Illinois schools pay $8.8M in penalties for pension spiking
Illinois school districts paid out $8.8 million in penalties over two school years to cover salary and sick days in excess of what is allowed by law. Those are dollars taken from classrooms, but only hint at the full taxpayer cost.
Illinois school districts paid $8.8 million in penalties during two recent school years after spiking teachers’ final years of pay that then turn into boosted retirement incomes.
But the penalties only cover a fraction of the total cost from schools sending their retirees off with these parting gifts.
The penalties were paid to the Teachers’ Retirement System because the school districts exceeded 6% annual boosts in salaries and sick-day payments for educators who retired during the 2018-2019 and 2019-2020 school years.
A 2005 law sets that 6% limit per year. Any increase beyond that must be paid by the district. The law aims to prevent pension spiking, which occurs when employee compensation is inflated just before retirement to receive a higher pension than would otherwise be earned.
While the districts were penalized, the $8.8 million will fall far short of covering the costs to taxpayers from the inflated retirements. Districts pay a fraction of what they owe on paper, said Dave Urbanek, communications director for TRS.
“In the first 10 years of the program, 2005 to 2015, the excess salary contributions levied against school districts totaled $149.5 million, or an average of $14.95 million per year,” Urbanek said. “However, because of exemptions to the 6% threshold built into the law at that time, districts paid only $39 million during that decade, or an average of $3.9 million per year.”
That was a $110.5-million shortfall just during that decade into a retirement fund that now has only 46% of the funds it will eventually need to pay retired teachers. The TRS pension debt stands at $74.7 billion.
Since 2008, spending on educator pensions has grown by 458%, while general education spending is only up 17% in that time, adjusted for inflation.
Bipartisan legislation passed in 2018 lowering the cap from 6% to 3%. The 3% was never implemented but was projected to save taxpayers $21 million across all pension funds. The General Assembly brought back the 6% cap in the 2019 budget.
The Illinois Education Association, the largest teachers union in the state, led the charge to repeal the 3% cap. The group claimed it would’ve hindered the ability to attract and retain educators in Illinois.
The 6% cap doesn’t seem to matter, because it’s three years after the repeal and Illinois is grappling with a statewide teacher shortage. The shortage is impacting 88% of school districts, according to a 2021 survey.
Survey research shows that fewer than half of young teachers are able to correctly identify their pension benefits and only 2% know how much they contribute. This lack of knowledge about pension benefits casts serious doubt on the narrative that pensions are an important recruitment tool.
Plus, Illinois spends nearly 40% of its education dollars on pensions.
Illinois’ strong teachers unions rolled back a bipartisan fix to pension spiking, plus saw their demands met for excessive retirement benefits that now take dollars out of classroom instriction.
But the union bosses aren’t satisfied: now they want Amendment 1, an attempt to get union and strike powers written into the Illinois Constitution. If they succeed in convincing voters Nov. 8 to pass the amendment, Illinois will be the only state that grants government unions power to bargain, and potentially strike, over a nearly endless array of topics.
That increased power would not just be seen in pension spiking penalties, but in residential property tax bills.