IL could save $500 million/yr by adopting WI administrator compensation plan.
We all know Wisconsin is in trouble financially and that they have trouble with their public sector unions just like Illinois. But as bad as things are in WI things are much worse here at home in IL. Adjusted for population WI deficit is $8.2 billion vs. IL $13 billion.
One reason WI is better off is the much lower cost of K-12 education expenses specifically salaries and pensions. If IL had WI salary and pension system our K-12 costs would drop by $5 billion/yr.
WI vs. IL Top 25 Administrator salaries:
The most striking thing you notice is in this table is the huge difference in cost with each of the Top 7 IL administrators costing more than $200,000 more than their WI counterparts.
The 2nd is the almost $5 million in added cost just for these 25 public employees.
The salary cost difference is obvious, why are the IL pensions so much higher?
The pension cost difference is due to several reasons one of which is, of course, the much higher salaries in IL compared to WI since in both cases pensions are a percentage of final salary. But other reasons pay a big part too.
1. Retirement age:
In WI full retirement age is not reached until age 65. In IL it is at age 55. Total pension payout for a 65 year-old Wisc. native would be about 50% less than the payout for his 55 year-old IL counterpart assuming their salaries were the same. Since IL salaries are much higher the difference is much greater than 50%.
2. Maximum payout:
In WI the maximum is 70% of final salary compared to IL 75% and of course that lower percentage is calculated against a much lower salary.
3. Annual accrual towards pension:
In IL the accrual is 2.2% of final salary (avg. last 4 years) for each year worked compared to WI’s 1.6% meaning for example that an IL employee with 27 years of service (the average for TRS) would receive 59% of a much higher salary compared to 43% of a much lower salary for his counterpart in WI.
4. Cost-of-living-adjustment (COLA):
In IL the COLA is always 3%/yr even if the Social Security COLA is zero as it has been for the last 2 years. In WI pensions only increase if investment returns are above a certain amount. So for the last few years there has been no increase. The highest COLA increase in IL for 2010 was $12,120, just slightly less than the $13,000 average Social Security annual payment.
5. No early retirement or sick-leave credits.
In IL, teachers and administrators can accrue up to 2 years of sick leave and apply those to retirement meaning, for example, they can work 33 years, use 2 years sick leave credit and retire at 55 on full pension. That means taxpayers have to pay for 2 more years of pension. Wisconsin has no pension credit plans: your pension is based upon years actually worked.
Annual pension cost for administrators (adjusted for population): IL = $353 million, WI $89 million.
According to IL state actuaries, taxpayers’ pension contribution for 2012 fiscal year beginning July 2011 will be 30.44% of teachers’ payroll. This compares to WI 11.3%, which includes 6.2% for Social Security and 5.1% for pension. Employees match the 11.3% compared to IL teachers average pension contribution of 8%.
It’s not complicated: Wisconsin’s lower salaries, later retirement age, higher employee contributions and lower pension accruals add up to a fair and affordable pension plan. It is obvious when comparing IL to WI that Illinois’ pension plans are neither fair (to the taxpayer anyway) nor affordable.
If we add the savings in salary and pensions to teachers and administrators IL could save $5 billion/yr by using the Wisconsin plan.
Here’s a comparison between WI and IL that shows the depth of IL’s problem:
Gov. Quinn should put on a cheese-head hat and go recruiting in Wisconsin.
Certainly the teachers and school administrators in WI could do a bang up job here in IL. Why not give them a chance?
Of course Quinn won’t do anything (well maybe don a cheese-head hat) about Illinois overblown and out-of-control education cost because he is a captive of the teachers unions as are most state Democrats and far too many Republicans. But it does show how IL bloated $30 billion K-12 education costs could be cut by billions if only a little common sense prevailed.
Wisconsin has taken a big step in controlling its out-of-control public employee costs and Illinois’ need is much, much greater. The financial time bomb is ticking while IL politicians sit on their hands refusing to recognize the depth of the problem.
In the meantime moving vans are speeding towards IL borders, carrying taxpayers and employers to other states including Wisconsin. Rome is burning and Springfield is fiddling.
So what’s new?
Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this mail address.