Pay-hike penalty bill might be paying off
Since the state passed legislation aimed at curbing big raises for pre-retirement employees, the University of Illinois has paid more than $2.6 million and area school districts together have paid almost $900,000 in penalties to state retirement systems.
Known as the "6 percent rule," the 2005 law requires public school districts and state universities and community colleges to pay retirement systems for increased costs associated with the padded pensions employees will receive from getting raises over 6 percent in their pre-retirement years.
The legislation was prompted by growing criticism of the practice of boosting salaries, sometimes by as much as 20 percent, just before someone retired. Schools and colleges gave the raises, sometimes as an incentive for high-earners to retire, allowing schools to hire younger employees at lower salaries, but retirement systems were on the hook for those higher pensions.
"They couldn't flat out eliminate (pension) spiking, but ... if it occurs, if there were any increases over 6 percent, employers would be liable for the liability," said Jeff Houch, legislative liaison with the State Universities Retirement System.
When it was introduced, the bill was not a controversial one, said Urbana school board President John Dimit.
"People recognized that folks getting huge bumps at the end of their career was not appropriate," he said. Especially as unfunded liabilities of state pensions grew.
According to a News-Gazette analysis, some school districts — like cash-strapped Urbana — have significantly reduced the amounts paid in penalties to the Teachers Retirement System of Illinois. (Urbana has paid a total of about $98,000 since 2005). Unit 4 in Champaign has paid about $224,000 total. Across the county line in Danville, where a number of top administrators retired in recent years, the district has paid more than half a million dollars since 2005 to the retirement system for exceeding the 6 percent cap.
University of Illinois payments to the State Universities Retirement System peaked in 2011, when the UI paid approximately $585,000 in 6 percent penalties. (That was the year the university, facing delayed appropriations from the state, offered a voluntary retirement incentive program to employees.) Although payments have backed off their highs, the university system continues to pay SURS for raises above 6 percent. It paid $158,837 in penalties for 2013, according to data from SURS.
"Generally the 6 percent rule has done what it intended to do: limit pension spiking and if spiking occurs, which the legislature defines at 6 percent, the employers are cognizant to do everything to avoid it," Houch said. "If they can't avoid it, they have to pay."
At the UI, each department or unit is responsible for bills triggered by the 6 percent rule, allowing those with access to more discretionary funds to compensate certain employees. The UI's big bills have come from raises given to high-level administrators such as UI President Bob Easter, retired athletic director Ron Guenther, former vice presidents Chester Gardner and James Weyhenmeyer, and more, The News-Gazette found. Since 2005, the total number of UI employees whose pre-retirement raises were over 6 percent and prompted the university to pay SURS came in at 207.
Because "units pay for it themselves, it's really a self-policing thing. ... Units are very conscious of this," said Maureen Parks, UI associate vice president for human resources. "They end up having to pay the bill, so there's responsibility and accountability," she added.
The Danville school district's payments to TRS for 6 percent liabilities peaked in the fiscal year ending June 30, 2010, with $210,000 in payments, but have eased off their highs, with $50,924 for the fiscal year ending June 30, 2013. Some of the biggest bills came from raises the district gave to former administrators, including $81,425 for former superintendent Nanette Mellen, $72,171 for former Danville High School principal Marla Bauerle-Hill, $40,516 for former Cannon elementary school principal Johnnie Carey and more.
Between 2008 and 2010, the district saw many administrators retire. Although some union contracts were exempt from the legislation, letting some districts avoid big penalties for raises already promised to employees in bargaining units, those not grandfathered in were raises promised to administrators and other nonunion employees, said Danville schools Superintendent Mark Denman.
In the early years of the law, many schools and universities were able to avoid paying penalties due to the several exemptions or waivers outlined in the legislation. And those exemptions explain the gap between the amounts the Teachers Retirement System and State Universities Retirement System have billed employers and how much they collected. TRS, for example, has billed Illinois schools districts more than $145 million since 2005, and received $33.7 million. SURS billed approximately $25.8 million and received nearly $6.4 million since 2005.
