School districts and teachers should pay more toward pensions according to a new report from the Illinois Policy Institute.
Until recently the state paid districts’ “employer share” of teacher pension costs. Decades’ worth of unfunded liabilities compounded by budget deficits has left the state owing $43 billion to the pension fund. Several weeks ago the Illinois Teachers Retirement System also admitted the pension fund could be insolvent by 2029.
“State education dollars will continue to work at cross-purposes until the state stops paying the employer’s share of the normal cost of teachers’ pensions on behalf of school districts,” according to IPI researchers, who found that last year the state paid approximately $800 million toward pension benefits. School districts, however, paid only $50 million.
There is growing consensus Illinois’ teacher pension system must be fixed, “a huge change of position” from past thinking, said Collin Hitt, senior director of government affairs for the Illinois Policy Institute.
An Illinois teacher who retired in 2010 after 30 years of service, for instance, receives a starting annual pension of $60,000 with continuous annual raises, Hitt explained.
Paying the employer contribution of teachers’ pensions for school districts also makes the state responsible for spending decisions it does not control.
“While the state should continue to pay for the unfunded pension liabilities of years past, local school districts should pay for the normal pension costs of their employees moving forward,” said IPI researchers. “It is both fair and fiscally responsible for costs to be paid where they are incurred.” Local pension accountability is standard practice in New York, California, and even Chicago Public Schools.
Rather than make retired teachers give back portions of their retirement, Illinois Gov. Pat Quinn has moved to end state employer share payments to school districts for teacher pensions.
School district leaders opposed this shift, insisting it “destroy” public education. The IPI report, Playing Favorites: Education Spending Favors Wealthy, Suburban Schools, reviewed financial information for the state’s 866 school districts and found these claims were overblown.
Making school districts pick up the employer share of teacher pension payments is a good first step. The Illinois Policy Institute also recommends that teachers should also contribute to their retirement.
Teachers in two-thirds of Illinois school districts pay little to nothing toward their own retirement. Instead, those districts pay the “employee” share of retirement savings. If school districts stopped paying the employee share, and instead started paying the employer share, then 482 out of 866 school districts would see cost savings.
The average cost to school districts in Illinois for picking up the “employer” share of pensions would be just 3.7 percent of total expenditures.
“Taxpayers, teachers, administrators and students deserve a clear and understandable pension system, one in which incentives are aligned with cost savings,” according to IPI researchers. “Restoring pension costs to school districts is a matter of fairness and fiscal responsibility.”
Absent reform, state spending on the Teacher Retirement System will soon exceed classroom spending.
IPI’s Playing Favorites also found that the current state-funded teacher pension system favors wealthier school districts. If the practice continues, then funding and classroom aid for non-wealthy districts will be trumped by the need to fund pensions for teachers from wealthier schools.
“Today, every unit of government – from municipalities, to park districts, to Chicago Public Schools and state government – is responsible for paying the ‘employer share’ of pension costs. Only in K-12 education outside of Chicago is this not done,” said John Tillman, CEO of the Illinois Policy Institute. “Schools hire the teachers and set the salaries that determine pensions. But right now they don’t have to pay for the pensions…the state does. That means that wealthy school districts are having their highly paid teachers’ pensions subsidized by those who are not wealthy. They should be the same as the rest of government.”