By: Mark Glennon*
Public union leaders forever pound their chests about wealth inequality and how our pension system protects the middle class. In fact, Illinois public pensions may be the worst tale of two cities. The gluttony bankrupting us is at the top, which includes union leadership, but it’s very a very different story for the rest.
A great new research piece on Teacherspensions.org, a project of Bellweather Education Partners, looks at it for Illinois teachers. Remember from earlier stories that the average member of the state’s teacher retirement system retiring now after working 33 years for 3/4 of a year gets a pension of $67,000 per year, and that about 3,400 in that system get pensions over $100,000 per year. Also remember that Tier 2 teachers — those hired after 2010 — are forced to pay extra to subsidize older, Tier 1 members who get far more generous benefits. (They’ll pay $6.75 billion towards the Tier 1 unfunded liability over the coming three decades. 21% of what they pay in will go to those older workers’ pensions, as detailed here.)
But the study goes further and shows just how rigged the whole system is. Among its other findings:
- A teacher hired after 2010 (in Tier 2) must serve at least 26 years in order to “break even” and earn a pension worth more than her own contributions.
- Over three-quarters of those new Tier 2 teachers are expected to leave with negative net benefits. Moreover, Illinois teachers do not receive Social Security, and a stingy refund policy results in a penalty for teachers.
- Illinois teachers would fare better under an alternative retirement plan such as a smooth accrual cash balance plan, which would allow all teachers to receive a positive return no matter how long they stayed.
Similar inequity runs through all Illinois pensions. Our pension system is a farce. Public union leaders defending it are hypocritical gluttons.
UPDATED: in the bullet points, to emphasize and clarify that they relate to Tier 2 teachers.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.