ERO (Early Retirement Option): How the IEA + Politicians Plunder Taxpayers for $1 Billion

Teachers already retire early – why do they need an option to retire even earlier?

Well if you are a public union (IEA – Illinois Education Association) and you give politicians over $50 million in political contributions since 1995 you can ask for and receive just about anything you want.

The ERO is one of the most pernicious giveaways because it confounds the taxpayer by taking money from all over the place. And when you add it all up it comes to $620 million from local taxpayers and at least $505 million from state taxpayers and that’s only thru 2010: it’s scheduled to continue thru 2013.

Under current law unless you have 35 years Service Credit (NOTE: for more than 90% of TRS retirees Service Credit is more than actual years worked) you cannot receive your full 2.2% of salary for each year of Service Credit. It is discounted by 6%/yr for each year under age 60. So if you wanted to retire at age 58 (TRS average) with 25 years Service Credit (TRS Average – 55% of salary) and did not have ERO your pension would be reduced by 12% (2 years under age 60 times 6%/yr).

So with the ERO law passed in 2004 teachers can retire as early as age 54 with less than 35 years Service Credit and not be penalized by the 6%/yr discount.

Table 1: ERO School Payment vs. Career Employee Contributions.

Here is an example of how the taxpayer is being ripped off for absolutely no reason.

Note that in every case but one the ERO payment by the local taxpayer (school district) to allow the employee to retire without a discount exceeds the total amount paid in to the pension system by the employee during his entire career!

Note:  “-” Indicates Records without available data.

Table 2: Total School District Cost Final Year of Employment.

A $772,000 cost for one employee for one year? How is that possible?

It’s possible because of the complete lack of transparency by local school boards. Shouldn’t this kind of expenditure have an open meeting with public input before it is approved? If you had a $772,000 contract for a roof repair you’d have all kinds of meetings and debate before the money was spent. But when it comes to the 80% plus of the budget representing employee compensation everything is done behind closed doors without public comment.

The following two tables show the amounts involved using the Top 20 ERO abusers. These abusers are not alone – more than 12,000 retired TRS members have received ERO payments and more than 900 of those have been greater than $100,000.

How much do teachers’ pay for the ERO millions?

Turns out, not much.

The top man on our list, Neil Codell retired in 2009 and at the employee ERO cost of .4% of salary would have paid in about $56,000 on his $1.4 million in salary from 2005 thru Jan1, 2009 when he retired. I say would have because his employment contract actually called for the school district to pay his entire pension contribution so he paid zero.

So assuming he paid $56,000 what would he have received in return?

First, of course, is the $367,091 TRS contribution for his ERO paid for by the generous taxpayers of Niles District 219. So there’s s 7 to 1 return on investment right off of the bat.

Secondly, because he was only 56 years old when he retired the ERO calculation erased the 24% discount he would have had to take if retired four years before full retirement age of 60. This increased his pension by $39,000 per year plus the 3%/yr COLA for c ash annuity cost of about $975,000.

So for no reason and beyond all logic and fairness we, the taxpayers, gave a man making $411,000/yr a taxpayer funded bonus for early retirement worth more than $1.2 million.

And teachers claim these payments are guaranteed by the constitution.

If that’s not an example of economic insanity I don’t know what is.

End ERO now; do not wait until 2013.

Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this mail address.

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