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A matter of perspective, I suppose

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Illinois

Illinois school districts continued to pad pensions for retiring educators amid a two-year budget impasse and despite concerns about the state’s growing pension debts, highlighting the persistence of a problem that lawmakers have struggled to contain.

As the state’s budget stalemate entered a second year in the summer of 2017, some school administrators raised concerns about being able to to keep the doors open for the upcoming school year. Some talked about laying off teachers, cutting after-school activities or draining swimming pools. Others worried about depleting reserve funds. But through it all, the state’s locally controlled public schools paid millions of dollars in penalties each year directly to the state’s largest pension fund as a consequence of giving out raises and sick time in excess of the threshold set by a 2005 state law designed to discourage what is commonly known as pension spiking, an Illinois News Network investigation found.

“It’s inexcusable that school districts were spiking pensions at the end of their careers to the point where they’ve got to pay penalties,” said state Rep. Peter Breen, a Lombard Republican. “This data is Exhibit A for what’s wrong with Illinois’ pension systems.”

The whole point behind the state law wasn’t necessarily to stop end of career pay spikes, it was to make the local school districts pay for the costs of those spikes. If they decide at the local level that they want to entice some older workers to retire to make way for newer workers, shouldn’t that be up to them? If the GA wanted to fully stop these spikes, they could’ve outlawed the entire practice.

Look, this is undoubtedly beneficial information for local taxpayers to have, which they can use the next time their own school board members come up for election. But it’s not like they’re paying a criminal fine. They’re just being told to pay their own way.

* The Illinois News Network has published several stories about this topic like it’s some sort of gigantic scandal. Here’s another one…

Some McHenry County school districts continue to give employees big raises just before retirement more than a decade after a state law aimed to limit the practice was passed.

The county’s school districts have had to pay $619,833.92 directly to the Teachers’ Retirement System of the state of Illinois since 2014 for giving out raises and sick time allowances, according to TRS data obtained through the state’s open records laws.

Again, the law wasn’t necessarily aimed at limiting the practice, it was about making the locals shoulder the costs instead of making every taxpayer in Illinois do it.

* Another one…

Over the past five years, schools in the Metro East have paid hundreds of thousands of dollars in penalties for giving teachers in the twilight of their careers pension-boosting raises.

According to documents obtained via a Freedom of Information Act request, the Teachers Retirement Fund, Illinois’ public teacher retirement pool, has received $527,845.00 from school districts in East St. Louis, Alton, East Alton, Belleville, and Edwardsville for excessive pay increases and sick leave days.

* This one, however, concerns the state…

In just four years, the Illinois State Board of Education itself cost taxpayers an additional $592,619.69 in penalties because of end-of-career pension spiking for retiring staff. […]

Dora Welker, a division administrator with ISBE, made $95,000 in 2013. She made $132,500 in 2017. That’s a 39 percent salary increase. But her 2013 salary wasn’t what was used in the final calculation. Documents show Welker’s salary of $103,744 in 2014, nearly $9,000 more (a nine percent increase) than the year before, her 2015 and 2016 salary (which was virtually unchanged) and her 2017 salary of $132,490 (a 27 percent increase from the 2014 salary) was used in the calculation.

ISBE averaged out the salary from the final four years of Welker’s salary to be $108,175, or $3,124 more than what the average salary would have been if at the 6 percent annual cap. The difference, $3,124, is then multiplied with an actuarial factor of 16.6. The employer, ISBE, owed $52,147.91 for Welker’s 27 percent spike in four years.

Documents show Susan Morrison, a deputy superintendent and chief education officer at ISBE, had a salary of $158,881 in 2011. It increased to $216,940 by 2015. That’s an increase over the four years of 36.5 percent. That’s also $4,769 more than the 20 percent over four years, 6 percent a year, allowed without a penalty to the pension fund. Multiplying the difference by an actuarial factor of 14.7, and ISBE had to pay nearly $71,000 extra into the pension fund.

A spokesperson for ISBE said the reason for the larger than 6 percent salary increase at the end of an employee’s career is “generally the result of the distribution of compensable days, but can also include salary increases.”

ISBE should definitely be more careful about this.

posted by Rich Miller
Monday, Jul 23, 18 @ 12:16 pm

Comments

Give teachers a 401k style defined contribution plan and this problem goes away. Im betting they would be happier with that option anyways since then they have full control over their retirement money and they dont have to wonder how underfunded their pension plan will be in 30 years.

Comment by Maximus Monday, Jul 23, 18 @ 12:23 pm
I understand the purpose of the law… but payment for unused sick and vacation days at the time of retirement is counted toward that cap? Those sick days are accumulated over the course of a career, carefully saved so that you can be paid for surgical or medical leave. Does a promotional increase also count? So you shouldn’t promote anyone who is eligible to retire in 4 years? That’s age discrimination. What about increased duties such as extra curricular duties like coaching?

Comment by Thoughts Matter Monday, Jul 23, 18 @ 12:29 pm
If I’m reading this right they are talking about $1.1 Million between districts in three counties? As Rich said, I’d want to ensure that the districts can make a case for this, but it’s hardly busting the bank either.

The horror that public employees may receive some fair compensation!

Comment by Archpundit Monday, Jul 23, 18 @ 12:31 pm
The school districts are not completely local, rather (approximately) half state, half local. Sure, the local districts can pay for the increased salaries and increased pensions, but that takes away from something else, allowing the local districts and local administrators to whine that the state is not paying its share.
Shared cost does not work. Do we want to fund K - 12 locally or at state level?

