TRS. The current retirees would need to be paid as per law; yet, without contributions coming into the system from active teachers, the state would need to make up the difference. A 2008 estimate put that additional cost at more than $25 million in just the first year.
And, the underfunded amount has not been addressed and would still need to be paid.
Aren’t pension benefits high?
Out of 87,000 retired teachers in Illinois, 17,269 receive a pension that’s less than $20,000. A few administrators (only 2 percent of retirees) receive large pensions of more than $100,000.
Remember that people receiving a pension have spent up to 35 years educating students and are reliant on the pension promised to them many years ago by the state.
Cinda Klickna taught at Southeast High School, serves as secretary-treasurer of the Illinois Education Association, and is a trustee of the Teachers’ Retirement System.
What is TRS?
The Teachers’ Retirement System - established in 1939 by the state to protect retirement security of Illinois educators.
Why is there a problem with the pension funding?
Studies, task forces, etc., have all concluded the same thing: the state has not paid its required contributions. In 1996 legislators recognized this and passed a law requiring an increase in contributions each year to bring the pensions up to their required funding level of 90 percent. Then the legislators broke the law and made partial payments. Think of it like your credit card bill – if you fail to make a payment or merely pay the minimum, you are assessed fees, thereby increasing your bill. That is what the state of Illinois has done to itself.
For 2011, the state owes TRS $2.4 billion. Only $715 million would be required to pay this year’s contribution if the state had been paying its bill each year. But, another $1.7 billion is needed to make up for past unpaid costs.
Do teachers contribute to their pension?
Absolutely – teachers and administrators contribute 9.4 percent of salary every year of employment. And school districts contribute .58 percent of total payroll. State contributions and investment returns add to the fund.
Since 1940, teachers and districts have paid 100 percent of their required contributions every year.
Do teachers get Social Security on top of their pension?
No, a decision made many years ago by the state ruled that Illinois would not be a Social Security state when it came to its teachers. Teachers do not pay into Social Security. In fact federal laws, known as Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) actually reduce a Social Security benefit a teacher earned in previous work and reduce any survivor benefits earned by a spouse. (These provisions have actually caused some people in the business world to dismiss the idea of moving into education.)
Wouldn’t it be cheaper to put teachers into Social Security?
No. Under Social Security, a teacher would pay 6.2 percent of salary; the district would pay a matching 6.2 percent. Currently, a teacher pays more: 9.4 percent and the district pays less: .58 percent. The district is required to pay less so more money can be used for educational needs of students.
A 2007 study showed that moving teachers into Social Security would cost school districts an additional $3 billion in the first 10 years (from 2008-2018). If Social Security had been implemented back in 2004, the additional cost would have been more than $900 million a year.
What about moving teachers into a defined contribution plan (commonly known as a 401k)? First, there are questions about how this could be done when the state decided years ago that teachers would not be a part of Social Security since they are given a defined benefit pension.
Second, the state would actually see an increase in what is owed to TRS. The current retirees would need to be paid as per law; yet, without contributions coming into the system from active teachers, the state would need to make up the difference. A 2008 estimate put that additional cost at more than $25 million in just the first year.
And, the underfunded amount has not been addressed and would still need to be paid.
Aren’t pension benefits high?
Out of 87,000 retired teachers in Illinois, 17,269 receive a pension that’s less than $20,000. A few administrators (only 2 percent of retirees) receive large pensions of more than $100,000.
Remember that people receiving a pension have spent up to 35 years educating students and are reliant on the pension promised to them many years ago by the state.
Cinda Klickna taught at Southeast High School, serves as secretary-treasurer of the Illinois Education Association, and is a trustee of the Teachers’ Retirement System.
How is the Teachers’ pension the blame for the State’s financial quagmire if the State has consistently failed to pay its portion to TRS for years but, instead, has diverted its “constitutional and obligatory” contributions to other “operating expenses” and “special” interests? TRS has depended mostly upon income from its own responsible investments and its contributions from its membership throughout these years. “The majority of these trust fund monies – 72 percent for the period from 1982 to 2008 – are made up of employees’ contributions and investment earnings” (US Bureau of the Census, “State and Local Government Employee Retirement Systems”).
Nevertheless, Illinois has not paid its annual pension bill in full for decades but has used reverse compounding: “A pension plan's obligations are determined in part by the expected investment return on its assets. In the case of Illinois, that is 8.5%. So for every dollar not added to assets in time, the state is effectively borrowing from the [TRS] pension plan at 8.5% interest” (Business Week).
How many billions of dollars has the State of Illinois saved by not paying what the Teachers’ pension should have rightfully received? According to Bob Lyons, a TRS Board Trustee, “It is a number that could be debated, but our staff determined that since 1953, the State has saved $14,842,226,632 by not paying what the actuaries calculated we should have received. We have been the State’s credit card.”
I started teaching in 1977 for a paltry $17,200. Had a number of kids I truly enjoyed teaching, and, yes, a number of idiots. Who hasn't?Anyway, contributions - thankfully they weren't taxed top-line - over my career, were in the neighborhood of $180,000. I have no idea what the State was supposed to put in; what? 15% of that or so.
Anyway, I don't work in North Shore area of Chicago but a big farther west, Fox River. Last salary, or rather 4yr avg, in the neighborhood of $102,000. I am slated to collect north of $2 million in the next 20 odd years, and you know what, I'm worth every penny of it ! Should have been more. Age 56.5, and I am going fishing!
Clearly, the state's taxpayers will have to pony up the funds to fulfill the state's obligation to TRS. But let's freeze state obligations where they currently are, and start funding all pensions locally. Corporations are required to fund their own pensions costs in the private sector (even multi-employer plans are funded not by taxpayers, but by the private corporations), and school districts should be required to fund the pension contributions generated by their staff.
I understand this article is a commentary, not a legit news article written by an objective journalist, but I would like to have more information in answer to the last question. It seems more teachers today will retire with much greater pensions, and annual cost of living increases, than the already-retired teachers who receive pensions of less than $20,000 annually (witness the comment to this article from the individual who started teaching at $17,200 and finished with a high four-year average of $102,000; simple math offers that results in a pension of over $75,000 per year assuming the individual bought into the 2.2 system, plus annual increases of over $2,000 starting at age 60. Not bad, especially compared to a Social Security benefit of about $24,000 annually -- with no cost of living increases for the past two years -- based upon the same salary -- and starting at age 62, not age 56.5.)
I understand how important teachers are in our society. My simple math skills were honed by one of the Illinois teachers who retired with a pension under $20,000.
However, there is a very real chance they will take a big hit in retirement benefits. If you want to start taking precaution now against any possible reductions in your pension benefits, take control of, and regain confidence in your retirement; I suggest you start by reading this e-book "The Seven Deadly Sins of Teacher Retirement"
I can't post links in the comments but google The Seven Deadly Sins of Teacher Retirement and one of the first few links should take you to my site (teachersretirementhelp . com) where you can download it for free (as opposed to paying ten dollars for it on Amazon)
I do no begrudge anyone of fair retirement income, but come on let's get real about this and do what the private sector has done and change the program to defined contributions that are more sustainable and will not break the backs of future generations in increased taxes.