Setting the CTU straight on teacher retirement benefits

July 3, 2014
By John Klingner

Opponents of real pension reform often argue that government workers receive modest pensions. The Chicago Teacher’s Union, or CTU, is one such opponent. Under its FAQ page about teacher pensions, the union’s website states: “The average Chicago Teachers’ Pension Fund (CTPF) retiree earns $42,000 per year. Of the 87,000 retired teachers in Illinois, almost 1...

Opponents of real pension reform often argue that government workers receive modest pensions.

The Chicago Teacher’s Union, or CTU, is one such opponent.

Under its FAQ page about teacher pensions, the union’s website states: “The average Chicago Teachers’ Pension Fund (CTPF) retiree earns $42,000 per year. Of the 87,000 retired teachers in Illinois, almost 1 in 5 (17,269) receive a pension that’s less than $20,000.”

This language can mislead readers into thinking Chicago teacher pension benefits are lower than they actually are. The average pension for a recently retired career teacher in Chicago is $71,717.

The tough reality is that retiree benefits have grown to a level that’s no longer sustainable for the city budget or taxpayers.

The teachers who are earning high salaries and are granted large pension benefits did nothing wrong. They’ve benefited from labor negotiations and are entitled to every dollar they’ve already earned. But going forward, the city’s budget and its taxpayers can no longer afford to offer these benefits.

Let’s go through both of CTU’s claims in turn:

1. “The average Chicago Teachers’ Pension Fund (CTPF) retiree earns $42,000 per year.”

According to the Commission on Government Forecasting and Accountability, or COGFA, the average pension for a CTPF retiree was actually $46,440 in 2012. But neither the CTU’s nor COGFA’s number give an accurate picture of the pension benefits that Chicago teachers receive.

Average pension benefits are one of the most commonly used and misleading pension statistics. That’s because averages include both older retirees who’ve been retired for a long time and short-term teachers who receive relatively small pensions for their limited time working for Chicago Public Schools, or CPS.

A more appropriate and accurate way to measure of how generous pension benefits are is to look only at pensions for teachers who retired recently (within the last three years) and dedicated at least 30 years to working for city government. Career teachers make up more than half (56 percent) of all currently retired CPS teachers.

The average pension for a recently retired career teacher is $71,717 – a full $24,000 more than the average for all Chicago teachers. It’s also more than double the maximum Social Security benefit that private-sector workers who reach full retirement age can receive ($31,700).

In addition, the CTU leaves out how much earlier teachers retire compared to workers in the private sector.

Private-sector workers have to work until age 67 to obtain full Social Security benefits. Chicago teachers are able to retire in their 50s while collecting a majority of their final average salary.

Almost 40 percent of Chicago teachers retire before age 60. And career teachers retire, on average, at age 61.5, five-and-a-half years before Social Security’s full retirement age.

Another reality that CTPF must confront is that people are living longer, which means teachers are collecting more retirement benefits for longer than in the past. In all, a recently retired career teacher can expect to receive more than $2 million in benefits over his or her retirement lifetime.

2. “Of the 87,000 retired teachers in Illinois, almost 1 in 5 (17,269) receive a pension that’s less than $20,000.”

It’s true that almost one in five state-level teachers receive a pension of $20,000 or less. But those are state-level teachers – that number does not include CTPF members.

Looking at Chicago teacher retirees alone, only about one in six (4,117 of 24,831) receive pensions of $20,000 or less. And most of those retired teachers didn’t work in Chicago’s school district very long – 65 percent of them worked there for 10 years or less.

This makes sense. A teacher who taught for only a few years should expect to receive a smaller pension.

Impact of retirement benefits

The retirement benefits offered to teachers and other city workers are simply unsustainable. The cost of those benefits imposes higher burdens on taxpayers, forces cuts to city services and puts the retirement security of younger city workers at risk.

Going forward, the city needs to change the way it handles retirements.

The Illinois Policy Institute has a hybrid retirement plan for Chicago that does just that.