State legislation intended to force Illinois schools districts to think about big end-of-career salary increases for retiring teachers and administrators is having the intended effect. Districts now are opting not to give pension-boosting 20 percent annual salary hikes because they are required to pay the extra pension costs themselves and can't shunt them off on state taxpayers.
New teacher contracts signed in Champaign and Mahomet-Seymour are limiting end-of-career salary hikes to 6 percent, as permitted under the new law, for outgoing teachers. The Urbana School Board, which is in the middle of a three-year contract, is expected to revoke a board policy providing an extra salary boost for retiring teachers and administrators.
A teacher's pension is based on years of service and average salary over the final four years, so big pay hikes at the end can dramatically increase pension payments.
The legislative change, which also limited early retirement options, is expected to ease somewhat the growing financial pressure on the Illinois State Teachers Retirement System – at least until someone finds a loophole in the new law.
TRS executive director Jon Bauman said the rising pension costs caused by lavish pay boosts for retiring teachers were "not sustainable" over the long haul for a system that already was underfunded to the tune of $19 billion as of June 30, 2003.
Bauman noted that while big pay hikes for teachers were burdensome, a bigger problem was caused when school boards granted large retirement increases to highly paid administrators, particularly superintendents. He said many administrators were the beneficiary of big pay hikes that led to "windfall" increases in their pension benefits.
Meanwhile, teachers' unions, faced with the loss of a generous benefit, are being forced to bargain for more generous benefits elsewhere in their new contracts.
Pam Lindsay, director of human resources for the Mahomet-Seymour schools, said the teachers' union argued unsuccessfully for the continuation of two consecutive 20 percent salary increases for retiring teachers. Mahomet administrators, including current retiring superintendent John Alumbaugh, also benefited from the 20-20 provision.
But Lindsay said the district rejected the demand because "it could be megabucks" in terms of costs to the school system. Instead, she said the board approved a two-year contract calling for annual salary increases of 4.75 percent and 5.75 percent, with increases of 6 percent for two years for retiring teachers.
The Champaign schools agreed to three consecutive years of 6 percent increases for retiring teachers with at least 10 years time in the school system. The three-year contract calls for salary increases of 3.5 percent, 4.5 percent and 4.5 percent for others.
Teachers already in the retirement pipeline will continue to benefit from the old rules. In Champaign, that means a final-year 20 percent increase for those leaving at the end of this year. In Urbana, it means retiring teachers will get a lump-sum payment of .75 percent of their salary multiplied by the number of years the teacher worked in the district with a maximum of 20 percent.
The legislation discourages end-of-career increases for retirees by requiring school districts to make upfront payments to cover costs to the pension system for salary increases over 6 percent. The final formula has not been approved, but Bauman said it generally will be the salary cost in excess of 6 percent multiplied by years of life expectancy.
"The payments are not small," he said.
Beth Shepperd, assistant superintendent for human resources in Champaign, suggested that six-figure payments per employee would not be unusual if a school district continued the generous payment plans and said "we can't be at risk of this penalty."
School district employees obviously are not happy about the change in state law. After all, everyone likes to be on the receiving end of a such generosity, and some districts were so profligate they granted increases of 20 percent for four years to retiring employees.
While teachers and administrators are not prevented legally from continuing to receive excessive pay increases, it's revealing that school districts now faced with the prospect of footing the bill themselves are running away from them as fast as they can. Clearly, it wasn't all that wise an approach from the start.