Comment by Reality Monday, Jul 23, 18 @ 12:36 pm
Not that many districts gave end of career raises. The ones that did were usually saving money by getting the highly paid long term teachers to retire, and replacing them with beginning teachers at rock-bottom salaries.

Comment by DuPage Monday, Jul 23, 18 @ 12:41 pm
=== Im betting they would be happier with that option===

I’m betting money managers would be far happier.

Comment by Rich Miller Monday, Jul 23, 18 @ 12:41 pm
Since teachers at the top of the salary schedule often earn twice as much or more than beginners at the bottom of the schedule, school districts still save money by giving early retirement incentives and paying the penalty. They save big-league by replacing their highest paid teachers with the lowest paid newbies.

Comment by anon2 Monday, Jul 23, 18 @ 12:49 pm
Nothing prevents the local school districts from handing out as large a raise as they want. They’re just (more) on the hook now for the actual cost beyond this year’s salary.

I’m sure local school boards will want to call this line item out separately now, if they aren’t already. This means improved transparency, which explains why the teachers unions are against it.

Comment by City Zen Monday, Jul 23, 18 @ 12:54 pm
Sorry, anything that uses Jim Tobin is, at best, incomplete (while the top SS pension is $42K, Tobin didn’t mention the cap of $128K - without the cap there would be $100K SS pensions). Or, as in the case of Benjamin Yount’s 12/22/17 story (refuted by Bernie Schoenburg 12/27/17) about the pension of the retiring State Fair Manager ($44K, not $68K - a 35% error), is just so wrong one wonders about motives.

Comment by Smitty Irving Monday, Jul 23, 18 @ 1:06 pm
=Give teachers a 401k style defined contribution plan and this problem goes away. Im betting they would be happier with that option anyways since then they have full control over their retirement money and they dont have to wonder how underfunded their pension plan will be in 30 years.=

How much do you want to wager? I will wager the entirety of my future pension that you are wrong.

Maybe don’t try to speak for “teachers”.

3%-6% is not much of a spike, in the private sector they call that a crappy raise.

Comment by JS Mill Monday, Jul 23, 18 @ 1:06 pm
The two folks at ISBE mentioned had their pay increase over those years due, in part, to now jobs and responsibilities. They were not just pay raises. Now, the question really is, we’re these two worth that much money for what they did on a daily basis…

Comment by Blago's Hare Monday, Jul 23, 18 @ 1:54 pm
“New”, not “now” job responsibilities.

Comment by Blago's Hare Monday, Jul 23, 18 @ 1:56 pm
Maximus, anywhere teachers have had a choice, they reject the higher cost, inefficient D.C. plan and prefer the professionally managed DB plan.

Rich nails it as to who benefits from DC.

Comment by Arthur Andersen Monday, Jul 23, 18 @ 2:08 pm
==3%-6% is not much of a spike, in the private sector they call that a crappy raise.==

What is this “raise” you speak of? Seriously, though, for 6% I’d typically need a promotion. My spouse, who absolutely kicked behind last year and received an exemplary review, got 4%. That’s the typical automatic step/lane for teachers in my area, regardless of performance.

==prefer the professionally managed DB plan.==

My DC plans are professionally managed. Who’s aren’t? Fees are reasonable too.

Comment by City Zen Monday, Jul 23, 18 @ 2:41 pm
Please take careful notice of the people used as examples here. These are administrators. Please do not equate simple run of the mill classroom teachers with these extravagant practices. They are the peons who get what’s left over after administrators help themselves.

Pretty sick of the “assembly-line” teacher getting blamed for the boss’s generous salaries.

Please make that differentiation in your minds, readers.

Comment by Anonymous Monday, Jul 23, 18 @ 2:55 pm
CZ, if you are selecting the investments in your DC plan, it ain’t professionally managed unless you have a CFA and haven’t told us all, which I find unlikely. Also, define “reasonable;” whatever that might be, it’s not going to be “lower than DB.”

Comment by Arthur Andersen Monday, Jul 23, 18 @ 4:08 pm
AA - The asset classes offered in my 401k plan are no different than the pension funds, except for private equity. All are available for thorough review on the Morningstar website detailing management, returns, and fees. I even have one of those target funds, which I assume is professionally managed, albeit its performance has lagged my other investments. Go figure.

The state pension funds hold no secret recipe for investments.

Comment by City Zen Monday, Jul 23, 18 @ 4:46 pm
CityZ- without RE and PE over the last decade TRS returns would be significantly less then reported

Comment by Sue Monday, Jul 23, 18 @ 5:03 pm
CZ, pension funds pay 1 basis point for an S&P index fund-what do you pay? A lot more than that. Target date funds are irrelevant to this discussion, and of course the asset classes are the same, only the pensions have more in which to invest, as Sue points out.

Pensions, or any institutional investors, also have more choices than a DC participant, oversee their investments more closely, and that’s why every reputable study shows DB outperforms DC.

Comment by Arthur Andersen Monday, Jul 23, 18 @ 5:18 pm
Worked with Ms Welker years ago. Thoroughly professional, competent, and knowledgeable. She is part of the wave of retirees that ISBE will have a hard time to replace.
I wish her the best in her retirement.

Comment by Barrington Monday, Jul 23, 18 @ 7:30 pm