School & District Management

Ill. Pension Woes Destabilizing Teaching Profession, Analysis Says

By Stephen Sawchuk — February 23, 2016 4 min read
  • Save to favorites
  • Print

Teacher-retirement systems are supposed to provide a measure of security in exchange for years of service. But for new teachers in Illinois, that’s looking increasingly unlikely.

Nearly a quarter of newly hired teachers will never vest in the state’s Teacher Retirement System, a new analysis says. What’s more, three quarters won’t even make back what they pay into the system.

Those statistics are the result of changes made by lawmakers in 2011 to scale back costs, according to the analysis, by Bellwether Education Partners, a Washington-based consulting firm.

For new teachers worried about the state of their future finances, the question might be: Is anybody in the state legislature listening?

The short answer, observers say, is probably not. Current pension-policy efforts in the state are focused chiefly on the problem that the teacher-pension system remains more than $65 billion in debt.

Though there’s a growing awareness of the challenges the pension situation poses for new teachers, “nobody is really thinking about what the long-term impacts are in terms of retention,” said Kent Redfield, a professor emeritus of public policy at the University of Illinois at Springfield.

“Public policy arguments and long-term effects are probably not going to drive the discussion of pension systems in the short term,” he said.

Scaling Back Benefits

Years of underfunding have left the Illinois teacher-pension system in the worst financial shape in the nation. It is only 41.5 percent funded, a liability that has compounded the state’s debts by contributing to lower credit scores and growing interest costs.

But the state is also constrained in what it can do to pare back its pension debts. A series of benefit reductions signed into law in 2013 were thrown out by the state supreme court last year.

A parallel reform effort, begun in 2011, put all new teacher hires on a “Tier II” plan with significantly less generous benefits than previously offered. It takes them longer to vest in the new plan—10 years rather than five—and they have to work until at least age 67 to be eligible for retirement, up from as young as 55 under the prior system.

So steep are the scale-backs that without adjustments, the Tier II plan could by 2027 fall afoul of federal rules requiring benefits to be at least as good the minimum benefit promised to workers under Social Security, according to news reports. (Most Illinois public employees do not participate in Social Security.)

The Bellwether analysis calculates that under the Tier II formula, teachers would need to work 26 years to “break even” on their contributions. And 78 percent of teachers will leave teaching before that.

Ultimately, that not only puts teachers’ financial futures at risk, but it also could have long-term effects on whether the state can ensure a sufficient, stable teaching force, said Leslie Kan, a policy analyst at Bellwether.

“It makes it a very precarious situation,” Kan said. “The state wants to have a robust teaching workforce but they’re reaching a point where teachers are going to push back.”

The Illinois Education Association declined a request to comment on the Bellwether report.

Gov. Bruce Rauner, who has in the past floated the idea of putting veteran teachers onto a plan similar to Tier II, has been unable to reach a budget agreement with Democratic lawmakers, hampering attempts to crack the pensions nut this year.

Though he and Illinois Senate President John Cullerton, a Democrat, tentatively agreed to a plan last month to curb public employees’ cost-of-living or pensionable salary raises, it has been railroaded by a disagreement over unions’ collective bargaining rights.

Though involving a distinct retirement system, pension costs have also played a central role in the recent contract disputes between the cash-strapped Chicago district and the Chicago Teachers’ Union.

Cash-Balance Solution?

But some policy analysts say that states like Illinois can fix their pension systems without necessarily having to shortchange newer teachers’ financial futures.

Both the report from Bellwether—generally seen as a proponent of pension-policy changes—and a separate one by the Urban Institute in 2015 propose shifting from defined-benefit pension plans to hybrid, “cash balance” plans. Like a traditional pension system, such plans would guarantee fixed returns, and contributions would be pooled and managed externally. But as with a 401(k), teachers would not have to vest in a plan and could take their investments if they left teaching.

The analysts argue that cash-balance plans would be far better for Illinois teachers who don’t stay in the profession for decades—though they would be less lucrative than the Tier II plan for teachers who do fulfill 37 or more years.

Such plans could also guard against future underfunding since they tie benefits to contributions.

But cash-balance plans have not been tried at scale for teachers, so research on them is limited.

Kansas, Kentucky, Nebraska, and Texas now use a cash-balance plan for some public workers. California offers an optional cash-balance plan for part-time and adjunct teachers.

In Illinois, Sen. Daniel Biss introduced legislation to authorize a cash-balance plan for public employees in 2012. But the legislation went nowhere, and Biss has no plans to revisit the issue anytime soon, a staffer from his office said via email.

The Joyce Foundation funded the Bellwether analysis. (The Joyce Foundation also provides funding to support coverage of the teaching profession in Education Week.)

A version of this article appeared in the February 24, 2016 edition of Education Week as Analysis: Ill. Pension Woes Destabilizing Teaching

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Classroom Technology Webinar
Academic Integrity in the Age of Artificial Intelligence
As AI writing tools rapidly evolve, learn how to set standards and expectations for your students on their use.
Content provided by Turnitin
Recruitment & Retention Live Online Discussion A Seat at the Table: Chronic Teacher Shortage: Where Do We Go From Here?  
Join Peter DeWitt, Michael Fullan, and guests for expert insights into finding solutions for the teacher shortage.
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Reading & Literacy Webinar
The Science of Reading: Tools to Build Reading Proficiency
The Science of Reading has taken education by storm. Learn how Dr. Miranda Blount transformed literacy instruction in her state.
Content provided by hand2mind

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

School & District Management 5 Things to Know About How the Culture Wars Are Disrupting Schools
Disruptions were more acutely felt in districts with more affluent and white students, but there weren't always clear-cut political lines.
6 min read
Illustration of neutral warning symbols, with two standing out in the colors red and blue.
filo/DigitalVision Vectors + EdWeek
School & District Management Divisive Politics Are Harming Schools, District Leaders Say
A new survey reveals how tough the politics are for some leaders, especially in the suburbs.
8 min read
Illustration of tug of war.
Illustration by Laura Baker/Education Week, SvetaZi, and iStock/Getty
School & District Management Leading a City School District Is Tough. A New Program Aims to Ease the Way
Its creators hope to drive down big-city superintendent turnover by preparing candidates for the stresses of leadership.
3 min read
Woman standing on a paper boat with a tsunami wave approaching.
iStock/Getty Images Plus
School & District Management 5 Tips for Switching From Snow Days to Remote Classes
Two district leaders say communication, flexibility, and adaptability are key to success.
4 min read
Close up of hands holding a smartphone and working at a laptop near a window showing a snowy day
iStock/Getty