Would you pay $15,000 over four years to get $1.3 million over the next 29?
In my last article “Pension Insanity” I documented how some teachers can get pensions more than twice their salaries. Unfortunately for us taxpayers, that’s not the end of the insanity.
At many school districts, the last four years of a teacher’s career is a goldmine of money. Most get 26% increases over the last four years (6%/yr compounded) and many get huge raises beyond that.
Since pensions are calculated on the four highest salaries these final four-year increases add mightily to the teachers pensions and as a byproduct millions and millions of dollars to the taxpayers pension cost.
Why do teachers get 6% increases each of their last four years?
Because under Illinois statute Public Act 94-0004 they can. Believe it or not, that law was put into effect to prevent schools from handing out 20% increases per year.
It has nothing to do with skill or work ethic or quality. You could be the best teacher in the school or the worst. Either way you get your 6% per year. It only has to do with the fact they are public employees with special political deals made with politicians who received over $45 million in political contributions from the Teachers Union. To see which politicians get the most from teachers see “Golden Handcuffs.”
Our headline teacher is not the only one to get this kind of pension increase.
The headline teacher is our 56 year-old $189,000 music teacher from Hinsdale High School who retired last year on a beginning pension of $130,000/yr. As I wrote earlier he actually paid less into his pension system than a self-employed person with the same salary would pay into Social Security. The difference is the teacher gets $130,000 at age 56; the self-employed person gets $21,000 at age 62. To see the comparison of Social Security to teachers pension see “Teacher Contributes Less…”
In the last four years of his career his salary went from $134,526 to $189,433. That 41% raise cost him only an additional $15,000 in pension contributions compared to what he would have paid if his salary had stayed at $134,526 but cost taxpayers $1.3 million in increased pension payments over his 29-year life expectancy. His 41% salary increase resulted in his first year pension going from $100,000 to $130,000. The resulting $30,000 annual increase is twice the $15,000 extra he paid in pension contributions. How’s that compare to your 401K?
Using the same formula for two other teachers we looked at recently results in similar numbers. For our $191,000/yr Phys Ed teacher outlined in “$1 Million Payout…” the amounts would be $16,000 increase in pension contributions for $1.2 million in increased pension payments. Then for our “$138 Per Hour 2nd Grade Teacher…” the contribution increase was $9,000 for $700,000 worth of increased pension payments.
Over their last four years these three teachers annual raises averaged 7.5%, 12% and 8% respectively.
Working taxpayers are getting 1.5% raises, Social Security retirees zero, why are teachers getting 6-12% raises?
Avoca District 37 in Wilmette just signed a new teachers contract guaranteeing a minimum of 6% increase each year for the next five years. Many teachers will get more than 6%. And since this is an elementary school district we know the contract calls for 6 hr work- days for 37.5 weeks/year.
According to the Economic Policy Institute average workers salary increases for 2010 will be 1.5%. I am certain the teachers would agree with this number because the president of the American Federation of Teachers, as well as the presidents of the AFL/CIO, SEIU and UAW unions, is on the board of directors of the Economic Policy Institute.
Federal employees will receive a 1.4% increase and according to Peter Orzag, President Obama’s recent head of Economic Policy:
“…frankly, I think to a lot of Americans that sounds pretty good.”
Part time employees with part time careers should not be getting multi-million dollar pensions.
By law teachers are supposed to work 35 years to receive the maximum 75% pension as opposed to 45 years for those of us in Social Security. As it turns out though, only 12% of the retirees since 2009 have actually worked 35 years although 38% have retired with 35 years or more credit.
How is that possible? It’s possible because politicians have riddled the pension laws with numerous goodies to allow teachers to retire early from what is already early retirement. Sick leave, which runs from 10 to 15 days per year, can be accrued up to 340 days or two years teaching credit even though the teacher never stepped into a classroom for those two years. Some school districts give teachers a year of sick leave free as part of their contract. Why do they care, they don’t have to pay the pensions. Our famous $189,000/yr Music teacher actually only worked 33 years but took 2 years sick-leave credit to get his mind-boggling $130,000 pension at age 56.
Then there is ERO (Early Retirement Option) that allows schools to pay into TRS to allow teachers to retire with full pension even though they have not worked the requisite 35 years. These payments often run into the hundreds of thousands of dollars with the largest being $361,096 for Neil Codell former superintendent at Niles District 219.
So we have tens of thousands of teachers working part-time jobs at 9 months/yr vs 12 months/yr for the rest of us and working careers that are typically less than 35 nine-month years vs 45 or more 12-month years for private sector workers. In the case of our $189,000 music teacher he actually worked in the classroom less than 25 years (9 months times 33 years) for his $130,000 pension.
What the next governor should do:
The next governor should “hit the reset button” on pensions on three fronts.
First, revert the pensions to the rules that were in effect in 1980 when the pensions were supposedly “guaranteed” by the Constitution. That would make a full pension of 70% available at age 66 and an early 60% pension at age 60. Although still a much better deal than almost all Illinois taxpayers receive, it would be acceptable to most people.
Secondly “Share the cost” between the employees and the employers. Whatever plan is approved part of the solution must be equal sharing of risk between the employees and the employers. The current plan where the taxpayers assume all the investment risk is unsustainable and unacceptable.
Thirdly, move the cost of pensions to the local school districts. If Hinsdale wants to provide a 56 year-old music teacher with a $1.3 million pension boost over the last four years of his career then why should taxpayers in Peoria pay for it? Hinsdale should pay for it because they caused it to happen. To offset the increase in property taxes, lower the income tax rate by 50%.
The taxpayers of Illinois want complete, comprehensive pension reform and they want it now. It’s not complicated – voters want public employees to have the same retirement and health care benefits as the private sector, no better and no worse.
Any politician who does not realize that will not be a politician for long.
Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this email address.