April 15 2012

Retired Illinois Teachers May Pay for Insolvency

Vicki E. Alger

Future and already retired Illinois teachers may have their pension benefits reduced because of the tight economy. A confidential memo from Illinois Teachers Retirement System Director Dick Ingram obtained by the State Journal-Register (Springfield) cautioned that the pension system, the state’s largest, has been inadequately funded for decades. With the state owing $43 billion, Ingram cited forecasts predicting the pension fund could be insolvent as early as 2029.

“If that is the case, the only other option available that would significantly change the amount owed is to reduce past service costs for active members and retirees,” Ingram explained in the memo. He told the State Journal-Register in a subsequent interview, “I’m really stuck,” he said. “I have to say that the math is not trueing up with what is constitutional or fair or earned or whatever else.”

A 1995 law requires the state to bring pension funding up to 90 percent by 2045. Ingram recommends scrapping Illinois’ law and following Ohio’s lead, including raising the retirement age, increasing members’ contributions, and reducing annual cost-of-living adjustments from 3 percent to 2 percent.

“What we’re saying is that the number is so bad is that you have to start having those conversations,” Ingram explained.

There is growing consensus that Illinois’ teacher pension system must be fixed, a stark turnaround according to Collin Hitt, Illinois Policy Institute Senior Director of Government Affairs. Two years ago, he explained, studies by Northwestern University, Carnegie Melon, and Boston University all showed Illinois’ teacher retirement fund was growing broke. Yet officials sought to discredit those findings rather than fix the problem. Hitt described the Illinois Teachers Retirement System’s position now “a huge change of position.”

An Illinois teacher who retired in 2010 after 30 years of service would receive a beginning annual pension of $60,000, according to Hitt. “This is an extremely generous benefit continued at taxpayer expense,” he said.

Taxing its way to teacher-fund solvency is not a viable option for Illinois, according to Heartland Institute Education Senior Fellow George Clowes. Raising taxes would bring per-pupil funding to more than $14,800. Teacher pension costs would account for 15 percent of that amount, more than $2,200.

Both Clowes and Hitt agree that Illinois’ 3 percent annual cost of living increases must be reduced, but that is only the first step. “Legislators will have to consider other options, too,” said Clowes, “including raising the retirement age, requiring higher employee contributions, and converting the system from a defined benefit system to a defined contribution system.”

Hitt concurred. “Nobody is paying their own share [of retirement],” he said. A return to fiduciary responsibility is the critical first step to real reform.

“While legislators have been only too willing to vote for increased benefits for teachers and other government employees,” said Clowes, “they have been unwilling to exercise their corresponding fiduciary responsibility to adequately fund those benefits. I fail to see why current taxpayers should be asked to foot the cumulative pension contribution bill for two decades of nonfeasance by Illinois legislators. Everyone should fund his or her own pension, especially if that pension is greater than that provided by Social Security, which is certainly the case for most teacher pensions in Illinois.”

 

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