Illinois' early retirement fiasco
The mixed messages our local and state elected officials send are not only confounding but self-destructive.
Taxpayers have been hearing for years that Illinois' public pensions systems are careening toward bankruptcy and will eventually go under, absent dramatic change. Yet in the face of unchallenged numbers — roughly $95 billion in under-funding — the General Assembly has refused to act.
But if this inaction invites disaster, what is the public to make of the ultimate mixed message — while the state's Teachers Retirement System draws closer to the brink, local school systems continue to offer teachers early retirement incentives.
Given the non-stop drumbeat of news about TRS' financial fragility, some school districts are starting to pull the plug on them. Champaign schools ended their early retirement incentives for teachers in a recently negotiated teachers' contract while Urbana schools prepare to do the same.
But sprinkled throughout the state's 102 counties — Illinois has 862 school districts and there are no official numbers indicating exactly how many do so — are school districts that offer early retirement incentives in the form of multi-year pay increases of 6 percent. These increases are specifically designed to boost teacher pay on which pensions are based, exacerbating the TRS' financial problems.
Here's the conundrum. If TRS' future solvency is in question, isn't it crazy for school districts to boost the cost of pensions the TRS must pay. The answer, obviously, is yes.
Here is something even crazier — the self-destructive 6 percent increases were approved by the legislature in 2005 as a solution to a problem.And it was, of sorts, because what preceded the General Assembly's action were even more costly early retirement incentives that had gone viral across the state.
School board members then were cutting their payroll costs by offering highly experienced, more costly employees sizable end-of-career pay increases, like 20 percent a year for several years, to retire. In the process, the school districts were able to replace more experienced, higher-paid older teachers with less experienced, less costly younger ones.
TRS executives bitterly objected because more people were retiring with higher pensions. School districts didn't care because while TRS was picking up a bigger bill they were cutting employee costs.
But now local school districts are starting to care. That's because state officials, including Gov. Pat Quinn and House Speaker Michael Madigan, want to transfer the costs of teacher pension from the state to local school districts.
It's a circumstance that demonstrates two truisms:
— there is nothing that is so much fun as spending someone else's money.
— the law of unintended consequences.
When legislators limited school boards' profligacy by requiring that the district would pay the extra pension costs for any end-of-career increases above 6 percent, that put an immediate end to the 20 percent increases, but gave grounds to teachers' union demands for continued early retirement increases of 6 percent a year, a number often in excess of the amount negotiated by local district for teacher raises.
"When the state passed that rule of 6 percent, it became a very important bargaining point for (the Illinois Education Association)," said Urbana School Board President John Dimit.
Dimit said he personally objects to early retirement incentives because it drains talented employees from local schools and creates problems for the TRS. "We're being inconsistent by adding to TRS's problems," he said.
Dimit also conceded that it weakens the local school board's argument that pension costs should not be transferred from the state to them.
"It's a new reality," he said, noting that TRS financial woes are getting harder to ignore.
What's most troublesome, of course, is that it was clear that TRS was heading into deep trouble in the early 2000s. Nonetheless, local school board members plowed ahead with early retirement incentives — first with the bigger pay boosts and now with the 6 percent hikes.
But there's a rule in economics — if something cannot go on forever, it won't. The financial uncertainty surrounding TRS, talk of transferring costs of teacher pensions from the state to local districts, increased contributions by teachers, limiting or ending future cost-of-living increases have become harder to ignore. It's well past time that some local school districts have ended their early retirement incentives. But all school districts need to end programs that encourage people to retire early at higher costs to a system whose finances are on life support.