By Bill Zettler
Just because you read it in the papers doesn’t mean it’s true.
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There are many supporters of the current pension system including union members, union leaders, state bureaucrats, investment advisors not to mention various and sundry politicians. Between and among them is a long history of misinformation and lack of transparency when it comes to disclosing real facts about the Illinois state pension systems.
Here are three of the most egregious examples.
No, the pension system is not unfunded by $78 billion because of short payments by the state.
This particular myth is especially popular with teachers and their union bosses and subsequently by their lackeys in the media. The myth goes something like this: over the years, the state has not made payments in full, has skipped payments etc and that is the cause of the funding shortfall. In other words it’s the taxpayers fault.
Unfortunately for the mythmakers we have numbers to dispute that claim. Each year state actuaries are required to calculate an amount called the Net Pension Obligation (NPO). It is defined as follows: “NPO represents the cumulative difference between the annual pension cost and the actual contribution to the plan.”
In layman’s terms the NPO is the state’s “Past due” amount accumulated over the years.
As of 2009, the NPO for the state pension funds represents about 25% of the $78 billion shortfall. In other words 75% of the unfunded is NOT “past due”, it is the result of other factors including $29 billion for investment return shortages and excess employee compensation since 1996.
And by the way, over the last 10 years the tightwad taxpayers have paid more than twice as much into the system, including interest, as the employees have paid in. How much more than 100% more should we be obligated to pay?
Average pensions seem low because they include all the retirees who worked only part time.
For K-12 teachers you can receive a pension with as little as 5 years work. Pensions are also available to substitutes, part time teachers and hourly paid teachers. For state employees more than 80% also receive Social Security. This lowers the average pension substantially.
So the $43,000/yr average pension for teachers that is constantly being hawked by union leaders and reporters should be compared to the average Social Security pension of $12,800 not to the pensions of private sector workers who work full time for more than 40 years to receive their pension.
In fact over 10,000 members of the TRS (Teachers Retirement System) currently have pensions of over $75,000/yr which means in 10 years, because of the 3% COLA, everyone of them will have pensions in excess of $100,000. That means by 2020, with the ever escalating salaries, there will be about 20,000 members of TRS with pensions over $100,000 paid for by the generous taxpayers of Illinois.
There is a huge surplus of teachers – not a shortage.
One of the oldest and most persistent myths is that we have to pay teachers more and let them retire early and make them millionaires when they retire because there is an acute shortage of them. This is patently false.
Every year the Illinois State Board of Education (ISBE) produces a report titled: “Educator Supply and Demand in Illinois”. This report lists in detail how many teachers are needed and how many the state actually produces. In 2008 for example we produced 28,000 certificated regular teachers and 12,000 substitute teachers or 40,000 total.
How many do we need? About 12,000. So last year alone we created 16,000 more teachers than we needed and if you include the substitutes we created 28,000 more than we needed. Since a teaching certificate in Illinois is good for five years we have at least 75,000 certified teachers not teaching in public schools. And if certified substitutes only make $100/day why do we have to pay the people they are substituting for $1,000/day?
And no, teachers are not leaving in droves because the job is so difficult. In fact they are staying in record numbers. The ISBE report also calculates the retention rate of teachers. It is about 95%, higher than any other white- collar job. You would have to be nuts to walk away from the huge salaries and pensions handed out by Illinois public schools.
And by the way, ISBE says the number of students is decreasing and will continue to decrease in the future. Doesn’t that mean we will need fewer teachers as we go forward?
What the next governor should do.
The next governor should use the power of the executive branch to demand more transparency and accountability. We need all pensions on the Internet, sortable by amount, department/school, number of years worked, total employee contributions made, etc. We need quarterly, timely financial statements from each pension fund.
We need summaries of actuarial reports in layman’s language with key items like who contributed how much, and what are projection costs 5, 10, 15, 20 and 30 years out etc.
Since the pension systems operate under the Dept. of Insurance, appoint taxpayer friendly people to the board of trustees instead of those benefiting from the pensions. For example, 6 of the 13 members of the TRS board are former teachers, an obvious conflict of interest, and hardly impartial taxpayer oriented decision makers.
And most importantly use the bully pulpit to demolish the pension and salary myths that permeate the bureaucracy and media.
Be like Chris (Christy). Tell it like it is and let the chips fall where they may.
Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this email address. Click here to read more by Mr. Zettler.
