Posted February 11, 2016 12:46 pm by Comments (13)

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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.

 

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Big Mike

I agree with you 100% Mark. We need to get everyone back to the tier 1 system.

nixit71
Nice to see the Tier 1 folks are back on their high horses again. Bravo, old chaps! The sad truth is that Tier 2 (or some derivative thereof) arrived 30 years late to the party. The core of Tier 1 benefits, the very foundation of every single pension up to 2010, is based on rules and assumptions made in the 1940’s. That’s a little known fact most Tier 1 folks will never fess up to. I’m not sure how folks expect assumptions from the WWII days to be effective today, but whatever. Our pension systems should have a tune-up every… Read more »
James Gordon
It seems to me you want to have it both ways! I’ve seen postings where you vehemently rail against the oft-cited average-pension statistics quoted for TRS and other IL public employee pension plans, stating quite emphatically that what should be cited instead are the pensions pertaining only to those who have devoted an entire (30-year?) career to teacher other such public employment. Now, you trying a different attack on that topic and essentially defending the “little guy,” the ones who’ve not devoted an entire career to public employment while simultaneously suggesting that the full-career pensioners gorge at their expense rather… Read more »
nixit71

The next mathematical equation the folks at teacherspensions.org need to solve is what happens when Tier 2 pensions fail the Safe Harbor test. I suspect that will result in a brand new unfunded social security liability or an alarmingly higher unfunded pension liability.

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