Illinois state Sen. Dale Fowler pushes bill to undo ‘pension spiking’ restrictions
Senate Bill 3622 would reverse recently passed restrictions on pension spiking, raising the cap on end-of-career salary increases to 6 percent from 3 percent.
New restrictions on an expensive form of pension abuse, known as “pension spiking,” were one of the few bright spots of the recently enacted fiscal year 2019 spending plan. But if state Sen. Dale Fowler, R-Harrisburg, has his way, this taxpayer protection will be reversed before it has a chance to have an impact.
On July 25, Fowler filed a bill – Senate Bill 3622 – that would increase the pension-spiking cap to 6 percent from 3 percent, undoing a change made as part of the fiscal year 2019 budget. Government unions such as the Illinois Education Association and Illinois Federation of Teachers have voiced strong support for the bill.
Pension spiking – the practice of hiking an employee’s end-of-career salary to increase his or her lifetime pension benefits – has long been a problem in Illinois school districts.
Retirement benefits for Illinois Teachers’ Retirement System, or TRS, participants are calculated based on an average of an employee’s highest four consecutive years of salary within his or her final 10 years of service. Annual pension benefits can be as high as 75 percent of that amount. Because the state picks up pension costs for local teachers and university employees, local employers don’t bear the full financial consequences of inflating future pension benefits. In fact, during contract negotiations, school boards often use pension spiking as a tradeoff for other benefits that are paid locally.
A 2005 law originally sought to restrict pension spiking by capping annual salary increases in the last four years of employment to 6 percent of salary for TRS participants. Employers could still increase salaries by more than that amount, but they would pay a penalty to cover the costs resulting from pensions spiked above the cap.
Unfortunately, this 6 percent restriction effectively encouraged officials to spike salaries right up to the cap.
Rather than serving strictly as a ceiling, some school districts treated pension spiking as a matter of course. For example, union contracts in Palatine Community Consolidated School District 15 and Crystal Lake Community Consolidated School District 47 essentially guaranteed annual raises of 5 to 6 percent for teachers near retirement.
Other districts, such as Glenbard Township High School District 87, had exceeded the 6 percent cap on late-career salary increases, putting local taxpayers on the hook for $164,198 in penalty payments to the state – which come on top of the cost of those salary increases. Schaumburg Community Consolidated School District 54 has paid more than $1.2 million in penalties for spiking dozens of employees’ pensions.
School districts across the state paid more than $50 million in penalty payments since the 2005 law was passed, according to an investigation by the Illinois News Network.
While some claim pension spiking can be an important tool for attracting talent, pension benefits for TRS participants are already extremely generous. An Illinois Policy Institute report found that the average recently retired career teacher in Illinois receives a $73,300 annual pension benefit and can expect a total of $2.2 million in lifetime benefits.
The best option is for local employers such as schools and universities to pay the full amount of pension costs they incur, to properly align incentives to keep pensions affordable.
The lowered pension-spiking cap included in the state’s latest budget was a small step in the right direction, with savings up to $22 million projected in the coming fiscal year. If local officials adhere to the new cap, rather than pay penalties for violating it, local taxpayers will see savings as well.
Fowler’s bill would be a step backward for taxpayers.