Most of those exemptions or waivers have since expired. One exemption was when someone received a job promotion during the pre-retirement years, and the law outlined what specific criteria must be met in order to be granted the exemption, such as a faculty member receiving tenure or a civil service employee moving up to a new classification. Another expired exemption was for taking on overload or extra teaching duties.
An exemption related to collective-bargaining agreements will expire June 30, 2014. Once that date rolls around, the college or district becomes liable for the increase, even if they're still under a collective-bargaining agreement, Houch said.
Of the bills SURS sent to the UI under the 6 percent rule, the university ended up having the total reduced by about 84 percent, Parks said.
Because most of the exclusions have now passed, the expectation is there will be less and less room for appeal in the future, she said.
Most collective-bargaining agreements that provided for pay boosts over 6 percent in pre-retirement years have since expired, and that is the case with Champaign's Unit 4 school district, said district attorney Tom Lockman.
In 2005, TRS billed Champaign schools $482,692, but the district ended up paying no penalties because the bargaining agreement at the time, which provided for big raises toward the end of an employee's career, was covered under the law's exemption.
Local schools cut back
Dimit said the law did have some unintended consequences.
"The 6 percent maximum became the expectation for bargaining," he said, and after the law passed in 2005 it wasn't uncommon for districts around the state to hand out 6 percent raises to employees in their pre-retirement years.
Those also appear to be on their way out, at least locally. The bargaining agreement that expired over the summer between Unit 4 schools and teachers promised teachers 6 percent raises for the four years before retirement. The new one does not call for any retirement incentive. Neither does the Urbana district's current teachers' contract.
In the Danville school district, teachers, administrators and nonunion employees all can receive 6 percent raises for each year during their last three years with the district. The last day teachers and administrators can request the incentive is June 30, 2015.
It almost didn't happen. The school board narrowly approved the proposals last year, with some criticizing the incentives as doing "nothing" other than boosting pensions.
"It's clear the intent of the board is we will not have that in future contracts," Denman said.
The total amount the Teachers Retirement System has billed districts has declined over time — from as much as $31.1 million in fiscal year 2007 to $6.3 million in fiscal year 2013.
"We really just administer the system. The statistics speak for themselves," said Dave Urbanek, TRS spokesman. "The intent of the General Assembly was to limit large increases, especially at the end. ... And the fact that we're not finding as many as we used to, people can come to their own conclusions on whether it's working or not."
Top 10 UI employees who generated bills under the '6 percent rule'
|Name||Amount UI paid SURS*|
|Robert Easter (Administration)||$158,865|
|Wayne Banwart (ACES Administration)||$114,118|
|Ronald Guenther (Athletics)||$97,407|
|Chester Gardner (Administration)||$93,551|
|Donald Layman (ACES)||$82,378|
|James Stewart (UIUC)||$80,662|
|George Gertner (ACES)||$77,259|
|Philip Best (ACES Administration)||$73,147|
|Patricia Wager (UIC Medical Center)||$72,335|
|James Weyhenmeyer (Research Admin.)||$65,013|
|*Amount represents value of increase of benefit for raise over 6 percent.|
Adding up the '6 percent rule' bills
Information from: State Universities Retirement System and the Teachers Retirement System. Reasons for the difference between amounts billed and amounts received include exemptions allowed under state law, such as collective bargaining agreements, promotions, overload works such as coaching or summer teaching, and other reasons.
|All SURS employees|
|(Figures for all Illinois public universities, community colleges)|
|Number of bills||Amount billed||
Amount paid to SURS
|1,923||$25.8 million||$6.4 million|
|University of Illinois|
|All TRS employees|
|(Figures for all Illinois public schools paying into TRS)|
|Champaign School District|
|Total paid by district: $224,304|
|Urbana School District|
|Total paid by district: $98,320|
|Danville School District|
|Total paid by district: $559,638|